Global Macro Trading Journal

Daal said:
I was looking at the Bigcharts yield, which shows 5%+. The 12m trailing is 4.38% and that will probably go up due inflation/lower vacancies. So maybe high 4s this year. After tax thats maybe high 3s. So maybe the right number is 1.44M dollars, or about 27 times the annual per capita income (52K)
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Here are the numbers on Real Estate US vs Brazil

4.65% 2017 yield for IYR - 20% tax rate = 3.72% after tax yield
I'm assuming that 3.72% is a real return since rents and RE prices tend to keep up with inflation. So

3.72% - 52000 (annual per capita income)
100 - x

the - sign is not minus but the cross multiplication trick

x = ~$1.4M dollars needed to retire. The person would get $52K a year indexed for inflation for the rest of their life, not bad eh?
So one needs 26.88 times the annual income to build this portfolio

In Brazil the numbers come out at

9% (tax free yield possible in REITs) - ~15000 (aprox annual per capita income in USD)
100 - x

x = 166,000 USD

Which comes out at 11.11 times annual income. Its just so ridiculously easy to retire buying REITs now that at some point either people will realize that and buy, or they will be driven there to buy by lower cash returns or by the end of the recession and all the liquidity shortages that it produces
 
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Which of course raises the question, if REITs (that are thinly traded here in Brazil) are trading at such ridiculous prices, what about the stock market? I heard a segment talking about REITs and in it they said that if you took all the liquidity of that market and turned into a stock, it would still not be as liquid as the main players in the Brazilian stock market.

I dont know if their wording was this exact but the message was that there is not a lot of liquidity in REITs. But the stock market has, if my theory of the 'liquidity discount' is correct, then the stock market was/is getting hurt badly but this liquidity shortage and as a result, its probably trading just as cheaply or (probably) even more cheaply. There is the Capital Market Line theory that says higher risks require higher returns. So one would expect stocks to be priced to return 9% real, at minimum...probably a fair amount more
 
The US 26.88 vs Brazil 11.11 is interesting because the spread between Brazil USD bonds vs US Treasury paper is around 200-250 basis points. So its not like the world is seeing some massive risk to the country. By and large the risks have been controlled.
There are some risks involving taxation of REITs in the future but it would be such a tiny addition to gov revenues that it will probably take a long time. The size of the market is still so tiny, its a very young industry
 
And my "REITs retirement ratio" being at 26.88 for the US vs 11 for Brazil is interesting because it compares with the US CAPE ratio of 24-26 in US stocks with Brazil's 9-10 CAPE. I dont know if that means anything but I though it was interesting that it was similar
 
One of the cheapest I can find is

The Vanguard Global ex-US Real Estate ETF (VNQI)
About 5% yield
Minus 20% tax is 4%
25 times multiple right now

But this strategy of loading up on REITs to retire, even though its not bullet proof I think is pretty decent. Most people dont do well with stocks, they panic when bad times come. Government bonds return too little to retire on, specially these days. A nice balanced mix of stocks, bonds, gold and other assets with perhaps some leverage is too complex for people to understand. Requires too much thinking and explaning. But loading up on REITs is simple. That's what I'm recommeding to family members that I feel can withstand some volatility, if they can't, then I just recommend government bonds (which here still pay a decent 4-5% real). Plus real estate is very resilient, it can survive hyperinflation, bad governments (its politically unpopular to confiscate real estate), etc

Real estate and REITs strike a nice balance between risk and return. More importantly, every month "the checks" keep coming into the account. That helps people stick with a strategy.

On the downside, real estate is not going to be doing so well in deflationary depressions. During those times they will get hit hard, the checks will decrease and just on the time where the investor might need that money the most (the investor might lose his job or face other problems). So it isn't perfect but still, compared to getting killed in stocks or earning little to nothing in gov bonds in most scenarios, it isnt so bad.
 
I got access to US monthly data going back a fair amount. I dont have all the data that I want (Still need US 3month T-Bills from 1879 to 1934) but I got US stocks 1871-2016, 10y bonds 1871-2016, Gold 1879-2016 and 3month T-Bills 1934-2016. All monthly series. With gold, I purchased data on the cheap but I'm still yet to receive it.

I decided to do a quick test to see how harmful to asset prices is when there is an inverted yield curve (like there is right now in Brazil)

I run three types of tests with 1934-2016 data:

One I looked at the 6 month average return of the S&P500 before the yield curve turned negative but I then removed results from the same 'cycle'. So if in September of 1955 the yield curve turned negative, I looked at the average stock market return before that (6months) but if it turned positive shortly after and negative again I didnt count it, because its the same "cycle". There has to be at least a year before I counted as a new cycle again
By this metric, the avg monthly return of the S&P500 was 0.22% (vs 0.63% for the entire sample period)

Another one that I did was the same thing as in the previous test but I didnt used that cycle theory. So I looked at the 6 month S&P500 return in ANY period where the yield curve was negative and kept counting the returns (6 months back) as a long the yield curve was negative, and average it all out. The average return was -0.11%

Another one was to consider, instead of the 6 month before the period where the yield curve inverts to consider the current month plus 5 months in the future. And use no cycle theory. The average return was -0.35%

Another one was the same as the previous one but to consider the current month plus 2 months forward (to avoid having a stock market recovery in it). The return was -0.30%

The tests also showed 50-52% negative monthly returns vs 39% of the entire sample

This is all preliminary as I might find errors in the formulas but it appears that when the central bank jacks up the returns on cash (above of long-term bonds), that has quite negative effects on asset prices. Furthermore, it appears that the stock market does not fully antecipate these developments and returns continue to be poor even after the yield curve has turned negative
 
MDLZ no news, will sell today. Friday rumor was probably just some ahole trying to unload weekly options that were expiring that day
 
VRX, huge news. $2B+ in asset sales in things people never even dreamed were worth anything. Looking to buy some long-term calls today to add to the position. Im looking at the 2019 jan calls
 
Pearson bought Provenge two years ago for $400m, now they are flipping it for over $800m. Short thesis starting to fall apart
 
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