Few days back Macro business published an article on Leverage versus debt . Found interesting and thought of sharing my point of view on it.
Europe, Japan and America are printing money at an extraordinary rate. It has reduced the cost of debt to negligible levels. Usually this is explained with reference to what is happening in the conventional economy, but I suspect there may be another explanation. The systemic effects of the bizarre financial system that we have created, which is based on leverage. That leverage, which is thought of as debt, is not really what we mean by debt.
One of the features of the explosion of derivatives in the last 15 years, the rise of “meta money”, is that it was achieved through the creation of massive amounts of leverage. When Long Term Capital Management nearly destroyed the world financial system in 1998, it was done through a highly leveraged play on the rouble. LTCM was brought undone when Russia defaulted on its bonds. Continue reading “Leverage versus Debt”
I have quarried in the past that risk free rate for doing the valuation of equities and got some interesting answers, wanted to share here.
This is holistic view where an average of 10 year debt YTM of five lowest ratio of govt debt to GDP:
The 10yr Treasury is still a decent risk free rate, but the U.S.’s sovereign debt load will soon match Greece‘s. It may already exceed that level if you count the unfunded liabilities of entitlement programs. Continue reading “All about Risk free Rate”
When it comes to mathematics, certain facts are universally agreed-upon. For example, regardless of your culture or educational system, you must agree that one plus one equals two unless you mistakenly fall for an invalid proof. When dealing with money, why are people inclined to believe that one plus one does not equal two?
I recently attended a core empowerment training and realized that One of the many reasons people can fall into debt is the difficulty of separating emotional thinking from rational thinking. The Debt Avalanche helps separate these two methods of thinking, Continue reading “Paying off !! The Personal Debt”