Global Macro Trading Journal

http://www.bloomberg.com/news/artic...h-pimco-warn-bond-gains-will-turn-into-losses

Hatzius says 10y bond will plunge, markets underestimating Fed's willingness to hike. He decreased his forecast to 3 hikes this year

I'm not sure he is right. The problem is the cat and mouse game the fed has with the stock market. If they do that, stocks will plunge and then they go into pause mode like right now. If they delay hikes, thats supportive of stocks (like the dudley comments seem to have helped). essentially a call on fed hikes will be very much tied to what the stock market will do, and lately its been really hard to make a call on that. if you are right on the direction, just wait a day or two and you will be wrong
 
Jan 2017 Fed futures trading at 99.475 x 99.48

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chance of one hike by then 40%

I think the market is seriously flirting with the chance of negative rates if things get worse. if rates go negative fed futures will go above par (100). thats what this implied probabilities seem to be missing. I don't think they put these chances into the model
Markets might even think the chance of a hike is higher but if they are wrong and the economy tanks, the losses to a short futures position would be amplified with neg rates
 
But this 'negative rates premium' doesn't seem to be justified. They didn't do it even in 2009 when things were far worse. Why would they do it now? A rate cut and QE would be their main tools as usual
 
I was thinking about something the other day. Dalio recommends people to invest 30% in stocks with 55% in bonds and 15% commodities. But that stock/bond portion, isn't that pretty much equivalent as being in IG bonds? stocks and gov bonds blended together (high and no risk) are a low risk combination, that's pretty much what high quality bonds are
http://awealthofcommonsense.com/2016/02/the-greatest-bull-market-of-all-time/

The main benefits of going in IG bonds is that it might offer tax advantage (specially for non-US investors who buy the bonds outright instead of using an ETF) and its less distracting (since you won't see the stock portion fall)
 
With regards to the markets now. I'm just waiting for a good situation to add to BRKB. I sold the SPY calls and that has helped a bit to cushion the downside but only a bit. I made a big mistake last week. I was trying to short SPY but I kept getting shaken out of the trade. What I should have done instead was to buy some puts, specially into a significant rally (perhaps, that friday big rally or the monday after where the market gapped down and caught longs by surprise).

These significant rallies are tough for me to short in the underlying, mentally, I have a hard time doing it. Buying puts I have no problem doing because when I buy an option I'm already mentally considering I will lose all the premium. With the short I keep being afraid of getting squeezed for weeks in a daily pain train. With the puts, you have to be right about the timing but with the underlying short, you have to be right about the timing anyway because I just KNOW i won't be able to stick around if I'm not right within 1-2 days. So either way I will have to be right
So thats the lesson for me, to play a bearish market, buy OTM puts into big rallies. Avoid shorting the underlying
 
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The whole rally after the ISM services missed (from 187 to 192 on SPY) was just a short squeeze. Everybody got short and got squeezed out when the dollar index started to breakdown (boosting XLE, XLB and XLF due the banks exposure to energy). I had a nice short at a very good entry price, but still couldn't survive that rally. Had I used puts, I would have
 
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