Global Macro Trading Journal

Daal said:
I did some calculations. I estimated that it takes about 25 times the average US per capita income to be able to retire from the income off US REITs (after-tax). Which is about $1.3M dollars(Using IYR after-tax dividend). In Brazil, it takes about 12 times the average annual per capita income (pre-tax because the income is tax free) to retire. Which is about $138,000 USD.
I'm trying to buy these REITs as much as I can, this seem to be such a global anomaly that it can't be sustainable
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I need to estimate that for the EU and EMs in general as well but I doubt they will be competitive with Brazil. What happened in Brazil is that scenario that Dalio talked about, where the central bank increases the return on cash to the point where it breaks the economy. All asset classes (other than cash or low duration bonds) got hit hard and the economy went into tailspin. It is not sustainable because if they keep this up, inflation will go negative and there will be a depression.

So as a result the central bank HAS to cut rates down a lot, EVEN if they dont want to. In fact, the longer they wait, the lower the ultimate rate will go to because they are fueling a depressionary dynamic, which is deflationary. It looks like the central bank is waking up and they will get more aggressive in cuts, which is good. But even if they act hard headed and say 'we wont be as fast as markets want', this wont work (for them), they will have to cut even more down the line as inflation collapses
 
Daal said:
I did some calculations. I estimated that it takes about 25 times the average US per capita income to be able to retire from the income off US REITs (after-tax). Which is about $1.3M dollars(Using IYR after-tax dividend). In Brazil, it takes about 12 times the average annual per capita income (pre-tax because the income is tax free) to retire. Which is about $138,000 USD.
I'm trying to buy these REITs as much as I can, this seem to be such a global anomaly that it can't be sustainable
More...

How is that ? IYR yields 3.36% (or 3.74% is following the 30 day SEc yield, i actually don t know the difference but looking at last year's distributions it looks more like 3.74). That s before tax, not much left to retire on in the US.
Besides seeing at the fund's performance, which the link shows after tax for some reason, it seems the be underperforming the benchmark even before tax.
What am I missing ?

https://www.ishares.com/us/products/239520/ishares-us-real-estate-etf
 
luisHK said:
How is that ? IYR yields 3.36% (or 3.74% is following the 30 day SEc yield, i actually don t know the difference but looking at last year's distributions it looks more like 3.74). That s before tax, not much left to retire on in the US.
Besides seeing at the fund's performance, which the link shows after tax for some reason, it seems the be underperforming the benchmark even before tax.
What am I missing ?

https://www.ishares.com/us/products/239520/ishares-us-real-estate-etf
More...
I was looking at the Bigcharts yield, which shows 5%+. The 12m trailing is 4.38% and that will probably go up due inflation/lower vacancies. So maybe high 4s this year. After tax thats maybe high 3s. So maybe the right number is 1.44M dollars, or about 27 times the annual per capita income (52K)
 
Brazil has a bit of a 'semi-German' mentality in the central bank and people in general. Because hyperinflation is still fresh in people's minds (especially the older ones) they underestimate disinflation and deflation risks. They think it can't happen here because of what happened in the past. I think its just the opposite, the more the central bank acts german, the more these risks increase. I'm trying to buy long duration BRL bonds as much as possible as well to benefit from this
 
The reason I'm saying "I'm trying to buy" is because I cant really buy these assets at will. They dont trade in the US and I got a limited BP in Brazil. I'm trying to increase that buying power but it takes time and has tax consequences so I cant rush and do it all at once
 
So I think this Brazil situation will play out either by the citizens realizing how a great opportunity this all is to accumulate risk assets and retire soon (and I'm trying to alert family members about this opportunity so they take advantage of it) or by international investors to earn good real returns in a low return globe. Brazil has paid savers pretty well for a long-time, the difference now is that internationally, investors are starved of returns a lot more than they were in the past. This makes it more difficult for high real return anomalies to persist, i think. At some point people will rush in and reprice the assets.
With the Brazilian central bank likely to drive the returns on cash lower (by cutting rates), there will be a musical chairs game to see who gets a seat at the good real return assets for the ride up

At least, that's my theory
 
What's interesting is that in Brazil it would take a fair amount more money to retire buying ACTUAL real estate (instead of REITs). First because the rental income would not be tax free and secondly because the REITs are being sold at a discount to the properties in them. Some properties are going off (in the private market) at discounts to the stated prices so perhaps one COULD get a nice bargain in the private market (simulating the discount to NAV from the REITs) but it wont be easy. Especially for BIG and good properties, the ones with smart guys running them. The private discounts that I'm hearing about are around 7%, meanwhile I'm seeing good quality REITs with discounts of 10-20% to the underlying buildings

This tells me that the more liquid assets like REITs (and stocks) probably have a 'liquidity discount' in them because people need/want cash due to the recession and high reward for cash (13.75% cash rates vs 6-7% inflation). So anyone who comes in and buy, gets 'paid' an extra return by supplying liquidity to a liquidity starved market. This is a bit similar to 2008/2009 in the US
 
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If you told someone from the US about a country where the central bank has an inverted yield curve with a 2.5 year recession and unemployment 12%+ and rising and the fiscal authority is doing austerity they would just say "lol WTF?". Bernanke had the guts to ignore a temporary pop in inflation in 2008 because he knew there were strong deflationary forces working. In Brazil they didnt do that, german paranoia took over and they jacked up rates based on temporary inflation coming from FX depreciation and lifting of price controls. But that wouldn't be do bad if they were quick to reverse course and aggressive on that reversal but they are not doing that so far. Last 2 cuts were 25bps and the next one is likely to be 50bps but still, this is a slow pace
Which tells me the might have to cut even more down the line as inflation is likely to collapse
 
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