Monthly Archives: December 2011
Allocation change
The Alpha strategy went from cash to XIV at today’s close. XIV closed the day at $5.81. We’ll see where she goes from here.
Volatility model to signal a move to XIV on Tuesday
Barring something crazy in the VIX futures market, the Alpha strategy should switch from cash to XIV at Tuesday’s close. Contango has been fairly strong of late (over 8% today). The average level of contango over the prior 20 days should exceed 5% tomorrow.
I’ll be buying toward the close and setting up a loose trailing stop as per my strategy. Hoping for a good trade but not holding my breath. Things still feel risky out there and it’s not uncommon for the strategy to have several whipsaw trades during transitional periods.
Best,
Mike
A look at the TSP G fund
Note: This post refers to a fund option in the Thrift Savings Plan. This plan is basically a 401k for federal workers and those in the military. See TSP.Gov for more details.
I’m a huge fan of the Thrift Savings Plan (TSP) G fund. I’m not aware of any publicly available product that mimics it. What exactly does the G fund track? Here are a couple snippets from the TSP website:
“The G Fund is invested in short-term U.S. Treasury securities. It gives you the opportunity to earn rates of interest similar to those of long-term Government securities with no risk of loss of principal. Payment of principal and interest is guaranteed by the U.S. Government. The interest paid by the G Fund securities is calculated monthly based on the market yields of all U.S. Treasury securities with more than 4 years to maturity; the interest rate changes monthly.”
“The G Fund assets are managed internally by the Federal Retirement Thrift Investment Board. The G Fund buys a nonmarketable U.S. Treasury security that is guaranteed by the U.S. Government. This means that the G Fund will not lose money. “
Key points:
- earns interest similar to long-term government securities
- principal and interest guaranteed by the government
- interest rate calculated and changed monthly and is based on all treasury securities with more than 4 years to maturity
- will not lose money
I’ve found the interest rate paid by the G fund to be very similar to the 10 Year U.S. Treasury rate. I’ve plotted the rates of each below.
It’s interesting how volatile the G fund interest rate was between 2003 and 2008. I’m not sure what caused this. Also, the G fund rate spent most of the time slightly above the 10 Yr Treasury rate. Since 2008, it has tended to be a little below. My guess is this has to do with the Fed’s zero interest rate policy and its effect on the yield curve.
The G fund does not earn money from gains in principal. This means it has not benefited from falling interest rates. This will work in favor of the fund when interest rates do eventually rise. The interest rate paid by the fund will simply increase with no loss due to principle.
Joining the Twittersphere…
I started my very first Twitter account today – @dontfearthebear. I plan to post trades and blog post notifications through it. I’ll also share more random thoughts not worthy of a full post. Feel free to follow if that suits your fancy!
