Global Macro Trading Journal

Daal said:
I locked in a bit more at $187 SPY. Still got 2/5. Its getting closer to the $185 target but I still want some in case there is a flash crash or a standard crash. But its getting though to keep holding. The gains add up and its hard not to lock them up
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Why do you trade SPY instead of Mini SPX?
 
CH1973 said:
Why do you trade SPY instead of Mini SPX?
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I'm actually using IVV. Its an illiquid version of SPY, this will flash crash harder if there is a repeat of the august panic. It will diverge from SPY and ES and give excess returns for shorts (who put GTC covers ahead of time, mine are already live, even for outside regular trading hours). Also its easier to scale in and out of these ETFs because you can buy or sell any amount of shares instead of a fixed value per contract
 
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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Daal I dont think its right to add the state company debts on the Government balance sheet unless you realy believe they will be belly up in the near future, which seems to be a very bearish assumption. Regarding Petrobras, although I cant say that being long the company´s bonds is a safe play, its extremely hard to believe the Government will let the company to default. Petrobras is too big to fail, its easier for me to see the Government privatizing it than let it go under. Having said that, I believe that in an extreme situation the Brazilian Government will do with Petrobras the same thing the US Government did in 2008 with some US Banks (Citi in particular), they inject a lot of capital in the company diluting the shareholders and keeping the bondholders safe....
 
Daal said:
I'm actually using IVV. Its an illiquid version of SPY, this will flash crash harder if there is a repeat of the august panic. It will diverge from SPY and ES and give excess returns for shorts (who put GTC covers ahead of time, mine are already live, even for outside regular trading hours). Also its easier to scale in and out of these ETFs because you can buy or sell any amount of shares instead of a fixed value per contract
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Very interesting, thank you for your answer... In the last flash crash did this divergence really happened?
 
CH1973 said:
Very interesting, thank you for your answer... In the last flash crash did this divergence really happened?
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Yes, you can check the chart. IVV had a huge wick candle that quickly came back up. Lots of ETFs did that. As a matter of fact I'm starting to put more GTCs orders in other ETFs at low prices to see if I get filled in case of a panic (to get long). Its not even about the profit on the order per se (although, that will happen). They will also work to ALERT me that the ETF is crashing. Then I can take a look and buy a HUGE long. I really wish I had seen the ETFs crashing in August. I didnt until it was too late. I would have put all my money into them. I would not have sold either (until I was sure the trades wouldn't be busted) so I could have potentially made a bunch on the rally as well. Its a real shame. I could have made like a 30-50% gain on my networth on that day. But now I'm prepared, even if it takes years, next time it happens, I want to be there to bank big
 
CH1973 said:
Daal I dont think its right to add the state company debts on the Government balance sheet unless you realy believe they will be belly up in the near future, which seems to be a very bearish assumption. Regarding Petrobras, although I cant say that being long the company´s bonds is a safe play, its extremely hard to believe the Government will let the company to default. Petrobras is too big to fail, its easier for me to see the Government privatizing it than let it go under. Having said that, I believe that in an extreme situation the Brazilian Government will do with Petrobras the same thing the US Government did in 2008 with some US Banks (Citi in particular), they inject a lot of capital in the company diluting the shareholders and keeping the bondholders safe....
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The thing is, Dilma is doing things that their party totally hates. She hates it too. They are being forced by the market to cut down social spending, change labor safety nets (in the middle of a recession), etc. So if the choice is between Brazil being broke or PBR being broke, I'd say they will let PBR go even if they hate it. But honestly, I have been studying more and more of the fiscal situation and I'm actually starting to get optimistic on Brazil. I plan to make a presentation to a toastmaster club that I attend, after that I will use the same slides to make a video explaining the situation (for friends and family). I can also make english version of the video if you guys want.

But basically, the more I study the 98-99 currency crisis and the 02-03 crisis, the more I see that the current crisis is much smaller compared to those. The situation of the government indebtness is just much more robust. I'm even considering going long USD Brazilian debt maturing at 2020. they yield something like 6% and I can't see that debt not being money good
 
The main reason why that debt is good is the fact that the government has $30B in foreign currency debt and they have $680B in domestic BRL debt. It makes no sense to default on the foreign debt. It doesn't help solvency and it doesn't help in anyway
 
Also, the IMF is likely to bailout the country before it would default on these bonds. In addition, defaulting on the bonds might not work because of vulture funds 'holdouts' like in Argentina. So they will just inflate away the domestic debt rather than touch the USD debt
 
Daal said:
The thing is, Dilma is doing things that their party totally hates. She hates it too. They are being forced by the market to cut down social spending, change labor safety nets (in the middle of a recession), etc. So if the choice is between Brazil being broke or PBR being broke, I'd say they will let PBR go even if they hate it. But honestly, I have been studying more and more of the fiscal situation and I'm actually starting to get optimistic on Brazil. I plan to make a presentation to a toastmaster club that I attend, after that I will use the same slides to make a video explaining the situation (for friends and family). I can also make english version of the video if you guys want.

But basically, the more I study the 98-99 currency crisis and the 02-03 crisis, the more I see that the current crisis is much smaller compared to those. The situation of the government indebtness is just much more robust. I'm even considering going long USD Brazilian debt maturing at 2020. they yield something like 6% and I can't see that debt not being money good
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Daal you know I am becoming more optimist about Brazil for the simple reason that society seems to be moving toward a more conservative and market friendly country. I have strong confidence the next Congress and Government will be the most conservative and market friendly Brazil ever had. Although we are currently suffering with the lack of leadership the good side of it is that PT will be terminated for good and the discussion about the size of the public sector will be big as ever.

I already bought Brazilian debt. Check the BR 2037 (8% Yield), the BB 2049 Perpetual (check the one with 8 1/2 Coupom because the others have Tier 1 thersholds) or Itau 2021... I have a strong conviction that our generation will have to deal with low Interest Rates for the rest of our lives (I doubt we will ever see US Rates above 2.50% again), so I am taking advantage of the Brazilian meltdown to build my long term portfolio.

Pls if you dont mind send me the presentation your are preparing and because of me dont bother to translate it.
 
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