Global Macro Trading Journal

[Martinghoul]

Quote from Daal:
I understand the "it hasn't worked in the past, people have failed with it" but every year that passes they get closer and closer to a death spiral. Assuming a rising debt to GDP ratio and interest rates that won't go negative(on the bonds), at some point interest payments will be larger than government revenues

This is the GM math that got them bankrupt(borrowing to pay off debt and interest)

"What Is Unsustainable Won't Be Sustained"

Absolutely and I agree 100%...

My point isn't that it's not gonna happen, but that, for this trade to make sense, you'd better have worked out the specific timeline for when you expect this Japan blowup to happen. And that's the trickiest bit of this particular trade, really, which I haven't seen any of these legendary investors address. Without it, it's just another lazy, poorly thought out macro punt.

 

[ralph00]

Quote from Martinghoul:

Come on, ralph, don't be absurd...

And you know all this stuff how, pray tell? How do you know that your heros do all these "insane amounts of research"? Have you had a chance to ask them questions to poke holes in their reasoning and to gauge the true depth of their knowledge? Have you had a chance to examine a diametrically opposing view to see if it makes more sense? What makes one guy on TV an "investing giant and great mind" and another a famous idiot? Is it just their returns? What's the sampling horizon? Is Paulson a the former or the latter or did he lose his "investing giant" status this year?

Straw man alert again. Who said Paulson was an investing giant? The guy made a nice play on mortgages, kudos for that. I heard the guy speak at a Grant's conference in 2010 hawking his Greenspan-fed picks and never considered investing in any of that for a second (from what I could tell of those around me, they didn't find him very convincing either).

You're right, actually. I'm pretty sure Bass just spews all that data off the cuff, the way you talk about China/EU trade balances. When he said in 2006 he'd gone 1 by 1 through these massive securitizations to see what boondoggles they were, he was probably just lying. When he talks about the intimate details of the debt numbers in Europe or Japan, he's probably just making it up and hoping no one actually checks. When he says he's hired polling firms to gauge the German public's appetite for fiscal union, he's probably just cracking a joke.

Still awaiting your detailed refutation of his analysis. Actually, no need for it. He's already been proven 100% right about housing (he's long an old fave of mine, MTG right now, actually), he's already been proven 100% right about Europe. Japan next (not that I have a position).

You're in deep pal. Why not just cut bait and let it go. He's an interesting guy with some interesting ideas and had a damn interesting video clip that was posted. It might be useful to those who rush in to buy every time the latest "solution" is announced for Europe, only to see more of their savings burned up when it fails.

You're a very pro-Europe guy, you've made that clear. Fair enough, but maybe you just lost it hearing someone calmly explain that the gig is up (unless the ECB goes Fed to the 10th power).

 

[Martinghoul]

Quote from benwm:
Timing is key of course in JGBs.

And I don't buy the Bass Armageddon story for Japan either.

However, when the daily range in JGBs gets really really tight for a prolonged period, as it has for the past few months, the risk reward playing the short side really improves quite considerably IMHO. JGB dealers get more and more complacent sitting on larger and larger overnight positions, VAR risk reports saying they don't have much risk, tendency to push bigger and bigger positions trying to eek out smaller and smaller gains. Of course they play the carry game too, and it works for most of the year...how else can a JGB trader keep his job for a prolonged period?! Then they're all positioned the same way and selling begets selling as the VAR goes up!

The mini liquidation we've seen in gold the past couple of days looks vaguely similar to the Q4 2008 liquidation in gold, don't you think? Let's see how gold reacts the next few days. It makes me wonder if US and German bond markets might also lose their safe haven status for a short while. A nice little dump across all asset classes? If that happens, I would favour a JGB short. When UST lost their safe haven status for a couple of weeks after Lehman's failure JGBs also tanked 3BF in one session, if I recall.

"It's not dark yet, but it's getting there", to quote my favourite musician...

Could be... I am not sure about gold, but yeah, it's entirely possible that bonds of all sorts, including USTs and Bunds (although it's a lot less likely for Bunds), will lose their "risk-free" status. I think we're seeing a little bit of that already. After Lehman, JGBs rallied arnd 40bps in a straight line into year end and then sold back off during 1H2009. As to whether they're worth shorting, maybe, but I, for one, will try to find better trades out there, 'cause I don't have a view on the timing.

 

[Martinghoul]

Quote from ralph00:
Straw man alert again. Who said Paulson was an investing giant? The guy made a nice play on mortgages, kudos for that. I heard the guy speak at a Grant's conference in 2010 hawking his Greenspan-fed picks and never considered investing in any of that for a second (from what I could tell of those around me, they didn't find him very convincing either).

