Global Macro Trading Journal

Quote from Specterx:

You use "we" a lot - maybe I missed it, but do you work for a trading/investment firm or something similar? Or just like the ring to it...
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I have two trading partners, each with different specialties and contributing areas of focus. There is a good amount of internal back-and-forth, hashing stuff out etc, so the we stuff comes naturally.
 
Quote from darkhorse:
Shades of gray... were the long end of the curve to truly "blow out," the economy would be fucked. The scenario that is good for gold would be

1) long end threatens to blow out via UST dumping

2) The Fed panics and monetizes in suicidal size (supporting the bond market via $USD creation)

3) Runaway printing press activity leads to gold supernova

It's the Von Mises prophecy (paraphrase): "In the end, either the economy or the currency is destroyed." The Federal Reserve would rather destroy the currency than the economy; they can exercise this option in defense of the long bond market with infinite fiat purchases if need be.

But note the above scenario does not actually entail a long end blowout occurring, because the Fed would not let that happen (cost to economy too high). The dollar would be blown out, not bonds.

The rising rate scenario which hurts gold is not the "blowout" one, but the one in which long rates go up enough to induce a tightening bias, without sending the Fed into panic mode. (Note too that, in this scenario, there is a window where gold could fall sharply BEFORE the Fed panics.)

I find that the arguments for gold tend to be polarized toward extreme scenarios. It is true that if something "blows out" one way or another gold probably does well; but this is precisely my concern, as the real world tends more towards the middle of the bell curve than the outliers -- for extended periods of time rather -- and it is not inconceivable that gold falls into the big hole in the middle before rising later (where rates rise but do not skyrocket; global growth creeps but not leaps; systemic risk fears gradually fizzle down, and so on). If gold goes back to $1,000 before it goes to $3,000, a lot of present day bulls will be hurt badly.

As for your last paragraph, I really can't get too worked up about TEOTWAWKI.

I make my living in financial markets -- if the system becomes so screwed that the global financial system shuts down, mass panic over physical gold ownership etcetera, then my present way of life is toast anyway... in the true "only physical will do" scenario, access to handguns, bottled water and basic bartering and trade skills probably matter more than anything else.
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+1

IMHO, gold is an asset that hedges tail risk (note its option-like characteristics, such as negative cost of carry). It's like being long a very wide strangle, which, in small quantities, isn't a bad thing. However, to load the boat full of this sort of extreme optionality is a bit bananas. Just my Z$2c.
 
Quote from Specterx:

A myopic focus on "relative returns" is for fund-manager types who consider losing 40% of their clients' money to be acceptable - so long as everybody else lost too, and so long as you beat the benchmark by twenty basis points.

It's a tautology to say that an expected return of 5% is greater than an expected return of 2%. Having these figures does not tell you whether either asset would be a sound investment: -20% is much better than -50% but both are horrid. Absolute returns are important, the risk and "profile" of those returns are important, knowing when to remain in cash on the sidelines is important. The last ten years ought to have demonstrated this clearly. Yet Goldman, in the article I was critiquing, appears to have observed that five is greater than two, immediately jumped to the conclusion that "stocks are cheaper than they've been in a generation," and recommended that everyone therefore jump into the stock market with both feet. This is a marketing pitch, not serious analysis.
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Not sure what this has to do with my post. You either accept that there are ways to estimate investment returns, or you think it is impossible and thus don't attempt to invest. If there are ways to estimate investment returns, then they can by definition be used.

Guessing the price fluctuations of the stock market for the next 12 months is not investing, it is speculating. Whilst important for traders and speculators, price fluctuations have little effect on investment returns if they are temporary and do not persist for as long as the lifetime of the investment. Many investments do not even have price quotes, after all. The return is driven by cash yield, and the appreciation (or depreciation) of assets owned on the balance sheet, not by what someone is prepared to pay for it next week.

Stock price changes are speculative returns. Internal cash-flow and balance sheet asset appreciation/depreciation are investment returns. In the long run, price changes converge to investment returns. In the short-run, price changes reflect market sentiment.

You are confusing attempts to estimate investment returns, with attempts to guess the near-term path of security prices. They really don't have much to do with each other.
 
