Global Macro Trading Journal

[m22au]

Quote from Butterball:

Things not looking so rosy in Europe while American dip buyers are busy flipping burgers instead of Eurostoxx futs.

Although the ES is still 80 points above the early August low of 1077, it's interesting that (so far) equities couldn't rally by more than 16% (using the ES move to the 1230-ish level) on the hope of QE3 saving the world.

Maybe people are finally realising that more and more extreme monetary and fiscal policy is "needed" to keep the house of cards upright?

 

[ralph00]

American indices are emerging relatively unscathed from all of this. Either they're about to take a big thumping, or QE3 actually will save the day, or maybe its just that big caps really are quite cheap.

 

[m22au]

Quote from ralph00:

American indices are emerging relatively unscathed from all of this. Either they're about to take a big thumping, or QE3 actually will save the day, or maybe its just that big caps really are quite cheap.

> Either they're about to take a big thumping,
I think the S&P 500 will continue to outperform the DAX, CAC, IBEX and MIB

> or QE3 actually will save the day,
I'm confident that Bernanke and the Fed as a whole will get increasingly reckless in their implementation of QE. Especially if and when the ES drop below 1077 and people start to freak out about a 20% decline from the May highs. This recklessness is the main reason why I think the S&P 500 will outperform the above 4 indices.

> or maybe its just that big caps really are quite cheap.
Maybe individual names are, however in the 1930s and 1970s big cap equities as a whole bottomed with P/E ratios in the middle single digits. The same could happen again.

edited to add: I see that Italy is imploding again.

2-year +0.47% to 3.99%
10-year +0.25% to 5.53%

ouch ouch ouch

 

[ralph00]

Fucking AUD finally starting to take on water, just hours after I covered half my short. Down 200 pips in a few hours (if you eliminate the weekend).

Europe in full-on crash mode. Stoxx 50 -5.6%.

No short sellers to cover going into the close either.

 

[ralph00]

Quote from m22au:



> or maybe its just that big caps really are quite cheap.
Maybe individual names are, however in the 1930s and 1970s big cap equities as a whole bottomed with P/E ratios in the middle single digits. The same could happen again.

Definitely. Individual names - should have made that clear. Indexing sucks.

On a stock like Wal-mart (or MSFT), I actually hope for the price to go down - it means my reinvested divvies will buy more shares, it also means the company, which is buying back $15B/year, gets more shares for its buck. In the meantime, profits continue to roll in - at some point the shares will be revalued. For all I know, the stock could hang around $50 for the next 10 years, and then go to $1000 in a month. But it will happen one way or the other. Math does not lie. Buffett is a tired old rent-seeker, but (like Tiger Woods) let not today's foibles trash earlier genius - and this was surely one of his more brilliant ideas.

Classic piece here trashing Boglism ...

http://philpearlman.com/2011/09/03/...-even-though-john-bogle-drank-your-milkshake/

 

[Butterball]

Quote from ralph00:

maybe its just that big caps really are quite cheap.

European big caps are about 25% cheaper (or less expensive, depending on where you stand) than their US counterparts, doesn't keep a floor under them yet.

 

[Debaser82]

So guys how about looking a bit into the future.

Is the Eurozone on the brink of disintegration?

Will Greece fall and be known as Lehman 2?

Will Eurobonds be launched soon?

Will Germany leave the Euro?

What gives?

I'd be interested in people's thoughts, particulary cause many of you are not european and offer a perspective from abroad.

Personally if I had to guess maybe the ECB will cut rates, buy more bonds and why not act beyond it's authorisation and go beyond those meassures trying to safe the world.


They are the lender of last resort and will act accordingly regardless of the legitimacy of it all.

That's in a nutshell my opinion.

 

[Ghost of Cutten]

Quote from Debaser82:

So guys how about looking a bit into the future.

Is the Eurozone on the brink of disintegration?

Will Greece fall and be known as Lehman 2?

Will Eurobonds be launched soon?

Will Germany leave the Euro?

What gives?

I'd be interested in people's thoughts, particulary cause many of you are not european and offer a perspective from abroad.

Personally if I had to guess maybe the ECB will cut rates, buy more bonds and why not act beyond it's authorisation and go beyond those meassures trying to safe the world.


They are the lender of last resort and will act accordingly regardless of the legitimacy of it all.

That's in a nutshell my opinion.

IMO the end-game will be EQE or Eurobonds, like all central banks, the ECB will throw in the towel when the alternative of a 1998-style banking crash stares them in the face. They will be reminded that the purpose of a central bank is lender of last resort, not inflation-targeter. Greece will default, Portugal maybe, Ireland perhaps. EU banks will be put on life-support via Euro-TARP, until they can earn their way out of trouble.

Net result should be gold to the moon, possible crash in the Euro (which is staying stubbornly strong so far - Soros says due to China buying), bargains of a generation in Euro-zone banks and PIGS industrials, S&P and Asia outperforming on a relative basis. But, we aren't at the end game yet, the politicians are so clueless they won't take action until things look terrible. They will however fight tooth and nail to stop anyone leaving the Euro.

December puts looking quite attractive.

 

[m22au]

Quote from Ghost of Cutten:

IMO the end-game will be EQE or Eurobonds, like all central banks, the ECB will throw in the towel when the alternative of a 1998-style banking crash stares them in the face. They will be reminded that the purpose of a central bank is lender of last resort, not inflation-targeter. Greece will default, Portugal maybe, Ireland perhaps. EU banks will be put on life-support via Euro-TARP, until they can earn their way out of trouble.

Net result should be gold to the moon, possible crash in the Euro (which is staying stubbornly strong so far - Soros says due to China buying), bargains of a generation in Euro-zone banks and PIGS industrials, S&P and Asia outperforming on a relative basis. But, we aren't at the end game yet, the politicians are so clueless they won't take action until things look terrible. They will however fight tooth and nail to stop anyone leaving the Euro.

December puts looking quite attractive.

I agree with most of what of GoC has written, however this is largely crystal-ball gazing because there a large number of variables that go into how the situation resolves itself.

With regards to the Euro, it's not falling by much against the USD because of the growing realisation of the problems associated with that currency. Also there has already been a massive depreciation of the EUR against the CHF already.

These days the big five currencies (USD EUR GBP JPY CHF) are relatively stable against each other, with the big adjustments taking place against a stronger currency - gold.

 

[Ghost of Cutten]

Quote from ralph00:



Classic piece here trashing Boglism ...

http://philpearlman.com/2011/09/03/...-even-though-john-bogle-drank-your-milkshake/

He's not trashing Bogle-ism, and appears not to even understand what it is (FYI, it's not going 100% long S&P then praying). At no point has Bogle or anyone else say go 100% long the S&P on a buy & hold.Actually, IIRC, he said to reduce the stock weighting in the late 90s as prices were very high. Bogle-ism is about diversification between different asset classes, buy and hold is only one aspect of it.

Has this guy (or you) actually seen the numbers for a typical passive indexed portfolio? E.g. 20% S&P, 20% Russell 2000, 20% Foreign stocks, 40% US Treasuries? It outperformed cash, had reasonable downside drawdowns, and I am absolutely certain outperformed the average private retail trader's return during the last decade.

The Swensen buy & hold approach (domestic equities, foreign equities, REITs, Treasuries, TIPS) also did reasonably well in the last decade.

Buy & hold with a passive index portfolio diversified across the main asset classes, rebalancing periodically, has done just fine despite a terrible decade for stocks.