Not a straw man. I am asking you to help me understand your objective criteria for calling someone "an investing giant" using an example, someone everyone is familiar with. From what you say above your definition appears purely subjective, i.e. an "investing giant and a great mind" is someone famous whose views you happen to agree with. Nothing wrong with that, but there's just no point having an argument about pure opinions and views, rather than objective criteria.

You're right, actually. I'm pretty sure Bass just spews all that data off the cuff, the way you talk about China/EU trade balances. When he said in 2006 he'd gone 1 by 1 through these massive securitizations to see what boondoggles they were, he was probably just lying. When he talks about the intimate details of the debt numbers in Europe or Japan, he's probably just making it up and hoping no one actually checks. When he says he's hired polling firms to gauge the German public's appetite for fiscal union, he's probably just cracking a joke.

There's no need to get angry. My point is that I *don't know* whether Bass spews his data off the cuff or that he's carefully researched it. Moreover and most importantly, as I already said, you can't argue with Bass and you can't subject his views to a critical examination. That's the key point and why it's different to me spewing incorrect data. You *CAN* argue with me in a public forum and prove that my data is incorrect. The medium within which you and I communicate is interactive and you can challenge me and I you. Can you challenge Kyle Bass? I have all sorts of intimate details of the debt numbers in Europe or Japan. You can ask me and then you can confirm if I am full of sh1t or not. Can you do the same for Kyle Bass's thesis? I am amazed that you can't see the difference.

Still awaiting your detailed refutation of his analysis. Actually, no need for it. He's already been proven 100% right about housing (he's long an old fave of mine, MTG right now, actually), he's already been proven 100% right about Europe. Japan next (not that I have a position).

Well, I don't know yet what he has said about Europe, 'cause I can't use BBC iPlayer at work, but, as I promised, I will come back. As to him being 100% right about housing, I thought there were a few people right about housing, but they're not up to your high standards (I won't name names to avoid getting you too angry ).

You're in deep pal. Why not just cut bait and let it go. He's an interesting guy with some interesting ideas and had a damn interesting video clip that was posted. It might be useful to those who rush in to buy every time the latest "solution" is announced for Europe, only to see more of their savings burned up when it fails.

How is it that I am in deep? I have no emotional attachment to this issue whatsoever. It's an argument on ET, for god's sake. And I don't understand why Kyle Bass is now just "an interesting guy with some interesting ideas"? I thought he was a guru? If "interesting" is all Kyle Bass is, I certainly can't disagree.

You're a very pro-Europe guy, you've made that clear. Fair enough, but maybe you just lost it hearing someone calmly explain that the gig is up (unless the ECB goes Fed to the 10th power).

Ha, I am not at all a pro-Europe guy. I am actually undecided and don't really have a lot of skin in the game. I just don't like storytellers, as I keep saying. And if you think that Kyle Bass is the first time I have someone calmly suggest to me that the gig is up, you got another think coming. I have spent more time than you can imagine trying to consider the various Euro-permutations and possibilities and what they do to my positions and what I can do to prevent catastrophic losses. It's the only way to survive.

 

[ralph00]

Quote from Martinghoul:

I have all sorts of intimate details of the debt numbers in Europe or Japan. You can ask me and then you can confirm if I am full of sh1t or not.

Yes, we're well aware of your familiarity with the trade data. The eurocrats who have done such a wonderful job with their "rescues" apparently have the data too. One can choose to put their head in the sand or take a sober look.

How is it that I am in deep? I have no emotional attachment to this issue whatsoever. It's an argument on ET, for god's sake. And I don't understand why Kyle Bass is now just "an interesting guy with some interesting ideas"? I thought he was a guru? If "interesting" is all Kyle Bass is, I certainly can't disagree.

You're in deep because you took an interesting, provacative, and to this point irrefuted opinion (not that it matters) from someone who happened to appear in the media - i.e. the kind of thing that's posted in this thread daily, if not multiple times a day - and had a tantrum. If I had posted a clip from Jim O'Neill saying everything was going to be ok, would you have even given it a 2nd thought? I'm pretty sure we know the answer and the reason.

I can remember back even on Daal's first thread you telling all who would listen we were being silly to worry about where Europe was headed. We're underestimating political will ... the numbers aren't that bad ... and so on. Absolute disastrous advice. I certainly understand your intellectual and financial investment in 'the project.' It was an interesting clip from a guy who has been on the money about developments the past few years, not Moses coming down with the tablets. We're all grown ups here. No one was going to listen to it and run to short Europe.

 

[Debaser82]

Very interesting discussion on if and why one should listen to who.

