Regarding the use of leverage, it is intuitive that for the investor, it is risky. If things go sour, then one is forced to pay back the loan, at the worst possible time. And there is the cost of borrowing, which puts a drag on returns. But what about the other end of the deal? If leverage is pervasive, then it must be lucrative for the lenders. And they must be able to manage their risks, perhaps better than investors. It would be interesting, from an historical perspective, to understand how the lenders have made out. I saw that Quantopian has plans to increase the leverage on their fund to 6X. So, who would be making the loan, Interactive Brokers? And where would they get the money? Maybe rather than investing directly in the Q fund, it would be better to be the one loaning Q the money, and then managing the risk of the loan?

I saw that Quantopian has plans to increase the leverage on their fund to 6X.

Jesus, Mary and Joseph, mother of God etc

2008 all over again. And regarding IB I sure as hell hope not - they are my only current broker. Leverage wasn't a great bet for MF Global - my previous ill fated broker.

We know how it turned out for the lenders - they all had to be rescued by the Central Banks.

Ever watched Groundhog Day? I recommend it. History playing the same ghastly dull record time and time again. And repeating the same dull repetitive mistakes.

I had a revelation this morning on my walk along the glorious Devon cliffs. A satori. A road to Damascus experience. I think I have come to the end of the tedious road with financial market research. I don't think I have much more to discover or much more to say.

I think I will slowly turn my skills to artificial intelligence and the search for silicon sentience. I can't take the tedium any longer.

The 6X leverage comes from a Financial Times article on Quantopian:

http://on.ft.com/228ttoG

It plans to increase the firepower of the nascent hedge fund to $1m of capital this year, and increase the leverage of the hedge fund from close to one time its capital to three times. In time it intends to ramp up the leverage to six times capital to enhance the returns.

Perhaps this is just blue-sky hype, with the implication to potential investors that if Q can get 6X leverage, then they must be projecting some pretty stable returns. Seems like you'd want to see 5-10 years of solid real-money performance before lending anything to Q, but then I don't have a clue how all this high finance works. I guess it all depends on the fees, rate of interest, risk management, etc.

I don't have a clue how all this high finance works.

Don't worry, nor does anyone else. Especially the banks. Or if they do, most of them are so keenly focused on their own bonus they simply don't care if, in the long term, these insane tactics will blow "their" bank up. Rather like the hedge fund world.

They are mostly a bunch of greedy, bloodthirsty bandits.

Business, especially finance, is sublimated violence. A Darwinian struggle for the modern age where the violence has become vicarious and transferred from the battle field to the business arena.

They are mostly a bunch of greedy, bloodthirsty bandits.

Well, that would say that calm rationality should prevail, i.e. there should be inefficiencies in the market due to the knuckle-headedness of the bandits. Greed and bloodthirst aren't normally associated with clear thinking.