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Meaning of bullish on interest rates

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TheMotorcycleBoy
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Meaning of bullish on interest rates

#252936

Postby TheMotorcycleBoy » September 20th, 2019, 6:02 pm

Apologies for the silly, newbie-ish sounding question.

However, I've just started reading a George Soros book called "Soros on Soros". In the bit I was reading last night, he is describing how he modifies his current "Investment thesis" based on the current economic climate, as he reads it. He then states, for a given hypothetical scenario:

At the beginning of this year, 1995, if you were bullish on interest rates, as we were, that is, if you believed that the Fed may have stopped tightening, you could make a lot more money in short maturities and relatively little in the long maturities because the short end performed much better than the long end.

Firstly what does he mean when he says you were bullish on interest rates? Does he mean that you think interest rates are going to rise or fall? Sorry to seem stupid, but for stocks I thought bullish meant "rise", but then when he continues with the Fed may have stopped tightening, that makes me think rates will stop going up. So he kind of he has be a bit puzzled.

Secondly can anybody explain the next bit where he leads on to the comparison of how much money could then be made on short vs long maturities?

(Note that in the next paragraph, he then remarks: We do from time to time go into what is called a yield curve trade. Not sure if this is relevant.)

Would certainly appreciate people's views on this,

thanks Matt

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Re: Meaning of bullish on interest rates

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Postby SalvorHardin » September 20th, 2019, 6:35 pm

Generally speaking "Bullish on interest rates" means that you anticipate interest rates falling, thus bond prices rising.

But iunfortunately it does get used to mean the opposite (rising interest rates), in the same way as being bullish on shares.

Yield curve trade. You're selling bonds of one maturity date and buying bonds with a different maturity, trying to exploit the difference in interest rates at different terms. Long dated bond prices move more than short dated bond prices when interest rates change (it's a discounted cashflow calculation).

As to Soros' writings, he shouldn't give up his day job. He's not a good writer. I've struggled to read his stuff (waffles, over complicates things, uses ten words where one will do, etc.).

Just because someone is great at doing a particular thing it doesn't mean that they are good at other things. I recommend Buffett, Peter Lynch, Phil Fisher, for good investment writers.

Soros calling his theory "The General Theory of Reflexivity" is pure physics envy. It's a knockoff of Einstein's title in an attempt to make it seem amazingly important (all reflexivity is positive feedback, a concept well known to engineers).

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Re: Meaning of bullish on interest rates

#253009

Postby TheMotorcycleBoy » September 21st, 2019, 8:24 am

Hi Salvor,

SalvorHardin wrote:Generally speaking "Bullish on interest rates" means that you anticipate interest rates falling, thus bond prices rising.

A ha. I believe this must how Soros was using the term "bullish", reinforced by his subsequent "the Fed may have stopped tightening". It seems to indicate that one is being bullish on a money market instrument whose behaviour is linked that of interest rates, i.e. short term bonds.

I *think* that when he then states make a lot more money in short maturities and relatively little in the long maturities because the short end performed much better than the long end he means in such conditions the prices of short term bond rises, where as (in all likelihood) those of long bonds falls as the reduction of tightening pulls the money off the safe haven investments back into risk assets.

But iunfortunately it does get used to mean the opposite (rising interest rates), in the same way as being bullish on shares.

And that's what threw me initially.

Yield curve trade. You're selling bonds of one maturity date and buying bonds with a different maturity, trying to exploit the difference in interest rates at different terms. Long dated bond prices move more than short dated bond prices when interest rates change (it's a discounted cashflow calculation).

Ok, yes that makes sense.

As to Soros' writings, he shouldn't give up his day job. He's not a good writer. I've struggled to read his stuff (waffles, over complicates things, uses ten words where one will do, etc.).

So far, I'm getting on very well with "Soros on Soros". It's written as an interview (i.e. a dialogue). Hence he tends to be reasonably terse. To be honest, me being a bookworm and a some-times fan of auto+biography, I'm as much interested in his history, and philosophical ideas as his investment writings.

The details of just how driven by emotion by guy is/was over the decades I find quite remarkable. I've just read a part where he discusses his fund (particularly when it was the Soros Fund, not the Quantum Fund) became a complete obsession, like a part of his soul. On one hand, he states that he needed the success of the Fund, because it gave him a feeling of security, but then how he felt "security" could be his undoing, because he'd then become complacent. Then further describes the fund (seemingly a cancerous growth on him) as either being his route to success, essentially *his* slave, or him actually being a slave of the fund. I enjoy his openness and the window he offers onto the human mind.

