Author Topic: Dear LC  (Read 9182 times)

apc3161

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Re: Dear LC
« Reply #15 on: November 17, 2017, 10:44:11 AM »
I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.

I've wondered this myself. At 4-6 and perhaps even 5-7, I can't see the argument for p2p versus corporate bonds secured by actual assets.

Fred93

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Re: Dear LC
« Reply #16 on: November 17, 2017, 01:27:40 PM »
No doubt 2015 and 2016 are bad vintages.

I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.

My answer: it will take the big institutional customers, ie banks, saying "Whoa, that's too low."  I have no idea when that will occur. 

SeanMCA

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Re: Dear LC
« Reply #17 on: November 17, 2017, 03:29:17 PM »
No doubt 2015 and 2016 are bad vintages.

I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.

My question is... the banner says "solid" returns. Are they really that solid?
I'm a merchant cash advance veteran exploring the p2p lending waters.

.Ryan.

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Re: Dear LC
« Reply #18 on: November 17, 2017, 06:29:38 PM »
No doubt 2015 and 2016 are bad vintages.

I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.

My question is... the banner says "solid" returns. Are they really that solid?


When I joined, they touted that no one (or almost no one) with a diversified (500+ note) portfolio had ever lost money.

I wish I had a screenshot. My how things have changed.

rawraw

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Re: Dear LC
« Reply #19 on: November 17, 2017, 06:49:38 PM »
I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.

I've wondered this myself. At 4-6 and perhaps even 5-7, I can't see the argument for p2p versus corporate bonds secured by actual assets.
What is a 3 year secured corporate bond going for these days? Is it even more than 1%?

I don't see the banks getting upset. These are adequate yields for the type of loans. A lot of people forget one of the reasons banking is profitable is because of the leverage. The return on assets in banking is quite low

Rob L

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Re: Dear LC
« Reply #20 on: November 18, 2017, 11:34:50 AM »
I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.

I've wondered this myself. At 4-6 and perhaps even 5-7, I can't see the argument for p2p versus corporate bonds secured by actual assets.

What is a 3 year secured corporate bond going for these days? Is it even more than 1%?

I don't see the banks getting upset. These are adequate yields for the type of loans. A lot of people forget one of the reasons banking is profitable is because of the leverage. The return on assets in banking is quite low

It appears there has been a loss of confidence in LC's ability to deliver the returns is advertises (at least for us "sticky money" individual investors). Lots of folks simply don't believe them any more, whether it's 4-6, 5-7 or whatever.

You can own a AAA rated bond from Microsoft maturing 11/2020 with a YTM of 2.08%. That's the best I found.

Or you can get a 35 month CD from Fort Knox FCU paying 2.40% (anyone can join), or a 36 month CD from Goldman Sachs Bank paying 2.00%; both federally guaranteed up to $250k. There are a lot of institutions with offers between these two rates. CD's are unencumbered with the tax inefficiencies of LC notes that I've heard others mention and are completely liquid (given a pre-payment penalty that can be pretty reasonable). Interest rates are impossible to predict but one doesn't have to go too far out on a limb to expect they will continue slowly rising given the Fed's announced plans. Within the next 6-9 months it's not hard to imagine 3 year CD's commonly paying 2.75% to 3.00% with special deals above 3.00%. Where interest rates will be in 3 years time is anyone's guess, but if they go back towards pre-crisis rates I'd sure like to have liquid funds to invest.


Rob L

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Re: Dear LC
« Reply #21 on: November 18, 2017, 12:27:58 PM »
No doubt 2015 and 2016 are bad vintages.

I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.

My question is... the banner says "solid" returns. Are they really that solid?


When I joined, they touted that no one (or almost no one) with a diversified (500+ note) portfolio had ever lost money.

I wish I had a screenshot. My how things have changed.

