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Global Macro Trading Journal
- Thread starter Daal
- Start date
Review of some asset classes with random thoughts
Stocks: I'm in the secular bear camp, this combined with risks of US recession, EU problems(Which even though they are solvable, will still freak people out probably), China hard landing(Hurting world growth) makes me be on the defensive side. Valuations are also not good, both on a Shiller basis but also on the Hussman model(which empirically has done well). I'm only willing to take positions there that are 'special situations', specific stock picks that I have confidence the market is underpricing. So I remain underweight this area
Commodities: I'm in the secular bull camp. This puts me in a box because in one hand I want to buy dips, in the other I sense that the dips are a sign that the market is afraid of US/China economic problems which could mean a further decline. In any event it doesn't seem like this asset class will do REALLY well in the next few years(By really well I mean the 15% annual compounded rate or so it did leading up to 2007). So I also remain underweight here but with a bias into increasing positions
US Gov bonds: I'm too scared to buy and too scared to short. It seems to be a mistake to bet either way. I have no confidence here
German Gov bonds: It really looks to me that the EU will go the way of Japan, which could mean Bunds are cheap at these levels, even after their rally. I'm considering taking a decent position next week. Its mainly a bet that the ECB might be worse or at least equal to the BOJ. Milton friedman is known for saying that low rates has been a sight of tight money, to me this is going to play out in the EU. As a result of tight money by the ECB, they will be forced to keep rates low into infinitum. If even the Fed is underdelivering because of hawkish influences the ECB almost certainly will go there as well.
There is a difference though. The ECB has an inflation mandate while to my knowledge the BOJ doesn't. This creates a ceiling on the level of stupidity they can get away with. NGDP won't be allowed to decline much or to growth at extremely low levels as the implied inflation there would force them into easing(though I'm sure they will be behind the curve)
Stocks: I'm in the secular bear camp, this combined with risks of US recession, EU problems(Which even though they are solvable, will still freak people out probably), China hard landing(Hurting world growth) makes me be on the defensive side. Valuations are also not good, both on a Shiller basis but also on the Hussman model(which empirically has done well). I'm only willing to take positions there that are 'special situations', specific stock picks that I have confidence the market is underpricing. So I remain underweight this area
Commodities: I'm in the secular bull camp. This puts me in a box because in one hand I want to buy dips, in the other I sense that the dips are a sign that the market is afraid of US/China economic problems which could mean a further decline. In any event it doesn't seem like this asset class will do REALLY well in the next few years(By really well I mean the 15% annual compounded rate or so it did leading up to 2007). So I also remain underweight here but with a bias into increasing positions
US Gov bonds: I'm too scared to buy and too scared to short. It seems to be a mistake to bet either way. I have no confidence here
German Gov bonds: It really looks to me that the EU will go the way of Japan, which could mean Bunds are cheap at these levels, even after their rally. I'm considering taking a decent position next week. Its mainly a bet that the ECB might be worse or at least equal to the BOJ. Milton friedman is known for saying that low rates has been a sight of tight money, to me this is going to play out in the EU. As a result of tight money by the ECB, they will be forced to keep rates low into infinitum. If even the Fed is underdelivering because of hawkish influences the ECB almost certainly will go there as well.
There is a difference though. The ECB has an inflation mandate while to my knowledge the BOJ doesn't. This creates a ceiling on the level of stupidity they can get away with. NGDP won't be allowed to decline much or to growth at extremely low levels as the implied inflation there would force them into easing(though I'm sure they will be behind the curve)
Precious metals: I'm bullish there but I don't think I'm going to increase my positions. Mainly because it would raise too much of my exposure to the 'bad things will happen' trade. It seems an overpriced way to bet on bad outcomes due to the fact that so many people like gold
Corporate bonds: Like stocks, I would only buy special situations due the concerns mentioned
Currencies: Here there seem to be lots of opportunities but I don't have a high confidence in most of them. To me there is a chance that the BOJ pegs the yen at a weak level but betting on BOJ to be very dovish is like fading Trichet, you are just asking to have lots of stress and noise with an uncertain return. My position here is the EUR short(I'm also long the TRY but that is a systematic trade) but if I buy bunds I will cover it because the EUR doesn't behave in the way you would expect when faced with some bad news. Lots of noise there for little gain
Corporate bonds: Like stocks, I would only buy special situations due the concerns mentioned
Currencies: Here there seem to be lots of opportunities but I don't have a high confidence in most of them. To me there is a chance that the BOJ pegs the yen at a weak level but betting on BOJ to be very dovish is like fading Trichet, you are just asking to have lots of stress and noise with an uncertain return. My position here is the EUR short(I'm also long the TRY but that is a systematic trade) but if I buy bunds I will cover it because the EUR doesn't behave in the way you would expect when faced with some bad news. Lots of noise there for little gain
the question is who pays,the banks,soviergnty's are on both sides of the trade,it' all imaginary money,promises,if some one has to pay real money ...that's the problemQuote from Daal:
I've been thinking about the sov CDS issue and I don't think there is a high chance that longs wont be paid there. So far the authorities have been doing everything they can to "avoid a lehman". And there seems to be a lot of banks who hedged using CDS(I believe MS is among them), they would suffer a lot if the hedge failed
So far I haven't read any evidence that on net banks will win if there is no CDS payout, I'd suspect they will be net losers which means banking capital will increase if there is a payout.
