Global Macro Trading Journal

Ackman did a very strong presentation, regardless of what the idiots on twitter say. He pretty much removed off the table the scenario where VRX would have fined so much it would go belly up. There is simply no basis to believe that. Other companies have done stuff far worse than VRX (and philidor has only 'gamed' stuff this year) and they settle for amounts that VRX would pay with just 1 quarter worth of cash earnings. Ackman model assumed a lot of bad things for the company and they still came out with a $250+ a share value. I wish I could buy more PSH (IB is restricting it) but since I can't, I will add VRX longs as a long-term investment. Short-term it probably struggles but for a holder looking at 1 year out, it looks like a good pick
 
This is similar to the whole JPM london whale thing (a point I raised earlier and that Ackman also did). IIRC JPM tanked from $43 to $29 over weeks on an totally silly thing that had no long-term impact on the business (a one time charge)
 
If Citron is right the stock drops $50, if Ackman is right the stock rips $150. Good risk-reward for longs. If Hempton is right the stock drops $100 but he provided no basis for his claim for the huge fine. Ackman did, he had a lawyer in the call as well. She even addressed a question I sent about the DOJ. Point is, its extremely unusual (maybe even unprecedented) for the government to try to bankrupt a company in these suits. Even the ones that did stuff worse than phillidor. We can just look at what happened in the financial crisis, banks settled their wrongdoing and it was back to business as usual. One time charges
 
The JPM london whale thing is a good analog because banks are hated, big banks even more. They are heavily regulated and JPM did mess it up. The media just pounded on them for weeks. ZeroHedge was bashing it daily. Yet, the fundamentals win out over the long-term. You just can't stop a stock with strong cash flows from rising, specially if there is a buyback in place
 
So at this point I'm looking to review Ackman's slides over the weekend and buy VRX on monday. With the downside momentum I probably will get to buy it cheaper and with more info. I'm not selling one share of PSH
 
The real question is what kind of position sizing to take. I'm inclined to go at the most to 5% of my networth into it. Probably around 3% initially and another 2% if it tanks a ton (maybe I should short a put to generate that effect). If the shorts with no lawyers, chasing downside momentum and acting emotionally are right, I lose 5%. If Ackman with lawyers and info on settlements is right, I at least double my money.
I could also lose less if the shorts ended up being right because frequently prices take a while to adjust to significantly bad news (and bs from citron doesn't qualify as bad news). So if some huge problem shows up and I can sell at $60 my loss would be 2% compared to a potential gain of 5% or more
 
Here is a random question that has nothing to do with anything I discussed recently but I got curious about. Buffett in 2008 said on "Buy American I am" article:

"So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities."

Why did Buffet own nothing but US gov bonds on the months leading to the crash of 2008? I can't imagine that has was worried about valuations because he never said anything of the kind recently and valuations are higher now, also stocks were falling every month, how come he wasn't buying? You get the impression that he only started to buy in the dates close to the article. If anyone knows, I would love to know
 
If Buffett switches from stocks to bonds depending on valuations and sentiment, how come the article "sell america I am" didn't come out. Because I think a lot of data supports the idea that now stocks are a better sell than in 2007. Unless he is doing the whole 'stocks compared to interest rates' thing
 
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