Is this what you had in mind? From the way-back machine 23 Jan 2013:
https://web.archive.org/web/20130123013417/http://www.lendingclub.com/public/steady-returns.action

rawraw

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Re: Dear LC
« Reply #22 on: November 18, 2017, 01:23:37 PM »

You can own a AAA rated bond from Microsoft maturing 11/2020 with a YTM of 2.08%. That's the best I found.

Or you can get a 35 month CD from Fort Knox FCU paying 2.40% (anyone can join), or a 36 month CD from Goldman Sachs Bank paying 2.00%; both federally guaranteed up to $250k. There are a lot of institutions with offers between these two rates. CD's are unencumbered with the tax inefficiencies of LC notes that I've heard others mention and are completely liquid (given a pre-payment penalty that can be pretty reasonable). Interest rates are impossible to predict but one doesn't have to go too far out on a limb to expect they will continue slowly rising given the Fed's announced plans. Within the next 6-9 months it's not hard to imagine 3 year CD's commonly paying 2.75% to 3.00% with special deals above 3.00%. Where interest rates will be in 3 years time is anyone's guess, but if they go back towards pre-crisis rates I'd sure like to have liquid funds to invest.
Is that Microsoft bond secured though?  I'd suspect it is unsecured.

35 month CD?! So you want an instrument with twice the duration and a third of the return (assuming 6%)?  I mean, go for it. . .

And yes, the Fed has announced plans to raise.  But they will immediately cut the next recession.  These are bets that can make you money (if correct) on which will happen first.  It is hard for me to imagine CD rates of 3% in 6-9 months.  That would be a 100bp increase.  The futures market only expects ~2 increases through 2020.  Again, money can be made if you have conviction in that bet.

Is LC having the best spree?  No.  Are my low grade notes the source of almost all my losses? Yes.  Is my high grade notes still doing fine?  Yes.  Have I been talking about this risk of low grade notes since the beginning of my activity on this forum?  Yes.  It was an expected risk and it has manifested itself.  I've personally had to shrink my taxable LC portfolio because I've hit the ceiling on tax losses.  I haven't decided if I should invest in tax free LC yet -- I don't like illiquid vehicles in those sort of accounts. 

But at the end of the day, I think the doom and gloom on this forum is a bit overdone

Fred93

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Re: Dear LC
« Reply #23 on: November 18, 2017, 02:40:30 PM »
What is a 3 year secured corporate bond going for these days? Is it even more than 1%?

You can own a AAA rated bond from Microsoft maturing 11/2020 with a YTM of 2.08%. That's the best I found.

Its even worse than that.  A 3 year bond pays you back mostly at the end.  The average amount of time you wait for your money is slightly less than 3 years.  The technical term for this is "duration". 

A 3-year LC loan, on the other hand, pays you back uniformly over the entire 3 year period (presuming that it does not prepay).  For such a loan the duration is 1.5 years.  In fact tho, a significant fraction of LC loans do prepay, so their duration is around 1 year.

If you look at bonds with a duration of 1 year, you would find much lower interest  rates.  More like 1%.
« Last Edit: November 18, 2017, 04:00:33 PM by Fred93 »

OleBill

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Re: Dear LC
« Reply #24 on: November 18, 2017, 03:33:35 PM »
In hindsight, I'd have been better served by investing in a high yield corporate bond ETF (like JNK). I'd gotten higher returns and it's very liquid asset. I'm afraid I'm going to pass away in the next 3-4 years and leave my wife with a mess of notes left in Lending Club. That was not my intent when I started with Lending Club. My bad, sorry girl.

SLCPaladin

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Re: Dear LC
« Reply #25 on: November 18, 2017, 03:41:17 PM »
Quote
It is hard for me to imagine CD rates of 3% in 6-9 months.

I've been making 3.1% for 5 years now when Pentagon Federal Credit Union had a black Friday sale of CDs. As I draw down my LC account, I am putting in 5 year CDs at 2.6% and local credit unions here in Utah. There are tons of 2.6% for 5 years federally insured products out there. It's not hard for me to see another bump up above 5%.

