Global Macro Trading Journal

Quote from Specterx:


In my view the time to be afraid will be when gold really does start going up day after day, week after week, just accelerating to the moon.

All that said I agree that GLD (specifically, not spot) gave a potentially valid technical short setup back in March which, if taken, suggests one should still be holding short, I am not adding to my gold position here, and certainly must be on alert for any change in gold's 'personality'.
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We're on a similar page in a lot of ways... agree there is a scenario where gold could start going up relentlessly again, and if that plays out we'll be long.

Right now though the fundamental rationale for a sustained bull run seems about as fuzzy as the charts... is gold really a better inflation hedge than other risk assets? And what happens to gold in a period of genuine global slowdown? Would there not be desert before ocean -- drought before flood?
 
Quote from darkhorse:

Right now though the fundamental rationale for a sustained bull run seems about as fuzzy as the charts... is gold really a better inflation hedge than other risk assets? And what happens to gold in a period of genuine global slowdown? Would there not be desert before ocean -- drought before flood?
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I think gold is a better inflation hedge because it should hold its value vs. goods and services better than stocks. We can expect PEs to compress regardless of the nominal level of stock prices or earnings, implying a loss of real wealth by stock-holders. Is it better than RE? Dunno but I've got some RE too.

From both stock peak to stock trough, and stock peak to stock peak, gold did outperform stocks in the 2007-9, 2010 and 2011 downturns. 2011 we already covered; 2010 barely caused a ripple in gold; in the 2007-9 cycle (August 07-March 09) gold rose 37% while stocks fell 58%. Most people of course focus on gold's interim 30% decline from mid-08 to late-08 as proof that it 'does poorly in bear markets' and miss the bigger picture. Note that the gold pattern was very similar both in 2008 and 2011-12: a spike up (52% over seven months in 2008; 27% over two in 2012) prompted by the initial legs down in stocks, followed by months of consolidation and large peak-to-trough losses, during which sentiment turns very bearish and johnny-come-lately "hedgers" sell out in disgust when gold doesn't adhere to the simple correlations they imagine. This despite the fact that gold (so far at least, in 2011-12) never falls below its starting price for the cycle.

Except in 2010 where fluctuations were comparatively modest, the people who got screwed (at least temporarily) were those who panicked and jumped in to gold after the decline in stocks became obvious. Just like those who get screwed in stocks are the ones who buy at the top into an overvalued market etc. once the rally has already delivered impressive returns. The patient fundamentalists, or those who DCA'ed in to declines etc. got paid.
 
Quote from darkhorse:

Always amuses how different chart interpretations can be based on one's underlying fundamental bias.

When it comes to price action, I like the blind taste test: Imagine viewing the charts with no knowlege of what the symbol is. From that perspective, the daily chart of gold is clearly intermediate bearish -- the weekly chart neutral to dubious at best (imho obviously).
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Looking at the pure chart, it seems like a pullback on the short-term charts, a trading range on the medium-term dailies, and a secular bull market on the long-term chart.

Scenarios are:

1. This is just a halfway retracement of the large 2012 rally from last year's lows. Reasonable chance. Implication is it bottoms soon then goes to the top of the range, and tries to break out to resume the bull trend. So you should either be long small size, or flat and ready to buy on any sign of strength.

2. It's an extended chop/trading range. Probably the odds-on play. Trade: buy at a successful reversal at the range lows, same play short at the range highs, stop and reverse if there's a sustained breakout. Book some profits in the middle of the range, exit all once you get to the opposite side (risk of being whipsawed is high on this latter portion of the position though).

3. It's the start of a bear market. No convincing evidence of this, the long-term chart (5 year weekly) is clearly bullish. No reason to trade this thesis until a clear breakout below the trading range lows.

So - it's either a buy, a short, or flat. Not the kind of high percentage trade I like. If I did take it, I'd risk minimal amounts - but why bother, when there are better setups out there. Taking marginal trades is almost always a mistake, even if they are slight winners overall - the additional risk, capital requirements, and split focus are not worth the minimal profit.

The prudent trader would wait for a test of the highs and the lows before taking a position. He'd play for a continuation of the trading range, using moderate size, and wait for a clear and sustained breakout of the range before going full-hog bull or bear.
 
Fed futures plunge continues
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Quote from Martinghoul:

If I remember correctly, there's been some discussion of margins. While I am not sufficiently informed to have a view, I am a huge fan of James Montier. He published this recently and I intend to read it to educate myself:
https://www.gmo.com/America/CMSAtta...d74zJ0R1rY2lRRYvkFggPe+dZF4oUF+Eun279ii1ThA==
(if the link doesn't work, just click on "What Goes Up Must Come Down")
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Very interesting letter. To me a key takeaway from all of this is: the drivers of the Budget Deficit have already announced their intentions. Gridlock is already making it impossible to keep the deficit where it already is as the economy improves, the pressures to reduce it are mounting

A scenario where the budget deficit doesn't break profit margins is if the Democrats take over congress, which is not going to happen

The deficit projections are already showing quite a bit of decline for the coming years, which means deleveraging will have to turn into leveraging in the form of decreased household savings and increased investment in order to keep profits stable. That scenario is less likely than the historical norm of profits reverting back to the mean

This seems to explain a lot of the obsession with the debt ceiling and S&P downgrade last year
 
Quote from Daal:

Very interesting letter. To me a key takeaway from all of this is: the drivers of the Budget Deficit have already announced their intentions. Gridlock is already making it impossible to keep the deficit where it already is as the economy improves, the pressures to reduce it are mounting

A scenario where the budget deficit doesn't break profit margins is if the Democrats take over congress, which is not going to happen

The deficit projections are already showing quite a bit of decline for the coming years, which means deleveraging will have to turn into leveraging in the form of decreased household savings and increased investment in order to keep profits stable. That scenario is less likely than the historical norm of profits reverting back to the mean

This seems to explain a lot of the obsession with the debt ceiling and S&P downgrade last year
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Daal, you think it is possible for US debt to rise to 120%, 140% or higher without it having much of a real effect other then the debt burden is having today?
 
Quote from Debaser82:

Daal, you think it is possible for US debt to rise to 120%, 140% or higher without it having much of a real effect other then the debt burden is having today?
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Yes, I think it's possible. I'm not sure that is likely though. Taking a pure probabilistic view, according to the RR This Time is Different view, sovereign debt crisis usually follow banking crises, that combined with the rare 120%+ debt levels which very few countries were able to sustain tells you that a sov debt crisis would be triggered along the way

I also think there is not much of a chance of a Japanese scenario in the US as the Fed is far more active and so far has been highly successful in reaching its 2% inflation target
 
Quote from Daal:

Yes, I think it's possible. I'm not sure that is likely though. Taking a pure probabilistic view, according to the RR This Time is Different view, sovereign debt crisis usually follow banking crises, that combined with the rare 120%+ debt levels which very few countries were able to sustain tells you that a sov debt crisis would be triggered along the way

I also think there is not much of a chance of a Japanese scenario in the US as the Fed is far more active and so far has been highly successful in reaching its 2% inflation target
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If I may ask you, how is a sovereign debt crisis defined in the strict sense? A higher intrest rate? Or simply the impossibility to pay?
 
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