Global Macro Trading Journal
- Thread starter Daal
- Start date
Something to keep in mind
"Since 1960, the S&P 500 has had no fewer than 13 non-recessionary corrections of at least 10%. The median length of these corrective phases is 101 days (the average is 144) and the median decline is 14.4% (average is -16.1%)"
http://business.financialpost.com/investing/stocks-correction-rosenberg?__lsa=4e9e-30ab
"Since 1960, the S&P 500 has had no fewer than 13 non-recessionary corrections of at least 10%. The median length of these corrective phases is 101 days (the average is 144) and the median decline is 14.4% (average is -16.1%)"
http://business.financialpost.com/investing/stocks-correction-rosenberg?__lsa=4e9e-30ab
If you look at the world in AUM (because that is what has the largest impact to move the markets): the whole hedgefund industry is like 3 Tillion. And the Bulk of that is in funds that mimic fixed income instruments using different strategies. They will be somewhat insulated from a deflation of all asset classes. The maverick hedgefund managers (Ackman, etc) are relatively small (probably a few hundred billion in AUM).
The real disaster is the 15 trillion dollar Mutual fund industry which is long everything and largely owned by retail investors in 401k and pension plans. What happens when all their assets are deflating? They pull out in droves as there's nowhere to hide.
The hedgefunds will be affected as redemptions spread like a virus; but if you think that bonds and equities will sell off together then this can become a 2008 style selloff (maybe without as much volatility) which will be driven by real money guys and it can snowball.
So, seeking alpha offered me 30 days of SA Pro free if I wrote another article for them in 30 days. I wanted to test drive their service so I decided I'm going to do that. I should write it soon, maybe tomorrow after the early close (which to me, are the greatest thing ever invented). I'm Aqua Research there
I've had some good picks there and some not so good:
I recommeded JCP at $17, said to sell $12 when it became clear it wasn't going to work out ( was in because I thought the potential was for $50+). Miss
I said KO was a strong buy at $37, right now its a $43, so something like 15% plus dividends. Ok
I said people should avoid HLF long or short. N/A
I said AAPL was a buy at a split adjusted $62, right now is at $108 plus dividends. Hit
I said GNIN was a short, it collapsed 50% quickly after the article and its down 99% since. Hit
I said MSFT was fairly valued at $29, right now its a $55 plus dividends. So it look like that was wrong. Miss
I said LOTE was a short, its down 99% since but it did put a huge squeeze after the article. So one would have needed good risk management to profit. Miss I guess
I said IBM was too risky and people should avoid in the $180s, right now its at $139 but you got some dividends on the way down. Hit
I said WMT was undervalued at $77 (but recommended people to buy on the S&P500 dip), right now its at $60 but you got dividends. Miss
I said PG was undervalued at $70, right now its a $80 plus dividends. Ok
I said USB was undervalued at $37, right now its at $43 plus dividends. Ok
I said BLUF was going to be investigated by the SEC and collapse. Its down 100% since and the SEC suspended the stock. Hit
So overall
4 Hits
3 Ok
4 Misses (the MSFT miss was a no cost miss because I said it was fairly valued, not a short)
The misses were all ok (meaning, you didn't lose much) with the exception of LOTE, which if you had no risk management, it would have cost someone a lot
I believe that is on ok record and I don't even think I'm a good picker. My philosophy is to wait until something is ridiculous and then get in. In fact, if I was running something like a mutual fund and I had to be invested, I would probably be 100% (or maybe 95% to have some cash for the withdraws) in the S&P500 and then take out 5-10% (5% for most picks and 10% when its something REALLY good) when I saw something ridiculously mispriced and then put the money in that. Overall, this would cut down on the benchmark risk while still allowing for outperformance assuming the "hit" rate is high enough and the losses are contained when you have a miss. I really think thats probably the best way for MOST people to try to 'beat' the market. Not that that's a good idea (given how much the odds are against them) but IF they are going to do it, this portfolio strategy will probably minimize the underperformance by a good amount
I've had some good picks there and some not so good:
I recommeded JCP at $17, said to sell $12 when it became clear it wasn't going to work out ( was in because I thought the potential was for $50+). Miss
I said KO was a strong buy at $37, right now its a $43, so something like 15% plus dividends. Ok
I said people should avoid HLF long or short. N/A
I said AAPL was a buy at a split adjusted $62, right now is at $108 plus dividends. Hit
I said GNIN was a short, it collapsed 50% quickly after the article and its down 99% since. Hit
I said MSFT was fairly valued at $29, right now its a $55 plus dividends. So it look like that was wrong. Miss
I said LOTE was a short, its down 99% since but it did put a huge squeeze after the article. So one would have needed good risk management to profit. Miss I guess
I said IBM was too risky and people should avoid in the $180s, right now its at $139 but you got some dividends on the way down. Hit
I said WMT was undervalued at $77 (but recommended people to buy on the S&P500 dip), right now its at $60 but you got dividends. Miss
I said PG was undervalued at $70, right now its a $80 plus dividends. Ok
I said USB was undervalued at $37, right now its at $43 plus dividends. Ok
I said BLUF was going to be investigated by the SEC and collapse. Its down 100% since and the SEC suspended the stock. Hit
So overall
4 Hits
3 Ok
4 Misses (the MSFT miss was a no cost miss because I said it was fairly valued, not a short)
The misses were all ok (meaning, you didn't lose much) with the exception of LOTE, which if you had no risk management, it would have cost someone a lot