Just because someone is great at doing a particular thing it doesn't mean that they are good at other things. I recommend Buffett, Peter Lynch, Phil Fisher, for good investment writers.

I've read some WB, e.g. some of the "Letters to shareholders" and similar words. I enjoy and agree with his underlying themes, e.g. the management having the owner's eye, and the simple :lol: mantra "find excellent high quality companies and buy them cheap". FWIW I read the B. Graham's "Intelligent Investor" and found this useful in a similar way to WBs stuff. I'm yet to read any of Peter Lynch, though he has been strongly recommended.

Soros calling his theory "The General Theory of Reflexivity" is pure physics envy. It's a knockoff of Einstein's title in an attempt to make it seem amazingly important (all reflexivity is positive feedback, a concept well known to engineers).

Ha ha! Yes. Though to be frank, whatever he calls it, I find that his underlying behavioural analysis is well worthy of appreciation.

Matt

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Re: Meaning of bullish on interest rates

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Postby odysseus2000 » September 23rd, 2019, 8:09 pm

Imho, Soros and Buffett superficially present two near orthogonal investment/trading tactics.

Buffett likes to emphasise long term buy and hold, Soro's tends to be more of a trader and has sophisticated traders working for him.

But Buffett made a lot of his fortune via arbitrage and has only more recently become so financially huge that he has had to change tactics to both buying small good business and buying leading companies.

Soro's although a trader has longer term thesis such as his support of more global integration, EEC etc.

The other factor to remember is that successful folk often become deluded and believe they have been extraordinarily skilled rather than being born at fortuitous times.

Historical accounts can be very interesting to read, but one should remember that investment/trading is all about the now and what is happening now, what happened before can be a guide but to follow it blindly will likely lead to trouble.

Regards,

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Re: Meaning of bullish on interest rates

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Postby TheMotorcycleBoy » September 24th, 2019, 7:13 am

odysseus2000 wrote:Imho, Soros and Buffett superficially present two near orthogonal investment/trading tactics.

Yes. Definitely indeed Soros makes that very point in the opening of "Soros on Soros".
Buffett likes to emphasise long term buy and hold, Soro's tends to be more of a trader and has sophisticated traders working for him.

But Buffett made a lot of his fortune via arbitrage and has only more recently become so financially huge that he has had to change tactics to both buying small good business and buying leading companies.

Soro's although a trader has longer term thesis such as his support of more global integration, EEC etc.

Uh huh. The other difference between Soros and Buffet (and probably mainly other famous investors) is that whereas the others seem (attempt to) operate in an enviroment devoid of emotion or gut feel, whereas from my reading GS actually thrives on his emotions and nervous system. This is from his son, Robert, similar views reflected in "Soros on Soros":

According to his son, Robert, Soros’s trading was always influenced by more than reflexivity. “My father will sit down and give you theories to explain why he does this or that”, he once said, “but I remember seeing it as a kid and thinking, ‘Jesus Christ, at least half of this is bullshit’.

“I mean, you know [that] the reason he changes his position on the market or whatever is because his back starts killing him. It has nothing to do with reason. He literally goes into a spasm and it’s this early warning sign.”

Soros has admitted to relying greatly on “animal instincts”, saying the onset of acute pain was often “a signal that there was something wrong in my portfolio”.

His decisions, then, “are really made using a combination of theory and instinct”.

https://thereformedbroker.com/2016/06/0 ... ros-today/

The other factor to remember is that successful folk often become deluded and believe they have been extraordinarily skilled rather than being born at fortuitous times.

Definitely. I think that holds especially true for Buffett. Who, if I'm right is now buying back BRK stock, since, perhaps he is low on ideas in the current environment, though arguably he's probably getting a little old for it?

Historical accounts can be very interesting to read,

Crikey, yes. I used to read some excellent fiction titles by a "Robert Wilson" (The company of strangers, A small death in Lisbon etc.). In one of the books, the main character is an ex-SS man, who regenerated/reinvented himself in the decades since. He speaks of how "in those days, people had very big lives".

but one should remember that investment/trading is all about the now and what is happening now, what happened before can be a guide but to follow it blindly will likely lead to trouble.

Ha ha! Don't think I consider these reads as an "Investment manual".

Matt


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