Global Macro Trading Journal
- Thread starter Daal
- Start date
Do you find this sort of information to be useful in making your trade decisions?
I always have trouble getting into the minutae of individual companies' business models, passing judgments on corporate strategy etc. as opposed to broader questions of particular sectors or 'themes.' I'm a trader/investor, not an MBA, marketing guru or logistics expert. Plenty of big money types out there who do employ experts in such fields and their conclusions show up on the chart. But maybe I'm missing something...
Tracking a possible pairs trade between GDX (gold miners ETF) and GLD.
GDX has been in a bull-flag-looking formation for the better part of the year and sentiment is now at a bearish extreme (-15 for the Hulbert newsletter index HGNSI). The GLD:GDX ratio is now 3.22 (GLD is 3.22 times GDX) whereas 2009, 2010 and the first quarter of 2011 it held between 2.2 and 2.6. The ratio is now the highest since December 2008.
If the ratio dips back below 3 I would look for it to return to about 2.4. This could be played by either going long GDX outright or a combo of short GLD-long GDX. Trading it as a pair has the advantage that it isn't simply adding to my already substantial net long gold exposure. On the other hand, past performance shows that when gold declines (as in 2008 or since last fall) the ratio has increased rather than decreased, and even if you remove the 2008-09 craziness it's been creeping up steadily for at least six years. Supporting two positions also cuts the possible returns on deployed capital.
So, it might be better to look for a long on GDX only and put aside the correlation risk. Based on GDX chart a return of around 20% in 2-3 months seems a reasonable expectation. It would be temporarily taking more risk in gold for a (hopefully) quick boost to returns.
GDX has been in a bull-flag-looking formation for the better part of the year and sentiment is now at a bearish extreme (-15 for the Hulbert newsletter index HGNSI). The GLD:GDX ratio is now 3.22 (GLD is 3.22 times GDX) whereas 2009, 2010 and the first quarter of 2011 it held between 2.2 and 2.6. The ratio is now the highest since December 2008.
If the ratio dips back below 3 I would look for it to return to about 2.4. This could be played by either going long GDX outright or a combo of short GLD-long GDX. Trading it as a pair has the advantage that it isn't simply adding to my already substantial net long gold exposure. On the other hand, past performance shows that when gold declines (as in 2008 or since last fall) the ratio has increased rather than decreased, and even if you remove the 2008-09 craziness it's been creeping up steadily for at least six years. Supporting two positions also cuts the possible returns on deployed capital.
So, it might be better to look for a long on GDX only and put aside the correlation risk. Based on GDX chart a return of around 20% in 2-3 months seems a reasonable expectation. It would be temporarily taking more risk in gold for a (hopefully) quick boost to returns.
Yeah that one looks tough, you can see how it just got done utterly demolishing all the shorts with a 50% rally in 2.5 months - despite the fact that the fundamentals presumably haven't changed much in that time.
I would check back in 3-6 months and see if the price seems to have found a ceiling.
Came close to picking up some blue chip miners today for a short-term trade but they couldn't hold the bounce.
What's your take on Goldie's "Long Good Buy?"
http://www.businessinsider.com/goldman-the-long-good-buy-the-case-for-equities-2012-3
Asking in context of gold b/c at this point one might argue A = B = C: A bullish call on gold equals an environment demanding QE 3, 4, 5 etc, which in turn equals a call for economic downturn. (SocGen's bullish gold case is based on anticipating a horrible GDP surprise.)
If the recovery continues to "muddle along," in contrast, and China does not implode, it seems easy to see gold left in the lurch.
Re, GS call that stocks are "best buy in a generation," could either be 1) cynical signs of a top, or 2) possible staging ground for an upside blowoff move in equities, which would fit the 1987 scenario (another monster run, leading to euphoria, before disaster in the Fall).
The thing I don't get about holding gold here is the downside risk. Yes it's possible that the uptrend shortly resumes -- but there is also nontrivial possibility that gold declines another 30% before turning around (inverse, I suppose, to the possibility of equities making another 10-20% push higher).
I'm heavily promiscuous in my research, highly selective in trades. (can't remember who said that)
When I make seemingly flip statements about Amazon being another Netflix or Wal-Mart will compound my money at double digits over the next 15 years, I'm not just throwing darts at a board - there's actually weeks (if not a lifetime) of research and studying and analysis behind those cute 10 or 12 words.
Quote from ralph00:
I'm heavily promiscuous in my research, highly selective in trades. (can't remember who said that)
When I make seemingly flip statements about Amazon being another Netflix or Wal-Mart will compound my money at double digits over the next 15 years, I'm not just throwing darts at a board - there's actually weeks (if not a lifetime) of research and studying and analysis behind those cute 10 or 12 words.
Pretty sure it was William Eckhardt (New Market Wizards)
We think AMZN could be another NFLX too - though maybe not in the way you mean
Quote from darkhorse:
Pretty sure it was William Eckhardt (New Market Wizards)
We think AMZN could be another NFLX too - though maybe not in the way you mean
Just to clarify. I think AMZN could be another NFLX in that it's set to vaporize a chunk of its owners money!
No position ... yet.
It's utterly transparent nonsense. Especially rich coming right on the heels of Greg Smith's disclosures; Goldman is always trying to sell the muppets the crap it doesn't want to own.
I'd like somebody to show me some data proving that the difference between the 10-year bond yield and the SPX dividend yield has historically been a good predictor of stock market returns. Just look at the first chart in that article: stocks were supposedly extraordinarily expensive in the early 1980s (after all, they weren't yielding much compared to bonds!) but of course those years were a historic, once-in-a-lifetime buying opportunity, and this should have been obvious to those using common sense and Shiller PEs. The chart literally shows completely opposite readings in 1932 and 1982, two genuine generational lows. It's worthless crap.
On a straight theoretical basis these are different asset classes with wildly different risk and return profiles. It's certainly possible - even likely - that the returns on stocks will be higher over the entire lifetime of the 10-year bond. That is, higher than 2.4%/year or whatever, nominal, not compounded. That is over 10 years from current prices and says absolutely nothing about whether there'll be a 50% decline somewhere along the way, etc. It doesn't say anything about your real returns which could be deeply negative. Not my idea of a generational buying opportunity in stocks.
All I can say is that this has not historically been the case. Gold rose from 2000-2007, it also rose from late 2008-late 2011. It rose before the crisis, during the crisis, and after the crisis, while QE was underway and while it wasn't. It fell during the panic liquidation in late 2008 when fear reached a peak, it also fell (or more correctly went sideways) since last fall when fear eased off. Gold just isn't a proxy for the VIX and it doesn't consistently move inverse to stocks, only on some occasions.