Global Macro Trading Journal
- Thread starter Daal
- Start date
Hmmmm, I have to say, these arguments don't sway me personally at all... In hindsight, lots of money could have been and undoubtedly was made trading all sorts of things. To me, that's neither here nor there, but that's just my personal view.
I'd raise these points
-Gold COULD be a better choice if you are using gold futures. Otherwise I'd just dismiss it as a long-term asset. Why?There is a price for everything, for me to give up several percentage points a year in compounding returns for no reason makes no sense. Apparently you would give up that return because historically during economic turmoil gold has gone down less. But the vast majority of the time the world will be growing and I can't give up those returns very easily.
In my case I can finance a futures position by being long BZF that will yield me about 6% a year plus the returns of the futures. I can't give that up that kind of expectation so easily
-CRB and other indices had their major collapses(50%) recently, whereas gold had one like 30 years ago. I make no claim this is scientific but I suspect its more likely a asset will have a huge drawdown when it haven't had one in a long-time than one that has had one recently. Specially when people don't expect it to happen(Whereas the one that crashed people will be more careful and not drive it to exuberant levels so quickly)
I'm certainly not arguing to short EURUSD now.I just calculated the implied interest rate in the mini Gold contracts from NYSELIFFE(Essentially the size of the premium you pay for contracts further out). From June 2012 to Dec 2013 the rate came out at 0.09%, this is about ~0.22% for yearly financing of a $55K gold position with about $3K margin(Little less actually). Commissions for rollover costs are quite small($1.62 per contract I believe, 2 times a year should be enough, bid ask spreads are tight even going out many months)
Compared to 0.4% expense ratio for the ETF and something similar to that for putting gold in banks.
Margin requirements of course are much worse and this is where the a LOT of percentage points are given up if you don't use the futures. With the ETF you are forced to pay up 50% in cash(It's actually 100% because borrowing from your broker can quite expensive) and physical gold 100%. The futures require little less than 7% and it doesn't have to be cash, can be stocks, gov bonds, some fixed income ETFs, etc
This should add 2-3% a year for conservative fixed income portfolio for the next 10 years. In my case, since I live in Brazil. Its even more, real rates are quite high. Giving up 2-3% a year in order to satisfy some paranoia about having to have the gold in front of you is just insane in my view. At 2-3% one is overpaying a LOT for that Mad Max option
Plus its always nice to have positions that don't use up cash so I don't have to pay IB their 1.5% a year
Compared to 0.4% expense ratio for the ETF and something similar to that for putting gold in banks.
Margin requirements of course are much worse and this is where the a LOT of percentage points are given up if you don't use the futures. With the ETF you are forced to pay up 50% in cash(It's actually 100% because borrowing from your broker can quite expensive) and physical gold 100%. The futures require little less than 7% and it doesn't have to be cash, can be stocks, gov bonds, some fixed income ETFs, etc
This should add 2-3% a year for conservative fixed income portfolio for the next 10 years. In my case, since I live in Brazil. Its even more, real rates are quite high. Giving up 2-3% a year in order to satisfy some paranoia about having to have the gold in front of you is just insane in my view. At 2-3% one is overpaying a LOT for that Mad Max option
Plus its always nice to have positions that don't use up cash so I don't have to pay IB their 1.5% a year
Anyone have any comment on Jordan's statement today? Sounds more aggressive than previous speeches, he included the ready to act clause, not just the usual stand behind the peg phrase.
And on shorting GBP, I tried that in Q4 11, when the UK data was absolutely horrendous, and that didn't work. To ralph: you have some insight on the BOE or UK data that we don't know about?
And on shorting GBP, I tried that in Q4 11, when the UK data was absolutely horrendous, and that didn't work. To ralph: you have some insight on the BOE or UK data that we don't know about?
In an implicit reply to repeated calls from some politicians and industry groups to raise the floor to CHF1.30 or higher, Jordan said: "A minimum exchange rate is an extreme measure, only to be introduced in a situation of massive overvaluation, with the aim of averting the worst developments. It is neither a panacea capable of solving all the problems facing the Swiss economy, nor can it simply be implemented for any desired level, free of any risk."
Doesn't sound like a man ready to raise the floor (although he could be sandbagging).
Doesn't sound like a man ready to raise the floor (although he could be sandbagging).
Obviously no one would put in a low return asset for no reason, so that's a flawed assumption. Clearly there must be a reason - and the reason is that putting in a low return but low or inversely correlated asset improves total portfolio return for a given level of risk. When the rest of the portfolio is hammered, the low/-ve return assets do well and thus reduce drawdown e.g. the 1970s, 2000s.
All that matters in a portfolio is the return relative to the risk. The individual asset returns are not what you focus on, it's the total risk-adjusted return. Portfolios with some gold show superior characteristics than those without.
BZF will not provide you 6% per annum if the country experiences some crisis like hyperfinflation, banking collapse, asset confiscation etc, or even just a mundane period of shitty returns like the 70s or 2000s. Having some capital in gold will improve your performance and reduce your risk during such periods, and thus improve the long-term performance of the whole portfolio. Besides, you would already have some cash as part of a diversified portfolio (I recommended 20%, Harry Browne recommended 25%).
I agree that when an asset becomes super popular, the crash risk is greater. However, it's usually quite clear when an asset is in a bubble, and you can just switch out when that happens (having taken huge gains).
Rather than make flawed assumptions about portfolio returns, the superior approach is to actually look at the data. You can get stock/bond/gold/cash/crb returns going back to the Nixon decision to leave the gold standard. Just plug in your desires asset allocation and look at how much it returned, how big the drawdowns were, and see how different allocations would have done. To avoid data-mining, it's best to stick to ones that have some theoretical justification.
As an example, Harry Browne's Permanent Portfolio (25% each in stocks, long bonds, cash, and gold) has done very well since it was first proposed decades ago, in all kinds of market environments, despite 3 of the assets being relatively low in expected returns. The reason is that it generally avoids large drawdowns - one of the components is going to be performing relatively well and thus capping the downside.
All that matters in a portfolio is the return relative to the risk. The individual asset returns are not what you focus on, it's the total risk-adjusted return. Portfolios with some gold show superior characteristics than those without.
BZF will not provide you 6% per annum if the country experiences some crisis like hyperfinflation, banking collapse, asset confiscation etc, or even just a mundane period of shitty returns like the 70s or 2000s. Having some capital in gold will improve your performance and reduce your risk during such periods, and thus improve the long-term performance of the whole portfolio. Besides, you would already have some cash as part of a diversified portfolio (I recommended 20%, Harry Browne recommended 25%).
I agree that when an asset becomes super popular, the crash risk is greater. However, it's usually quite clear when an asset is in a bubble, and you can just switch out when that happens (having taken huge gains).
Rather than make flawed assumptions about portfolio returns, the superior approach is to actually look at the data. You can get stock/bond/gold/cash/crb returns going back to the Nixon decision to leave the gold standard. Just plug in your desires asset allocation and look at how much it returned, how big the drawdowns were, and see how different allocations would have done. To avoid data-mining, it's best to stick to ones that have some theoretical justification.
As an example, Harry Browne's Permanent Portfolio (25% each in stocks, long bonds, cash, and gold) has done very well since it was first proposed decades ago, in all kinds of market environments, despite 3 of the assets being relatively low in expected returns. The reason is that it generally avoids large drawdowns - one of the components is going to be performing relatively well and thus capping the downside.