How to park your IB account at night

[praetorian2]

Originally posted by max401
Just what is so compelling about vinyl replacement windows?

Absolutely nothing compelling. Rather boring idea honestly. I believe though that these guys will one day control the home improvement industry. It's just cheap. It's trading now at about 4-5 X this year's cash flow, and about 2X next year's cash flow.

 

[Lobster]

Originally posted by praetorian2
Rates go up and SHY drops fast. Rates go down, SHY goes up a bit. I would personally rather be short SHY for a long term play. I wouldn't mind paying 4% a year if I thinkt hat SHY could drop 25% in the next year. A 1% rise in interest rates to 5% is a 25% move in rates and would equate to a 10-25% drop in SHY I believe. Don't hold me to those numbers.

I don't believe this is quite correct.

I believe the thought should be like this:

I buy a piece of paper for $100 now that is guaranteed by Uncle Sam to be worth $110 exactly three years from now (hypothetically). That's an APY of 3.2%. If interest rates rise tomorrow and I can buy a treasury for $100 that will be worth $115 after three years (APY of 4.8%), then my original 3-year treasury should now be worth $95.65, since that corresponds to the new APY of 4.8% for 3-year treasuries.

Therefore an increase of interest rates by 50% gives me a price drop of a little more than 4% in this case.

But the thing is that SHY consists of different treasuries.

Also, since I am quite new to anything that has to do with money, I don't really know how a Fed move would likely impact interest rates on different time horizons. Isn't there a model for this?

 

[praetorian2]

Honest to god, I have no idea at all about how the movements of rates and SHY work. You will indeed get your money on maturity though, but SHY works forever and you never have to redeem it. My point was that you could loose some of your principle. I suggest you do a bit more research before diving in, but you probably have a good idea going.