Global Macro Trading Journal
- Thread starter Daal
- Start date
I guess they are praying for Yellen....
Empire state manufacturing is not an insignificant thing. China economy slowing down; Europe is a not doing great; and now US manufacturers are not confident.
Have you read some of the Rosenberg articles lately? He's got a bunch of free ones in some canadian site I posted a while back. He talks about how the US economy can do just fine as a long as the US consumer is going. That this is different from EM decoupling from the US (which is nonsense), for the US to decouple from EMs is much easier due the US consumer. There is not much evidence the US consumer is in trouble, even with today's bad retail sales.
http://www.tradingeconomics.com/united-states/retail-sales-annual
http://www.tradingeconomics.com/united-states/personal-spending
Now, if consumers pull back because stocks are down and some networth effect happens, then thats a different story. But I believe the effect statistically is quite small. A lot of the stock market effect goes into capex.
Not saying there is no chance of recession but it doesn't seem high (maybe 25% or lower).
Also, we know the Fed will bring the bazooka if the data weaknes
At the very least, IF there is a recession, its likely to be shallow due being driven by things other than a Fed tightening cycle (and one hike doesn't count as a cycle) or a banking crisis. I think this will be a good opportunity to accumulate some good stocks into VIX spikes and do some hedging with bonds. My assumption is that stocks will plunge around 15-20% (SPX 1712) from the highs (not on this sell-off though, its oversold). A bad case scenario is if it tanks 30% (1500) in a shallow recession.
It will depend on when this market catches a bid, if it just keeps running back to 2050 or if it dies after the bounce and comes back to lows. If it keeps running then the correction was this and there is nothing left (And the Russell already went down 20%+ so this was significant). If it comes back down, then it will be painful. Thats why its important to have the bonds to hedge, maybe even go above 100% of NAV with bond futures (say 20-40% long good stocks with 70-80% in bonds using cash and futures). The latest comments from the Fed members make me convinced the 4 hikes this year are a pipe dream, I mean, they can only happen if stocks do well but in that case it doesn't matter as the losses from bonds are more than likely to be offset by the stock side.
And some of the bond losses can be perhaps be avoided by underweighting duration when the market is oversold (like now) and overweighting when its rallying big time and everything is fine (like in the new year ramp). This was a mistake I made, I had plenty of bonds but mostly 5y futures with some 10y cash bonds. I didn't had enough 10y exposure, I could have decreased my losses from the stock side had I been more bold in the bond future allocation
It will depend on when this market catches a bid, if it just keeps running back to 2050 or if it dies after the bounce and comes back to lows. If it keeps running then the correction was this and there is nothing left (And the Russell already went down 20%+ so this was significant). If it comes back down, then it will be painful. Thats why its important to have the bonds to hedge, maybe even go above 100% of NAV with bond futures (say 20-40% long good stocks with 70-80% in bonds using cash and futures). The latest comments from the Fed members make me convinced the 4 hikes this year are a pipe dream, I mean, they can only happen if stocks do well but in that case it doesn't matter as the losses from bonds are more than likely to be offset by the stock side.
And some of the bond losses can be perhaps be avoided by underweighting duration when the market is oversold (like now) and overweighting when its rallying big time and everything is fine (like in the new year ramp). This was a mistake I made, I had plenty of bonds but mostly 5y futures with some 10y cash bonds. I didn't had enough 10y exposure, I could have decreased my losses from the stock side had I been more bold in the bond future allocation
I closed all my Vol positions today and started buying value stocks: low PE's high divs.
The principle is one that macro man talked about in his blog in the past that I tend to agree. "hedge when you don't need to", thats when its cheap and it has good risk-reward. The people that are hedging now are insane, its too late. Now if someone is uncomfortable 8times out of 10 is better to not watch the market for a few days and sell into a pop. Even if ocasionally it will crash and hurt you even more. Of course, if you are levered this doesn't apply. In that case you are screwed
The strong dollar has seen quite a selloff in EM stocks, so I've started doing just this with Thai Stocks. Div yields are so much better than bank interest here, and current valuations are way off the high. I haven't started with US stocks though, just a concern we'll see more selling yet.
That's the cool thing about selling puts (fully backed by cash or UST bonds), you endup buying when you are supposed to, during a panic. Its a shame BRKB only went briefly under 125. I went ahead and bought some directly anyway just in case. If markets crash tuesday then I might be forced to buy BRKB but I think it will be a good buy even if its scary. It will be a nice combination of good fundamentals and good technical entry (buying a panic). But yeah, its going to be a little scary to be that long in stocks when things are going haywire. Its a new thing for me as I never invested heavily in stocks