I believe that is on ok record and I don't even think I'm a good picker. My philosophy is to wait until something is ridiculous and then get in. In fact, if I was running something like a mutual fund and I had to be invested, I would probably be 100% (or maybe 95% to have some cash for the withdraws) in the S&P500 and then take out 5-10% (5% for most picks and 10% when its something REALLY good) when I saw something ridiculously mispriced and then put the money in that. Overall, this would cut down on the benchmark risk while still allowing for outperformance assuming the "hit" rate is high enough and the losses are contained when you have a miss. I really think thats probably the best way for MOST people to try to 'beat' the market. Not that that's a good idea (given how much the odds are against them) but IF they are going to do it, this portfolio strategy will probably minimize the underperformance by a good amount
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The strategy summarizied is: Be in the index you are benchmarked against with the vast majority of your money. Take out parts of the funds when you see something is screaming at you of how undervalued it is and then get in. Limit exposures to 5% or 10% (and for 10%, stocks like VRX don't apply because of their leverage, banks don't apply either, etc). Try to only have 2-4 picks a year. More than that and you are probably not being selective enough
Same thing can be done from the bond side. If I had to invest OPM in bonds, I'd be in a similar allocation as the Barclays index but with ocasional shots at things I believe are just incorrectly priced. Right now that would be Brazilian USD bonds at 7%
I really think these bonds are getting dragged down unfairly. I see 3 margins of safety there
-BR has $37B in foreign debts (and its declining) and $370B in FX reserves, it makes no sense to default with these numbers
-The IMF would rescue the country if somehow they would run into bigger trouble. As they have done in the past
-Investors can sue the government if they defaulted like they did with Argentina. Only default I can see on this is if they do it for political purposes, just so they can say 'hey, the gringos will have to share some of the pain as well'. Because the FX reserves are in NY (I assume) a court there could just order them to pay off the bonds
Now, if they run down all the reserves in a spending spree, then that would be bad. But still, the reserves are so big compared to the debts that it would have to be a lot of spending. And there is still the IMF and the vulture funds to help out in case that happened. Consequently, I believe Brazil CDS is a sell
I really think these bonds are getting dragged down unfairly. I see 3 margins of safety there
-BR has $37B in foreign debts (and its declining) and $370B in FX reserves, it makes no sense to default with these numbers
-The IMF would rescue the country if somehow they would run into bigger trouble. As they have done in the past
-Investors can sue the government if they defaulted like they did with Argentina. Only default I can see on this is if they do it for political purposes, just so they can say 'hey, the gringos will have to share some of the pain as well'. Because the FX reserves are in NY (I assume) a court there could just order them to pay off the bonds
Now, if they run down all the reserves in a spending spree, then that would be bad. But still, the reserves are so big compared to the debts that it would have to be a lot of spending. And there is still the IMF and the vulture funds to help out in case that happened. Consequently, I believe Brazil CDS is a sell
Most of the brazil media frenzy is only happening because the political crisis makes it seem like the country is in some kind of big trouble. If the political crisis were to be solved, a lot of the problems would go away quickly because the country is still quite solvent (with net debt at 34% of GDP). As the currency falls, the FX reserves are worth more and this helps with net debt. Its like owning a put option against your country.
Brazil DOES have a cash flow problem (primary and total fiscal deficit) but that's only happening because of the political crisis. If they were to get their act together, they would put that away through an austerity package. I'm not sure how long that will take and how much panic will the market will have to create before they do something but at some point they will solve this. If they don't then markets will keep panicking until they do (like a slow TARP situation)
That's the argument AGAINST owning brazilian assets (including stocks), which is 'because they will go lower before they go higher'. I believe there is a lot of truth to that but I probably missed more profits waiting till things got cheaper than any other way. I rather be in and potentially add later than watch the market rip without me for years
Brazil DOES have a cash flow problem (primary and total fiscal deficit) but that's only happening because of the political crisis. If they were to get their act together, they would put that away through an austerity package. I'm not sure how long that will take and how much panic will the market will have to create before they do something but at some point they will solve this. If they don't then markets will keep panicking until they do (like a slow TARP situation)
That's the argument AGAINST owning brazilian assets (including stocks), which is 'because they will go lower before they go higher'. I believe there is a lot of truth to that but I probably missed more profits waiting till things got cheaper than any other way. I rather be in and potentially add later than watch the market rip without me for years
The Brazilian total deficit (around 9% of GDP) can be solved by two things:
-2% is central bank intervention in FX through swaps. The losses show up on the deficit figures. They can stop that overnight
-Another 2% is fiscal austerity that they need to do
Once they done that, the deficit is down to 5%. With 5-6% expected long-term inflation and 2-3% growth (lets call it 7% nominal GDP growth), you have a NGDP that is growing more than the deficit, this would halt the increase in the debt to GDP ratio.
-2% is central bank intervention in FX through swaps. The losses show up on the deficit figures. They can stop that overnight
-Another 2% is fiscal austerity that they need to do
Once they done that, the deficit is down to 5%. With 5-6% expected long-term inflation and 2-3% growth (lets call it 7% nominal GDP growth), you have a NGDP that is growing more than the deficit, this would halt the increase in the debt to GDP ratio.