Global Macro Trading Journal

USTs are not corporate bonds, but the little information I just looked up is not conclusive, from this link it states interests are hit by the witholding tax but I can't say I navigate the IRS website understanding all it states.
http://www.irs.gov/Businesses/U.S.-Tax-Withholding-on-Payments-to-Foreign-Persons
I'm not sure which part was supposed to be tax free, but I remember suffering the wiltholding tax from BOND and BND dividends, in 2014 and possibly 2013 (I need to find out on older statements)
I remember opening a thread on this forum btw after a short term capital gain payment from an ETFs was paid and I was worried about the witholding tax - which hit my account a while later.
i might as well inquire to IB reps, but has anyone more input on corporate bonds interests payment to overseas holders and witholding tax ? If there isn't any I might start buying US bonds
 
I bought Citigroup and ILFC bonds back in 2009. I did not pay tax on that. They are qualified as 'portfolio interest' which is exempt
 
Going along with the interest income idea, I just put 10% of my funds in 10y USTs. The additional benefit here is that if markets indeed panic in Oct, I might be able to flip these for a quick capital gain in a big VIX spike day.

I tried to add a bit to IVV (S&P500) shorts today but it was hard, the market grinded in a channel for hours. Then it just broke all of the sudden when biotecs tanked. Of course, I gave up just before that
 
I made a bit daytrading short SPY but its tiny. I just thought the whole idea that markets could rise on hawkish fed speak completetly ridiculous. Seemed like the typical equity market BS of finding reasons to buy even if they suck. It doesn't just add up that these market can stand rate hikes, not until there is a flush out of all the players who chased this momentum trade for years. Technicals and pyschology have been broken, now its all about how low this thing has to go before there is value
 
Expect everybody now to comment on how stocks are a sell with October being so close. Of course, antecipating this at $200 SPY these fuckers didn't do. Now they want everybody to chase the market down. Well, its hard to do that and not mismanage the trade when you get squeezed. which is why a good entry is key
 
Daal said:
Cool. Any idea on what is the implied interest rate that this BRL is offering? Since the CHF fiasco some FX shops have cut down interest payments and increase costs dramatically. I used to love Oanda but now the carry and costs are made the broker almost useless
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Good question. Unfortunately their web site
http://www.ig.com/uk/ig-forex/usd-brl
does not provide the specific interest rates used for overnight financing.

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I plan to do some more work soon to determine how 'insolvent' (though thats a weird term to apply to a sovereign nation) the Brazilian government is. Here are some quick figures I gathered recently (they might be off by a little bit)

Domestic BRL debt converted to USD $670B - at 14-15% annual interest
USD debt $30B - at 4-5% interest cost or so
Petrobras USD debt $100B (not explicitly guaranteed by the government)
BBras and Caixa USD debt about $70-$80B (not explicitly guaranteed by the government)

Thats roughly $900B USD at pretty darn high interest costs. Meanwhile the FX reserves are $375B, that pays 2-3% a year.
Interest payments are about 5-6% of GDP (I believe that is net, that is, after the income from reserves), total fiscal deficit is about 8-9% of GDP (the difference is the primary deficit). GDP is $2.2T USD

At this point, the government no longer runs the country. The market does, if people think things are going to be alright, they will be. If they don't, they won't. Commodities are also a factor too. If oil goes to $20 and stays there, Brazil will need a IMF bailout or it will default (or maybe they will just print money), if it goes back to $80 along with the commodity indexes, then Brazil is a huge buy.

That's what makes it tough. You got to predict how people will percive the situation and where commodities are going. But a lot of the times you can make bets directly instead of using a proxy.

