Global Macro Trading Journal

Huge win for the right wingers in Brazil municipal elections. The main left wing party got crushed in a huge way. Brazil which went from a left dominated government has now moved towards the center and in 2018 is likely to move towards the right when they take over Congress and the Presidency. This means there will be 2 years of the president hammering the necessary reforms for fiscal improvement, and then another 4 years of that but with a better distributed congress. The bear thesis that same fund managers who predicted that crisis is now getting crushed. It was a shitty thesis to begin with (markets cant rally because government wont approve reforms) now even that looks deeply wrong. Its 2009 all over again, an idiot marker rally. I really think Brazilian stocks will make a new high within 2 years or less
 
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Brazilian stocks are trading at 14 times earnings but thats in the middle of a depression. Profit margins are in very low by historical standards (bottom 10% the last time I checked), as they return to something more resonable the market will look cheap. The shiller CAPE is at 8 and change, this one already takes into account the potential for a come back in years to come. So its a cheap market, with the government moving towards the right reforms, with an even better government coming in 2018 and where people are still skeptical about stocks, its a good setup.

Is not too long ago people were saying that fixed income might just keep beating stocks in Brazil because Brazil was different, this the type of thing you hear at the bottom

REITs are similar, lots of them are trading at depressed prices because vacancies are high, but in the middle of the depression it would be a surprise if they werent high. Its the 10 year avg vacancy going forward that should matters and in the front, its likely they will be just fine
 
The current president is working on retirement reform, a spending control law and even Labor reform. Now, he is not getting a lot of traction with labor reform but in 2018 with a new congress, the prospects of labor reform along rules to make easier to do business could be a real help to the economy.
This is a cheap market with several catalysts in the pipeline, this year there are the spending control law, then central bank rate cuts (which are somewhat tied to the control law), then retirement reform and a GDP bounce next year, then a 2018 election rally
I see no reason to take any profits in this
 
Gold and gold stocks got clobbered today. I need to think about them further but at the first sign this looks to me a market that got too bullish (a hedge fund hotel of sorts) and is now in the processing of cleaning out the weak hands. When the Fed hiked last year gold got smacked before, during it and after the hike. Yet that did not stop it from going a lot higher. And the ECB being hawkish is just ridiculous, the more hawkish they act, they more they will have to ease in the future. So at first glance, this just looks like short-termism to me
 
A concern would be if GLD, GDX and GDXJ go bellow the 200MA and cant get back above. To me that would be a big red flag. But looking at the current situation, it feels like a crowded trade doing its thing, so I'm sticking with it
 
Daal said:
I really think Brazilian stocks will make a new high within 2 years or less
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By this I mean the Bovespa index, not EWZ. EWZ is priced in dollars so its a different situation given that the Real is unlikely to go back to its old historical levels
 
Another interesting article
http://aswathdamodaran.blogspot.com.br/2016/08/mean-reversion-gravitational-super.html

"Buy and Sell: The CAPE's timing payoff is greater when it is used as a buying metric than as a selling metric. In fact, you make a positive payoff from using a low CAPE as a buying indicator over the entire period but using it is a signal of over priced markets costs you money in both time period. "

Bottom line: buying cheap markets work but getting out of a bit expensive markets can be costly as they might just stay there a long-time before there is a significant valuation change to get you back in. You will also pay tax, transaction costs, etc

But this Damodaran model would be more interesting if the investor instead of switching to bonds and cash, switched instead to cheaper CAPE markets around the world . Given that he finds that the CAPE as a buy indicator works, one probably would outperform by CAPE shopping like that
 
Here is an interesting strategy: buy all global markets with CAPEs bellow 10, equally weighted. Sell them if their valuation rise above 16 and buy another bellow 10 market. I wonder what would be the results of this compared to the S&P500 over the last 80 years
I'm sure there were some huge busts along the way (Russia 98 maybe?) but this probably beats the S&P500 by a nice margin
 
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