Quote from Daal:

Yes I agree with this concerns. The issue is how to trade it. I have never been big on backtesting even though I have quite a bit of background in computer programming. But now I'm going to start to do that more on Excel and other programs

I would try to find out whats the proper way to short these high flyers after some kind of weakness is triggered(Perhaps a decline of 10-20% in a short period) and how to take profits. But its going to take some time for me to finish this
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Best method is wait for them to go into a bear market, then start buying long-dated out-the-money puts.
 
Quote from Ghost of Cutten:

Best method is wait for them to go into a bear market, then start buying long-dated out-the-money puts.
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What is your definition of a bear market?
 
Quote from Ghost of Cutten:

Not sure what this has to do with my post. You either accept that there are ways to estimate investment returns, or you think it is impossible and thus don't attempt to invest. If there are ways to estimate investment returns, then they can by definition be used...
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Let's back up; I said "I'd like somebody to show me some data proving that the difference between the 10-year bond yield and the SPX dividend yield has historically been a good predictor of stock market returns."

You then appeared to interpret this as a claim that "treasuries at 0.1% a year are just as good an investment as blue chip stocks at 20%." Of course they aren't; but neither is simply observing the difference in yield sufficient to decide what, if anything, you want to buy with your hard-earned cash. If you want an illustration of why, I'll go back and pull some "stocks are cheap" articles from 2000 and 2007 employing similar 'reasoning' to that used by Goldman in its recent call.

Guessing the price fluctuations of the stock market for the next 12 months is not investing, it is speculating. Whilst important for traders and speculators, price fluctuations have little effect on investment returns if they are temporary and do not persist for as long as the lifetime of the investment...
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Any division between investing and speculating is always artificial; in practice the lines are blurred. Even a 'real-economy' business investment requires, at a bare minimum, making predictions about the future path of input costs and consumer demand patterns. I'm quite comfortable with seamlessly blending the two when I see fit - and quite convinced that those who refuse to do so under any circumstances, and refuse to admit the artificiality of this belief, are missing a piece of the puzzle.
 
This is an article from April 2, 2007 titled "Cheapest Stocks in Two Decades Signal Bull Market":

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aIEj7C7IEUeI

BlackRock Inc., Fisher Investments Inc. and Schroders Plc, which manage about $1.4 trillion, say stocks are inexpensive relative to bonds. Profit of companies in the Standard & Poor's 500 Index, the benchmark for American equity, is growing faster than shares, and represents a yield of 6.53 percent compared with 4.65 percent for 10-year U.S. Treasury notes.

The gap -- the widest since 1986, according to data compiled by Bloomberg -- is encouraging investors because earnings forecasts indicate the U.S. will keep growing, while bond yields show confidence that inflation will stay in check....

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``The valuation disparity is big enough that you want to make that relative bet,'' said Robert Doll, who oversees $1.1 trillion as chief investment officer at BlackRock in Plainsboro, New Jersey. ``Our view is `stay invested' because the bull market is not over, because the economic cycle is not over.''


So you see, it's worthless crap. Double whammy since that "6.53%" appears to have been based on forward operating earnings estimates.
 
As far as I know the Fed model(Comparing stocks yields to USTs bonds) has been shown to fail to predict stock returns even for the longer term. I believe Hussman has some articles on that
 
Quote from Specterx:

This is an article from April 2, 2007 titled "Cheapest Stocks in Two Decades Signal Bull Market":

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aIEj7C7IEUeI

BlackRock Inc., Fisher Investments Inc. and Schroders Plc, which manage about $1.4 trillion, say stocks are inexpensive relative to bonds. Profit of companies in the Standard & Poor's 500 Index, the benchmark for American equity, is growing faster than shares, and represents a yield of 6.53 percent compared with 4.65 percent for 10-year U.S. Treasury notes.

The gap -- the widest since 1986, according to data compiled by Bloomberg -- is encouraging investors because earnings forecasts indicate the U.S. will keep growing, while bond yields show confidence that inflation will stay in check....

...

``The valuation disparity is big enough that you want to make that relative bet,'' said Robert Doll, who oversees $1.1 trillion as chief investment officer at BlackRock in Plainsboro, New Jersey. ``Our view is `stay invested' because the bull market is not over, because the economic cycle is not over.''


So you see, it's worthless crap. Double whammy since that "6.53%" appears to have been based on forward operating earnings estimates.
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BlackRock, Fisher, Schroeder's ... you're confusing serious research with a press release from a gaggle of massive long-only stock managers.

I find it insulting you would use such and expect anyone with any sophistication not to laugh out loud.
 
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