So the authorities have an incentive to pressure ISDA to create a payout, so they probably will. Why wouldn't they?
The short bonds short CDS bet was sound last week when you were getting PAID to put in on(As I understand a positive basis mean the CDS has more juice than the bonds) but lately it turned around
Currencies: I'm also long the HKD with a big position(A 20% reval would make me 40% richer) but I'm don't believe the chances of reval are high. I paired the trade with HK stocks short. This gives me a nice way to bet on China/HK crash and retain some protection in case the stocks rise
Shorting stocks: Other than the HK stocks(EWH) I don't have any shorts. I agree with Hugh Hendry and VN, shorting is a miserable business. Its really hard. So I tend to stay way from it unless its a special situation that I have a high confidence in. I was looking at Green Mountain Coffee but some analysts with far better understanding of accounting and corporate finance than me were saying Einhorn used wrong numbers. I don't think I'm in the position to judge either way. So I rather wait. I do think I need to explore the idea of long commodities(to play the secular bull) + shorting some stocks(Maybe more EWH). This will help me sleep at night if I get afraid world gdp will tank
Shorting stocks: Other than the HK stocks(EWH) I don't have any shorts. I agree with Hugh Hendry and VN, shorting is a miserable business. Its really hard. So I tend to stay way from it unless its a special situation that I have a high confidence in. I was looking at Green Mountain Coffee but some analysts with far better understanding of accounting and corporate finance than me were saying Einhorn used wrong numbers. I don't think I'm in the position to judge either way. So I rather wait. I do think I need to explore the idea of long commodities(to play the secular bull) + shorting some stocks(Maybe more EWH). This will help me sleep at night if I get afraid world gdp will tank
I like it for 3 reasons:Quote from Daal:
What is your logic behind the Yen short?
1) I believe that the downside is bounded, since, even now, the strength of the yen is difficult for Japan to deal with. If we go much further, the BoJ/MoF hand might be forced and they will be compelled to act in a meaningful way. If they don't, the impact of the strong ccy on the economy should eventually make itself known. Moreover, I don't like the long-term fundamentals.
2) The levels are extreme here and I do believe that exchange and interest rates exhibit mean-reversion over long horizons. I don't expect a massive regime shift (see above).
3) Carry is nice and positive and I am a carry munky.
I don't have it on in massive size (it's smth like 20% the size of my short CHF position), but I do plan to add if it goes in my face.
Would be great to hear your (and everyone else's, obviously) thoughts.
Quote from Martinghoul:
I like it for 3 reasons:
1) I believe that the downside is bounded, since, even now, the strength of the yen is difficult for Japan to deal with. If we go much further, the BoJ/MoF hand might be forced and they will be compelled to act in a meaningful way. If they don't, the impact of the strong ccy on the economy should eventually make itself known. Moreover, I don't like the long-term fundamentals.
2) The levels are extreme here and I do believe that exchange and interest rates exhibit mean-reversion over long horizons. I don't expect a massive regime shift (see above).
3) Carry is nice and positive and I am a carry munky.
I don't have it on in massive size (it's smth like 20% the size of my short CHF position), but I do plan to add if it goes in my face.
Would be great to hear your (and everyone else's, obviously) thoughts.
Do you think carry is just a backdoor way to earn something similar to the equity premium?
Quote from Martinghoul:
I suppose so, but I need to think about it properly, actually. Nice question.
http://bigcharts.marketwatch.com/ad...sToggle=false&chartStyleToggle=false&state=14
food for thought
Japan has a big bureaucracy. Any big policy change regarding the yen has to be cleared by the BOJ, MOF, the PM's office - all with god knows how many committees and bureaus.
It could be that only a far lower level of dollar/yen will force action - something ridiculous like ¥60.
Companies always complain, but I'm not convinced they're getting killed at ¥76. The trade surplus is still large. The "strong" yen has been an issue for ages. Anybody looking to move offshore has already done it. As for the consumer, Japan isn't like Switzerland, where folks can just drive over the border to shop. They're still relatively captive to domestic business.
It could be that only a far lower level of dollar/yen will force action - something ridiculous like ¥60.
Companies always complain, but I'm not convinced they're getting killed at ¥76. The trade surplus is still large. The "strong" yen has been an issue for ages. Anybody looking to move offshore has already done it. As for the consumer, Japan isn't like Switzerland, where folks can just drive over the border to shop. They're still relatively captive to domestic business.