Global Macro Trading Journal

Quote from Daal:

If catching knifes is not profitable then there are excess returns to be earned by shorting knifes. Its contradictory to not be short JPM then
I already know the reply 'but its too uncertain, I have no confidence either way' exactly, its in this type of situations that stocks are sold bellow their fair value, its a human value to want to step way from this situation

Furthermore if there is one asset where buying declines is likely to be profitable it is in stocks as they are historically mean reverting
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I think the point is that a 10% price fall, some of which is actual value destruction, does not make something 'good value'. Fair value cannot be determined precisely at the best of times, so a mere 10% fall cannot be said to have made something cheap - 10% up or down is within the margin of error of even the most accurate value assessments.

And there is increased risk and the fact that the intrinsic value has fallen somewhat (management controls weaker than expected; risk that the trade blows up spectacularly; potential loss of confidence in the CEO or even the bank, causing a liquidity crunch).

That is why you need a large margin of safety - Graham recommended a 50% discount to reasonable estimates of fair value.
 
Quote from Daal:

Buy panic sell histeria, you don't have to know the exact fair value to know that the odds are in your favor due human flaws leading to mispricings
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But JPM has not seen anything resembling a panic. Panic is the high point of the rising fear cycle, not the beginning of it.

Even if JPM has seen panic today, you make about 12%. If it sees panic in a few days or weeks, you could lose 10-100%. Those are crappy odds.
 
Quote from Ghost of Cutten:

I think the point is that a 10% price fall, some of which is actual value destruction, does not make something 'good value'. Fair value cannot be determined precisely at the best of times, so a mere 10% fall cannot be said to have made something cheap - 10% up or down is within the margin of error of even the most accurate value assessments.

And there is increased risk and the fact that the intrinsic value has fallen somewhat (management controls weaker than expected; risk that the trade blows up spectacularly; potential loss of confidence in the CEO or even the bank, causing a liquidity crunch).

That is why you need a large margin of safety - Graham recommended a 50% discount to reasonable estimates of fair value.
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Thats why I don't consider that some kind of long-term value play. Its merely a 'omg they lost $2b' to 'hmmm, who cares'. But the pinata thing seems to be playing out so far
 
Quote from Ghost of Cutten:

Hmm, do you think that Greece could just default on all its debt, stay in the Eurozone, and the banks and ECB would be recapitalised by tax increases? I'm sceptical.
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The core can raise money, specially Germany with the current ridiculous bund yields. When it comes to Spain and Italy bailouts its another issue, I'm not sure what is going to happen, I just know its not going to be good to be long risk till they announce something(And its going to take panic to get them to do something)
 
A possible dynamic that might play on the EUR is
1)People get increased worried about a Greece exit
2)The core EU authorities have an incentive to talk tough and pretend that if they don't follow the Troika program they will be kicked out of the EUR. As a result they talk out loud about this possibility
This leads to more to 1)
Even though
3)The core EU authorities will blink in the last moments and demand much less tougher austerity and volunteer haircuts to prevent a Lehman style meltdown(This would be highly bullish for the EUR in the short-run after the market realizes this)

The problem is that the markets won't figure out 3) until the last moments(Probably in a VIX spike)
This is a bit like the debt ceiling negotiations where 'sanity' prevails in the last moments

Whether Greece exits or defaults and stays in, it appears to me that the market perception in both cases will be of a Greek exit(Because of the incentives. This could make a EUR short highly attractive for the next 2 months or so. One has to cover the short quite quickly as soon as the perception of a Greek exit leads to large panic, at that point the government will start throwing all kinds of 'bazookas' at the problem, some of them might include making statements that aren't so tough leading to squeezes
 
Plus if I'm wrong that Merkel and co will blink at the last second, its just going to be even better for the EUR short as contagion takes over and they will talk even tougher for the next few weeks.
Main risk here is some kind of political surprise in Greece and more can kicking. I'm pretty sure core EU won't be quick to accept haircuts or no austerity. They will accept less austerity though

But in order to get leverage in this 'negotiation' they might play the bad cop card too far leading to more fears of Grexit
 
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