 

[Martinghoul]

Quote from ralph00:
Yes, we're well aware of your familiarity with the trade data. The eurocrats who have done such a wonderful job with their "rescues" apparently have the data too. One can choose to put their head in the sand or take a sober look.

Hahaha, you can't resist having a dig, can you? I don't mind really. Although, not sure what you mean by a "sober look".

You're in deep because you took an interesting, provacative, and to this point irrefuted opinion (not that it matters) from someone who happened to appear in the media - i.e. the kind of thing that's posted in this thread daily, if not multiple times a day - and had a tantrum. If I had posted a clip from Jim O'Neill saying everything was going to be ok, would you have even given it a 2nd thought? I'm pretty sure we know the answer and the reason.

I had a tantrum? I said I don't like people like Bass and I have explained why. In what alternative universe is that classified as a "tantrum"? I am not a fan of Jim O'Neill either, for your guide. As I said a number of times, I don't like any of the big-picture macro mavens you so often see on TV and read about in the media. That's why, as I am sure you have observed, I don't post a lot of media links in this thread. As a matter of principle (as I have explained), I prefer to argue myself and express my own views as much as possible.

I can remember back even on Daal's first thread you telling all who would listen we were being silly to worry about where Europe was headed. We're underestimating political will ... the numbers aren't that bad ... and so on. Absolute disastrous advice. I certainly understand your intellectual and financial investment in 'the project.' It was an interesting clip from a guy who has been on the money about developments the past few years, not Moses coming down with the tablets. We're all grown ups here. No one was going to listen to it and run to short Europe.

Yeah, so my views have changed, so what? You know the famous Keynes quote, I presume? Furthermore, what is this about "advice"? I never gave anyone advice, but rather expressed my personal views. I never claimed to be some sort of a macro investing god or a "great mind", whose opinion is "interesting and provocative", let alone correct. In fact, I know that I am very often boring and wrong. As to my investment in the European project, I have absolutely no idea what you mean by that. I live outside the EMU, neither my assets nor my liabilities are EUR-denominated, etc. And yes, I can certainly accept and understand that it's just an interesting clip, but then why can't I also express my opinion on it and its author?

At any rate, I think I have really said enough about that. I'll get back to watching the clip, if you don't mind.

 

[Specterx]

Quote from Daal:

I understand the "it hasn't worked in the past, people have failed with it" but every year that passes they get closer and closer to a death spiral. Assuming a rising debt to GDP ratio and interest rates that won't go negative(on the bonds), at some point interest payments will be larger than government revenues

This is the GM math that got them bankrupt(borrowing to pay off debt and interest)

"What Is Unsustainable Won't Be Sustained"

If one is expecting the Yen to blow up, wouldn't the best 'trade' here be to take out yen-denominated fixed rate mortgage(s) to buy property in Japan?

Rent the places out to cover some of the cost, in 15 years you pay off the balance with a day's wages, sell the property and it's almost free money. Obviously there are a few practical issues here, but I don't think they'd be insurmountable.

The same incidentally applies for those expecting major inflation in the USA. Take advantage of lower-bound interest rates to buy property in beaten-down areas with good long-term prospects, downside is you have to cover any cost in excess of rents with a bit of capital risk if prices keep sliding, best case is you've got a free house in 5-15 years plus some real price appreciation.

 

[Ghost of Cutten]

Quote from Specterx:

If one is expecting the Yen to blow up, wouldn't the best 'trade' here be to take out yen-denominated fixed rate mortgage(s) to buy property in Japan?

Rent the places out to cover some of the cost, in 15 years you pay off the balance with a day's wages, sell the property and it's almost free money. Obviously there are a few practical issues here, but I don't think they'd be insurmountable.

The same incidentally applies for those expecting major inflation in the USA. Take advantage of lower-bound interest rates to buy property in beaten-down areas with good long-term prospects, downside is you have to cover any cost in excess of rents with a bit of capital risk if prices keep sliding, best case is you've got a free house in 5-15 years plus some real price appreciation.

Have you tried taking out a mortgage in a foreign country? It's not that easy, especially not somewhere like Japan, with relatively conservative lending practises.

 

[Ghost of Cutten]

Quote from Martinghoul:

Right, I can see that both yourself and GoC are fans of Kyle Bass, so this is my response to GoC as well as yourself... Firstly, my comment wasn't ad hominem. I have nothing against Kyle Bass specifically. I have a problem generally with people who go on TV and tell stories. This includes Hugh Hendry, Tilson, Bass, Einhorn, etc. They have a strategy which, while effective, I can't have any respect for.

It doesn't matter if you don't like someone's argument or don't respect their strategy. Surely what matters is if their arguments are sound and facilitate trades that perform well.