Global Macro Trading Journal
- Thread starter Daal
- Start date
Here's an interesting tidbit mentioned in this Bridgewater article (as an antidote to all the "Japan going down" stuff):
http://online.wsj.com/article/SB10001424052970204368104577136531481564726.html
(you might have to do the usual to get the full article).
If you *bought* JGBs in the mid-90s on a 3:1 levered basis, you would have earned a compound average annual return of 12% a year for 15 years. Behold the power of carry.
http://online.wsj.com/article/SB10001424052970204368104577136531481564726.html
(you might have to do the usual to get the full article).
If you *bought* JGBs in the mid-90s on a 3:1 levered basis, you would have earned a compound average annual return of 12% a year for 15 years. Behold the power of carry.
Read that a couple of days ago. The most interesting take (mostly because I agree!) is his view that valuations have big caps poised to do pretty well over the coming years despite the crap outlook for the world economy.
As for the Japan thing, I expect better from you (and Bridgewater, though I think his and your arguments are different). That is the past. Yes, sitting here on Jan 4, 2012, we can bang are heads about not buying JGBs in 1995 on 3:1 leverage (I can think of dozens of other assets we could have bought then as well). Greek bond prices were doing just fine for many years ... until one day they weren't anymore. House prices in Phoenix were hunky dorry year after year after year ... until one day they weren't anymore. Bill Miller killed the S&P for decade after decade until one day he didn't anymore and his investors got destroyed.
As for the Japan thing, I expect better from you (and Bridgewater, though I think his and your arguments are different). That is the past. Yes, sitting here on Jan 4, 2012, we can bang are heads about not buying JGBs in 1995 on 3:1 leverage (I can think of dozens of other assets we could have bought then as well). Greek bond prices were doing just fine for many years ... until one day they weren't anymore. House prices in Phoenix were hunky dorry year after year after year ... until one day they weren't anymore. Bill Miller killed the S&P for decade after decade until one day he didn't anymore and his investors got destroyed.
You're missing my point...
I am not bemoaning the fact that I didn't go limit long JGBs 15yrs ago. My point (as I mentioned earlier) is that being short JGBs is hazardous to your health (as demonstrated over and over again by a whole number of supposedly extremely intelligent and capable investors), unless your timing is fantastically good (true of other trades of similar nature). Like many others before him, Kyle Bass's timing is demonstrably not so good, in this particular case.
My other point is that I would prefer to find a positive carry trade that, hopefully, offers me the same Japan blowup optionality. That way I can have the best of both worlds. From experience I know that if I'm not lazy and remain patient, these opportunities are out there to be found.
Let's not count the chips until the game's over. I seriously doubt anybody has been short JGBs since 1995. Punters have taken their shots, moved onto something else, and maybe taken another shot again.
Positive carry is a lovely idea and certainly a necessary part of a portfolio, especially a bank (where it is, I gather, you work?). The home runs usually come from negative carry trades and they usually involve some period of loss until they hit. I'm assuming this obsession with positive carry was the reason more didn't bet against MBS in 2004-06 despite the clear signs it was going to blow up. Such a trade looked bad on a trader's monthly P&L - why do it when they could just lever up, buy MBS, and return 1.5% month after month after month (we know how that worked out).
The big blow-ups usually come from the positive carry monkeys levering up to turn a crap asset returning 3% annually into a 10% return - making money year after year and then losing it all and more in a period of weeks (and then getting bailed out by the taxpayer).
Positive carry is a lovely idea and certainly a necessary part of a portfolio, especially a bank (where it is, I gather, you work?). The home runs usually come from negative carry trades and they usually involve some period of loss until they hit. I'm assuming this obsession with positive carry was the reason more didn't bet against MBS in 2004-06 despite the clear signs it was going to blow up. Such a trade looked bad on a trader's monthly P&L - why do it when they could just lever up, buy MBS, and return 1.5% month after month after month (we know how that worked out).
The big blow-ups usually come from the positive carry monkeys levering up to turn a crap asset returning 3% annually into a 10% return - making money year after year and then losing it all and more in a period of weeks (and then getting bailed out by the taxpayer).
