Global Macro Trading Journal

Its hard to be bullish on US stocks because of divergence in terms of breath (Russel is weak, AD line is divergent) and HY meltdown creates a competing asset for stocks. If the theory for stocks is "there is no alternative in a 0% world", with the fed hiking and HY bonds becoming more attractive, there ARE many alternatives. I probably have predicted 5 out of the last 1 bear markets but I don't know. I rather be defensive here. All the folks who bought the 2050/2100 rallies over the past year have not made any money. I don't think that will change.
I got some exposure through PSH and shorts on BRKB puts (as well as EWZ but I think that lives in a world of its own) but its not more than 10-15%. And I got plenty of UST bonds to hedge a potential downside
 
The short BRKB puts is a trade I like. I'm short Jan 125 puts. If I get assigned that will be great. The Buffett buyback kicks in at around $120. Every buffett follower on the planet will hear about it because the media will talk constantly that Buffett is buying back his own stock. So that provides a natural support for the stock (from the followers and Buffet's ~$40B buying). But its also a good value down there

People miss one fact when looking at BRKB underperformance vs the S&P500 over the past 5 years or so. The S&P500 outperformed because it became more and more overvalued, BRKB underperformed because it stayed fairly valued and right now, undervalued. The past is not an indication of the value. In fact, I believe it will be the opposite going forward
 
I plan to short BRKB puts through 2016 and collect some low risk income. If there is a bear market, I will probably be assigned but that's fine. If there isn't, I will make 1-2% in additional returns, with little risk
 
And with PSH (Ackman's stock fund), I increased my position yesterday (to 5%) but I'm considering increasing it even more (all the way up to 15-20%).
He posted his letter yesterday
http://assets.pershingsquareholding...-Square-Holdings-Ltd.-Q3-Investor-Letter1.pdf

My logic is the following, even if VRX goes down to $0, the discount in his other holdings (and they have taken a beating due fears of liquidation among other factors) offsets the VRX risk. He talks about how this is one the largest discrepancies between intrinsic value and market price he has seen in his portfolio. So there is an extra value on those holdings there and that makes it worth it. In Q3 alone 10% of the fund decline was his non-VRX holdings, VRX was only 5% (totalling -15%). I estimate his VRX exposure now is 14-15%, so if the 85% is discounted by an extra 10-20% for non-economic reasons, that more than makes up for a potential problem with VRX
In addition, this VRX rally might enable me to purchase long-term put options at low strikes to hedge the exposure against extra volalitity. The combination of the extra value plus the chance to put in a (now) cheaper hedge, makes me more comfortable with the volatility going forward
 
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I find this part of the letter quite telling
"Despite the substantial decline in the funds’ performance from August to the present, our net redemptions were nominal at $39 million or 0.2% of capital for the third quarter, and $13 million or 0.1% in the fourth quarter. As a result, we have not been forced to raise cash as the portfolio declined, but have been able to be opportunistic"

Now, where is ZeroHedge with their nonsense about Ackman having liquidate?
 
I bought more PSH (now 10% of my assets) and shorted an amount of VRX to get the PSH VRX size down to 5% of the fund (from 15%). I will be more comfortable with it that way
 
Fed hikes and ZQ (fed futures) for January settlement drops 2 bps (it would have rallied 20bps had they not hiked). very surprising. Market is pricing in a 34bps effective fed funds. When I was betting against a hike in september I thought it would be 38-40bps. Had I known the market would be this low on the EFF I would have sized a lot more back in september.
 
Daal said:
I bought more PSH (now 10% of my assets) and shorted an amount of VRX to get the PSH VRX size down to 5% of the fund (from 15%). I will be more comfortable with it that way
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That's pretty dang smart to cut exposure to VRX when in the PSH portfolio. Hmmm...

I still don't like Ackman though. LOL.
 
JB3 said:
That's pretty dang smart to cut exposure to VRX when in the PSH portfolio. Hmmm...

I still don't like Ackman though. LOL.
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I think he is a great picker and his record shows that. I've come to accept that I just don't like being long stocks, I'm forced to rely on tricks to in order to increase my staying power and not sell when things go bad. Using a manager that has a good record (whether is Ackman or Buffett with shorting BRKB puts) is a trick that helps me in that regard
 
What the Fed is doing here is very dangerous, they 'dots' (fed funds forecasts) didn't come down very much. Yet the market is discounting a interest rate curve that is not in line with their forecasts. The problem is that the market is bipolar, at some point people might freak out and think 'what if the Fed is right?'. If that happened you could see a very negative reaction in both stocks and bonds.
I happen to think the Fed is wrong, their forecasts sound ridiculous to me but the market might have a rout if they start to second guess themselves

I hope it happens, I would love to buy Fed funds futures at good prices to fade crazy expectations in 2016. At any kind of stock market collapse, these futures would rally and the Fed would come to the rescue
 
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