Global Macro Trading Journal

[Daal]

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.

That's exactly what I have been telling people! If Neves had won, it would have been the worst thing for Brazil. Because PSDB would be the ones left holding the bag of all the risky fiscal policies. He would have a crappy term and his party would be terrible to the uneducated who would think 'pt, good economy, psdb, bad economy'. All this would happen to no advantage to brazil because PT is effectively running the same policy that PSDB would run, namely, austerity, roll back of social spending, etc. The way things played out PT will be unelectable for at least 10 years. Its been proven that populism didn't work, and everybody will pounce on it.

Brazilian stocks will have a good sizable rally as it gets closer to the 2018 election. The play might be to buy a sizable flush on 2016, not just it will be a good valuation (like 10 times earnings or lower) but one will be anticipating a 2017/2018 rally. For a long-term allocation, its a good setup

Btw, which broker you used to buy the brazilian bank bonds? At IB, when I try to buy BANBRA (Banco do Brasil) or CAIXA, the minimum order size is at least $100K, often even more. That's more I my risk tolerance would allow me to buy

 

[Daal]

I plan to keep doing some more research on Brazil. I find this market (and to some extend Russia and Turkey) exciting places to know more about. If you look at the US or Europe, from an investor perspective, its just downright depressing. Expected real rates of return have been compressed so much througn yield chasing by investment managers that you pretty much is guaranteed not grow your money much over the next 10 years (unless you get hugely lucky and everything turns into a full blown bubble)

In some emerging markets, expect real rates of return are quite high. You actually get paid for being a saver! And whats better, frequently you can use those positions as margin to enhance your returns through day/swing/position trading. The combination of these two returns can ensure that if you do the work properly, you can have very good compounded return rates even at short to medium term time frames (because honestly, I really don't care about when I'm over 65)

 

[Daal]

Just to give an idea, check out this chart

This is the bovespa priced in USD. You wont find this on ZeroHedge. The stock market actually did well even during the hyperinflation of the 80's and 90's, all the economic crises/recessions etc. Now, it was a very bumpy road but that volatility can be mitigated by following a very simple rule: buy when people hate stocks, sell when people love stocks

A good market flush in 2016 looks to me as an attractive entry point. People are not totally hating stocks still, but its getting there

 

[CH1973]

That's exactly what I have been telling people! If Neves had won, it would have been the worst thing for Brazil. Because PSDB would be the ones left holding the bag of all the risky fiscal policies. He would have a crappy term and his party would be terrible to the uneducated who would think 'pt, good economy, psdb, bad economy'. All this would happen to no advantage to brazil because PT is effectively running the same policy that PSDB would run, namely, austerity, roll back of social spending, etc. The way things played out PT will be unelectable for at least 10 years. Its been proven that populism didn't work, and everybody will pounce on it.

Brazilian stocks will have a good sizable rally as it gets closer to the 2018 election. The play might be to buy a sizable flush on 2016, not just it will be a good valuation (like 10 times earnings or lower) but one will be anticipating a 2017/2018 rally. For a long-term allocation, its a good setup

Btw, which broker you used to buy the brazilian bank bonds? At IB, when I try to buy BANBRA (Banco do Brasil) or CAIXA, the minimum order size is at least $100K, often even more. That's more I my risk tolerance would allow me to buy

Dall I use IB. In some bonds, like the BB2049 that I mentioned the minimum ticket is 100k bonds (around USD80k...), others like the BR2037 the minimum ticket is 1k bonds....As fair as I know you cant escape from trading the min. ticket....

 

[CH1973]

Just to give an idea, check out this chart

View attachment 157452

This is the bovespa priced in USD. You wont find this on ZeroHedge. The stock market actually did well even during the hyperinflation of the 80's and 90's, all the economic crises/recessions etc. Now, it was a very bumpy road but that volatility can be mitigated by following a very simple rule: buy when people hate stocks, sell when people love stocks

A good market flush in 2016 looks to me as an attractive entry point. People are not totally hating stocks still, but its getting there

I have a problem buying Brazilian Equity with the money I have locally because the cost of opportunity is enormous (Interest Rates is 14.25%) however, offshore is a different animal since the cost of opportunity is Zero.... Nevertheless if I want to run Brazilian Risk in my offshore money, I rather have bonds with yields above 8% in USD than equity....Maybe in 2016 will be a good moment to flip for an 2018 election bet.

