Global Macro Trading Journal

[gmst]

Quote from m22au:


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.

Yes, this is the conclusion that I come to again and again whenever I think about actively trading any major currency against any other to express a view on global macro. Even though gold is at 1900$ and just last year it was at 1200$, with everything that is going on in the world, it seems it is going to go only up.

I am thinking of putting in 20% to 40% of my net worth on a non-leveraged basis in 'physical' gold - should be better than any paper money over the next 2-5 yrs period. 'Physical' is important for me because if I start buying futures, on some day I will be increasing the leverage when I feel more sure and that will lead to ruin.

But nevertheless, actually putting one's 20-40% networth in one commodity is a psychologically challenging proposition to me - given the importance diversification is accorded in literature. However, when you consider that most people (either in US or in EM countries) have majority of their net worth in land/houses (around 40-80%), probably putting in 20-40% of net worth in gold doesn't appear to be too excessive. Also, people like Rogers and Buffet made their wealth by not following diversification but rather by recognizing fundamental long term trends and investing in them in non-leveraged way for the long term.

As a side note on ET, when I read m22's journal, it amazes me at his discipline and foresight to start buying silver when it was 5$.

 

[Ghost of Cutten]

Quote from m22au:

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.

It's just contingency planning. It's useful to estimate the likely outcomes, so that when one or more occur, you are prepared and know how to react, rather than being caught by surprise. You can't tell which one will happen, but you can broadly estimate the probabilities of various outcomes.

Agree that gold is the 'currency' to own here. Maybe JPY as well. I don't like EUR, even if it doesn't collapse, there's a risk.

 

[m22au]

Quote from gmst:


As a side note on ET, when I read m22's journal, it amazes me at his discipline and foresight to start buying silver when it was 5$.

Thank you, but to complete the picture, I sold all of my silver a while ago - maybe in 2007 or 2008. I then switched the entire proceeds into gold.

So I have done very well on that multi-year trade, however I didn't capture the silver outperformance over gold seen in the last 2 to 3 years.

On the bright side, I haven't had to endure the massive silver swings compared to the more stable shiny yellow metal.

 

[m22au]

Quote from Ghost of Cutten:

It's just contingency planning. It's useful to estimate the likely outcomes, so that when one or more occur, you are prepared and know how to react, rather than being caught by surprise. You can't tell which one will happen, but you can broadly estimate the probabilities of various outcomes.

Agree that gold is the 'currency' to own here. Maybe JPY as well. I don't like EUR, even if it doesn't collapse, there's a risk.

I agree with regards to your contingency planning paragraph, and agree that EUR looks scary - especially if Germany is the first country to leave the Euro.

JPY could be a safe play, but the massive debt-to-GDP burden (yes I know it's not a problem yet) scares me, combined with the possibility of further Japanese intervention.

That's one of many things I like about gold - no crazy central banker will suddenly print billions of ounces of the metal while I'm sleeping.

 

[Daal]

Quote from Ghost of Cutten:

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.

Its funny Whitney Tilson 'lesson' from 2008 was 'you can't ignore macro and focus on micro'. Then QE2 hits and he underperforms because he had too many shorts and though the market was overvalued, he cut back, the market tanked and he underperformed again because he didn't had enough shorts, he now says 'we need to focus on micro instead of macro'

One of the lessons that every year I internalize more and more as I see evidence is to not ignore valuation and position size according to that. Its ok to jump on the bandwagon a bit but not with large sizes.

Right now the last thing I would do would be to jump on gold(even though I bought a bit last week as I was forced due hedging), I don't care if it hits $2200 tomorrow. On average buying during frenzies like this is a bad play, plain and simple. Yes, sometimes you make money as the momentum continues but even that money is not guaranteed as a correction will be large and fast. So yes, have some exposure but it has sized according to the valuation

 

[ralph00]

Quote from Daal:

Its funny Whitney Tilson 'lesson' from 2008 was 'you can't ignore macro and focus on micro'. Then QE2 hits and he underperforms because he had too many shorts and though the market was overvalued, he cut back, the market tanked and he underperformed again because he didn't had enough shorts, he now says 'we need to focus on micro instead of macro'

Actually, I think that was Einhorn who talked about that "lesson."

Tilson is an easy target because for some reason he gets a lot of press, but isn't he rather a bit player in the business?

I know he went to college with Ackman and told him to buy MBIA as a value stock. Ackman took a look and was horrified, promptly going balls to the wall buying CDS on MBIA, from which he made billions!

 

[Daal]

SNB move means its game over for CHF the 'haven'. For the peg to hold all it takes is for the SNB want it to hold even if it risks inflation. I cut back a bit on the JPY because there is a risk they could go there

Now I have to wonder against what I should short EURs

 

[gmst]

Quote from Daal:

SNB move means its game over for CHF the 'haven'. For the peg to hold all it takes is for the SNB want it to hold even if it risks inflation. I cut back a bit on the JPY because there is a risk they could go there

Now I have to wonder against what I should short EURs

Yes, it is 'game over' for CHF as haven. Very well said. Well this action by SNB means that case for sustained rise in gold becomes even stronger. It is the only safe haven whose price can't be controlled by one central bank alone.

 

[m22au]

yes - gold is the only safe currency.

Today +107 CHF to 1603 CHF per ounce, a new all-time record.

 

[gmst]

Also, I am not sure what it means for usdjpy. Since one safe haven is gone, does it mean that usdjpy will drop? or does it mean that speculators will decide to unwind their short usdjpy positions (at least temporarily) fearing a similar "big" move from BoJ. At least, till now usdjpy is up, but I am honestly not sure how market will react eventually.