LC needs to raise rates in order to attract/retain my money. If competitive pressure prohibits this, then this is not a viable investment vehicle for me, which is sad because I was one of the biggest advocates of LC (and Prosper) back in the day. I had well over $100k invested at the peak with LC, but it's less than half that now.

DLIFVOIP

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Re: Dear LC
« Reply #26 on: November 18, 2017, 05:11:46 PM »
I spent a few hours today and put together a summary of some of my LC data to shed some light on what I have been seeing.

I completely understand this is not a perfect analysis and does not answer all questions.

Few things I want to point out.  In the Sales + Charge Off Data section, the sales + charge offs by year are based on the year the loan was purchased.  So a loan purchased in 2013 and sold in 2014 is listed in the 2013 row.  In the Purchases Data section, the purchases are for that year and the interest amount represents the interest in that year.  The Gain section is not that great, because it is not comparing the vintages correctly.  Meaning it is comparing sales + charge offs data by vintage to interest in the calendar year, not interest by vintage.  I do that analysis at year end and did not feel like doing it, sorry.  But this does allow you/me to look at sales + charge offs of a specific vintage compared to purchases in that year.  Purchases represents all purchases (includes reinvestment of payments).  No, I do not have $1.8M invested. 

Looks like 2016 is going to be way worse than 2015.

So I will say this again, I still do not understand how people are losing money.  I currently have an average interest rate of 11.57%, so a loss % of 4.5% still represents a good return.  The reason I complain at all, is because I used to have an average interest rate of 12.5%-13% and a loss % of 2%.  I understand that as my portfolio grew I would divert to the mean, but I could live with my current loss % if the average interest rate would increase.

I will try to answer questions, but this analysis may not allow for answers to all questions.

.Ryan.

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Re: Dear LC
« Reply #27 on: November 18, 2017, 05:49:21 PM »
No doubt 2015 and 2016 are bad vintages.

I guess what I do not understand is how low of a return is LC willing to advertise before something changes.  I am referring to the banner they post all over the place.  Attached.

It used to say 8-10, then 7-9, then 6-8, then 5-7 and now 4-6.  How low will they go, before they realize people are not willing to invest in this asset class for that return.

My question is... the banner says "solid" returns. Are they really that solid?


When I joined, they touted that no one (or almost no one) with a diversified (500+ note) portfolio had ever lost money.

I wish I had a screenshot. My how things have changed.

Is this what you had in mind? From the way-back machine 23 Jan 2013:
https://web.archive.org/web/20130123013417/http://www.lendingclub.com/public/steady-returns.action

Hah! That is it! Thanks for the memory!

rawraw

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Re: Dear LC
« Reply #28 on: November 18, 2017, 07:35:49 PM »
Quote
It is hard for me to imagine CD rates of 3% in 6-9 months.

I've been making 3.1% for 5 years now when Pentagon Federal Credit Union had a black Friday sale of CDs. As I draw down my LC account, I am putting in 5 year CDs at 2.6% and local credit unions here in Utah. There are tons of 2.6% for 5 years federally insured products out there. It's not hard for me to see another bump up above 5%.

LC needs to raise rates in order to attract/retain my money. If competitive pressure prohibits this, then this is not a viable investment vehicle for me, which is sad because I was one of the biggest advocates of LC (and Prosper) back in the day. I had well over $100k invested at the peak with LC, but it's less than half that now.
No offense intended, but it's funny to me to hear the "hot money" depositors complain about LC returns. I personally think LC would be better served not attracting this sort of retail money. It was a mistake when they started but it seems like they are tuning it down to not attract such retail investors. Yes of course you can find random cd specials. We are talking averages here, there are people with much higher LC returns than 6 percent.

Rob L

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Re: Dear LC
« Reply #29 on: November 18, 2017, 07:43:28 PM »

35 month CD?! So you want an instrument with twice the duration and a third of the return (assuming 6%)?  I mean, go for it. . .


I'm not assuming 6%. That's where we differ (but I hope you are right).