 

[Daal]

I have a problem buying Brazilian Equity with the money I have locally because the cost of opportunity is enormous (Interest Rates is 14.25%) however, offshore is a different animal since the cost of opportunity is Zero.... Nevertheless if I want to run Brazilian Risk in my offshore money, I rather have bonds with yields above 8% in USD than equity....Maybe in 2016 will be a good moment to flip for an 2018 election bet.

I posted a study last week the talks about this issue. The fed model (using interest rates to value stocks) is not right because one is comparing a real return (the earnings yield) with a nominal return (the bond yield). its a lot more complicated than that, Assness did a terrific job explaining why this is incorrect. Honestly, I think thats the best paper I've read in my life, the guy just did a great job explaining a complicated topic in very simple language. I plan to read more Assness papers, the guy knows his stuff. You should check it out. In Brazil, there is even an additional benefit, dividends are tax free (correct me if I'm wrong), meanwhile, interest income from bonds is not

 

[Daal]

Markets are bouncing but I'm not in a rush to add back the parts of my short that I covered. SPY got beaten down quite badly for almost 2 weeks straight. This might have legs
If it pops to 194-195, the risk-reward of betting in a October reversal of buy everything to sell everything will look very attractive

 

[Daal]

I posted a study last week the talks about this issue. The fed model (using interest rates to value stocks) is not right because one is comparing a real return (the earnings yield) with a nominal return (the bond yield). its a lot more complicated than that, Assness did a terrific job explaining why this is incorrect. Honestly, I think thats the best paper I've read in my life, the guy just did a great job explaining a complicated topic in very simple language. I plan to read more Assness papers, the guy knows his stuff. You should check it out. In Brazil, there is even an additional benefit, dividends are tax free (correct me if I'm wrong), meanwhile, interest income from bonds is not

In addition, in Brazil there is the bizzare tax loophole that makes stock market capital gains tax free if you sell small amounts per month. Although, I don't think the loophole applies to ETFs

 

[luisHK]

Just to give an idea, check out this chart

View attachment 157452

This is the bovespa priced in USD. You wont find this on ZeroHedge. The stock market actually did well even during the hyperinflation of the 80's and 90's, all the economic crises/recessions etc. Now, it was a very bumpy road but that volatility can be mitigated by following a very simple rule: buy when people hate stocks, sell when people love stocks

A good market flush in 2016 looks to me as an attractive entry point. People are not totally hating stocks still, but its getting there

Interesting, is EWZ such a bad proxy about the Brazilian market ? from your chart it appears the market in USD term is down around 50% from its 2007 top whereas EWZ is down around 78%.

CH1973, do you suffer any whitholding tax from your brazil bonds ? Although considering I live neither in the US nor in Brazil our tax treatment in this regard might be different. I might be interested in EUR, HKD and RMB bonds as well, need to check but i think some brazilian bonds are listed in HK

Good to see this thread beeing lively gain.
Besides Daal i'm not sure where you got your data October is overall negative, check the link below, it only ges back to 1991 but from memory when I was more into seasonals it's been overal positive for several decades.
Talking about seasonalilty (with a political backing for this one, as governments have better chance to get elected with a strong stock market and are likely to push it up especially bfore the national elections) the period before the US presidential election is also bullish, although so far this year it has been struggling.

http://jeffhirsch.tumblr.com/

 

[Daal]

Interesting, is EWZ such a bad proxy about the Brazilian market ? from your chart it appears the market in USD term is down around 50% from its 2007 top whereas EWZ is down around 78%.

Two things, EWZ is diferent from the Bovespa. It doesn't have all the stocks. Also, there might be an issue conserning dividends. My chart, I believe, includes dividends. Wheares in EWZ you lost 74% but got paid something like 3-5% a year