I do think the Petrobras corporate bonds are a dangerous play. If there is one debt they might not stand behind, its that one. With the state banks I don't think they will have much choice but to bail them out (although, I don't think they are in any financial trouble as of right now) otherwise you just have a massive bank run and a depression
 
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Daal said:
I plan to do some more work soon to determine how 'insolvent' (though thats a weird term to apply to a sovereign nation) the Brazilian government is. Here are some quick figures I gathered recently (they might be off by a little bit)

Domestic BRL debt converted to USD $670B - at 14-15% annual interest
USD debt $30B - at 4-5% interest cost or so
Petrobras USD debt $100B (not explicitly guaranteed by the government)
BBras and Caixa USD debt about $70-$80B (not explicitly guaranteed by the government)

Thats roughly $900B USD at pretty darn high interest costs. Meanwhile the FX reserves are $375B, that pays 2-3% a year.
Interest payments are about 5-6% of GDP (I believe that is net, that is, after the income from reserves), total fiscal deficit is about 8-9% of GDP (the difference is the primary deficit). GDP is $2.2T USD

At this point, the government no longer runs the country. The market does, if people think things are going to be alright, they will be. If they don't, they won't. Commodities are also a factor too. If oil goes to $20 and stays there, Brazil will need a IMF bailout or it will default (or maybe they will just print money), if it goes back to $80 along with the commodity indexes, then Brazil is a huge buy.

That's what makes it tough. You got to predict how people will percive the situation and where commodities are going. But a lot of the times you can make bets directly instead of using a proxy.

I do think the Petrobras corporate bonds are a dangerous play. If there is one debt they might not stand behind, its that one. With the state banks I don't think they will have much choice but to bail them out (although, I don't think they are in any financial trouble as of right now) otherwise you just have a massive bank run and a depression
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Thanks for your thoughts Daal. Regarding Petrobras - has there been any discussion in the local media about a potential/hypothetical Petrobras bailout, and what it would look like? To what extent is Petrobras considered Too Big To Fail?

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m22au said:
Thanks for your thoughts Daal. Regarding Petrobras - has there been any discussion in the local media about a potential/hypothetical Petrobras bailout, and what it would look like? To what extent is Petrobras considered Too Big To Fail?

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The media is not talking about that much. They talk mostly about the USD, the grilock, proposed austerity measures and corruption. I don't think Petrobras is too big to fail and most people who look at this will think the same. But the problem is that the government might think so. Not because it is but because they will want to save face. It will be humiliating for them to have this thing go bankrupt. It will become hard for them to get elected again. They were the ones crying about privatizations for years. To have their state cow go bust will look really bad. On the other hand, its just about impossible to get a bill through congress to bail this out. On the other other hand, they could make subsidized loans through BNDES or Banco do Brasil do Petrobras to 'roll the dice' on the company
Its tough to know what will happen. A lot depends on commodities, China and what a few guys in a room decide. Its hard to get a significant edge
 
Its funny. I was debating with some other brazilians who still insist in defending the government even though all the things that they did. It appears that the new 'socialists' these days want all countries to look like Sweden. Now, this would be all fine and great if they actually followed the Swedish model.

The problem is that these people don't have a clue what the Swedish Model looks like. They think its all about high taxes and lots of government safety nets and support programs (including healthcare). That's only half of it. The other half is pretty much free market reforms. If you look at the economic freedom index, Sweden, Norway and Denmark all rank pretty high (all are in the top 26) even though their tax rates and government spending are very high.

http://www.heritage.org/index/country/sweden

The thing is, in the other things, they follow the Singapore/Hong Kong model of non-goverment intervention. Which the excetion of Labor freedom (although Denmark follows on that too) they are very much 'free market' economies. Its easy to do business, invest, import/export, rule of law is protected, central banks are independent and business is lighly regulated (which the exception being on labor)

Brazil tried to apply the social side of safety nets without the free market reforms. Economic freedom actually went down ever since the workers party got in power. Most countries would improve grealy if they followed the Swedish model because they would have to implement market reforms and open up the country for business, investment and trade. But thats not what they do. The want to be 'do gooders' and help the poor, so they focus on the obvious part of the equation which is the safety nets. They forget you cant create wealth that way. Sweden creates wealth and redistributes it. Countries trying to follow it usually only do the latter.
 
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