You gather incorrectly (regarding my place of employment)...
Moreover, you're barking up the wrong tree. I am not a positive carry monkey and don't have a fetish arnd selling tail risks (which is what you're referring to). The art and the craft, IMHO, is in finding cheap optionality that exists out there, i.e. trades that offer you the blowup options without you having to suffer through carry so negative that you can't hold the position. Such trades are out there if you're sufficiently diligent and patient. Finding them is what I do.
Finally, I am not suggesting that being short JGBs is definitely the wrong trade here and now. The "Japan down the drain" camp might end up right, after all, and it might happen sooner rather than later. I am only saying that, to me, it's a trade that offers very little edge (something that is obscured by the issue of survivorship bias).
Do you have any inkling what such a trade might look like?
Sounds suspiciously like a free lunch, I'm not sure why any counterparty would trade with you where they lose money slowly as long as things are fine, and then lose it quickly once SHTF...
The closest thing I can imagine would be to somehow take out long-term fixed loans in Yen and invest the proceeds in Japanese equities or property. Not easy to do unless you've got a connection of some kind in the country, and even so the carry wouldn't actually be positive.
I am up 20% in Euro's january first year to year. Physical gold in Euro's which remains my biggest position did great, my mining stocks did reasonable. Some bad like GBG (-50% year to year, -70% peak to today) some great like SPM (up 130% or so).
Them being denominated in USD or CAD was a great help as well in ofsetting the drop in the value of the stocks.
Made no new purchases since march or so other then adding a bit of play money to a crappy penny stock I like for some crazy reason I don't know...(SLX).
I also manage my grandma's money and she was up 5% over the same period of time. Some cash, some goldstocks and AUD bonds...
Quite content and I don't plan to make any significant changes to both of the portfolios...although i guess this excludes me from calling myself a trader...
She is close to selling her appartment as she is in a retirement home now and with the money coming out that she won't be needing to pay for her living I plan to be quite conservative and put most of it in some largecaps with a nice dividend, some indexes, a bond ETF, and some cash in a currency or 2 maybe 3. 10% of it I would put in some more exotic positions to add profitability possibility without to much risk on the portfolio.
All in all after being occupied with all this for a year or 5 I can only say these kind of results should not be compared with those of real money managers as the stress of having to perform is completely not comparable.
When a stock of mine falls 50% I can just sit it out, when you manage other peoples money you can be lucky not to get sued or get fired.
Them being denominated in USD or CAD was a great help as well in ofsetting the drop in the value of the stocks.
Made no new purchases since march or so other then adding a bit of play money to a crappy penny stock I like for some crazy reason I don't know...(SLX).
I also manage my grandma's money and she was up 5% over the same period of time. Some cash, some goldstocks and AUD bonds...
Quite content and I don't plan to make any significant changes to both of the portfolios...although i guess this excludes me from calling myself a trader...
She is close to selling her appartment as she is in a retirement home now and with the money coming out that she won't be needing to pay for her living I plan to be quite conservative and put most of it in some largecaps with a nice dividend, some indexes, a bond ETF, and some cash in a currency or 2 maybe 3. 10% of it I would put in some more exotic positions to add profitability possibility without to much risk on the portfolio.
All in all after being occupied with all this for a year or 5 I can only say these kind of results should not be compared with those of real money managers as the stress of having to perform is completely not comparable.
When a stock of mine falls 50% I can just sit it out, when you manage other peoples money you can be lucky not to get sued or get fired.
Well, I don't know of any such trades at the moment in JPY, but I am watching... In the past, there have been times when ccy or rate vols get so cheap that you can construct some nice option trades that offer a lunch that, while not quite free, is certainly very cheap. An example in a different mkt is an extremely cheap Eurozone blowup trade that could be done for a while in EUR & DKK rates and ccy. There are others that are more esoteric that you can do in rates. They do appear every now and then and you just have to be patient.
You're missing Dalio's point when you blow off his analogy with 'that's the past'. He brings an example of an asset class that did well 15 years going forward five years after the credit growth bubble popped (1990 in Japan). Much of the western world is right now is between one and three years into the bubble deflation process, in other words at around 1993 in 'Japan time'.