Global Macro Trading Journal

The worst drawdowns were:

-52% Computer
-50% Dalio
-48% Daal

This was probably worse with monthly data (especially at the depths of the crisis in 2011). So it would be tough on the investor. He would have needed to continue to follow the investing plan (continuing to keep the maturity of the bonds constant, if there was no ETF that automatically did that and continued to rebalance by selling out gold gains and putting in bonds/stocks that the entire media would be saying are worthless)
To be honest, most people would have given up. But that raises two points
-The strategy works if you stick with it
-Global diversification can help the strategy even more by cutting down volatility AND tail risks
 
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Duration ratio of the 30y Greek bond vs the 10y bond. My 2-1 rule of thumb didn't do so bad. The average was 1.75. This type of change can be inputed into the rebalancing to make it more precise but the 2-1 rule wasn't off by much
 
justrading said:
Daal, I saw a Tweet that on the White House website one of the changes is they aim to cut taxes, including corporate taxes.

How Trump will fund infrastructure with reduced revenue and not blow up the deficit is a wonder to me. House Republicans are not going to accept a ballooning deficit, which means something has to give.

That will affect market expectations and sentiment.
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We can all only speculate at this point but the Treasury secretary talked about cutting taxes but removing loopholes to make it more tax revenue neutral. They also got about $200B+ as a hidden asset in the form of GSEs warrants.

All they got to do is to release them from gov control and get rid of the Net Worth Sweep. I'm long them partially because of that. That alone can fund quite a bit of infrastructure or at the very least cushion some of the fiscal blow
I don't think Paul Ryan will let Trump go nuts on deficit spending, Trump will be forced to 'be creative' (which he talks a lot about in The Art of the Deal). The GSE is one form of creative financing but I'm sure he will think of others
 
Just a quick correction, I noticed a couple formulas were off and the results were being understated. The corrected results are:

Computer portfolio:
upload_2017-1-21_9-39-20.png


15.4% real gain instead of 10%. 1.44% CAGR

Daal portfolio:
upload_2017-1-21_9-39-56.png


Flat as a pancake

Dalio:
upload_2017-1-21_9-40-42.png


So its a bit better than I thought.

I would note, however, that a fair amount of performance by these portfolios was achieved in 2016 (The computer portfolio, for instance, was flat in real terms by 2015 end). 2016 was a good year for Greece, stocks bonds AND gold all went up.
 
Daal said:
If someone wanted own 10y or 30y Greek bonds
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You realize that 90% of the Greek bonds were issued under Greek law and thus were forced to accept debt restructuring conditions. "About €20 billon of sovereign and sovereign-guaranteed bonds – just under 10 per cent of eligible face value – had been issued under English-law". Only those 10% were able to perform "hold outs" and get paid according to the original yield and terms.

If your total return numbers are simply calculated in Excel using coupon and yield calculations they're way off because you ignore the effects of defaults (of the 90% of bonds affected by Greek law).
 
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Butterball said:
You realize that 90% of the Greek bonds were issued under Greek law and thus were forced to accept debt restructuring conditions. "About €20 billon of sovereign and sovereign-guaranteed bonds – just under 10 per cent of eligible face value – had been issued under English-law". Only those 10% were able to perform "hold outs" and get paid according to the original yield and terms.

If your total return numbers are simply calculated in Excel using coupon and yield calculations they're way off because you ignore the effects of defaults (of the 90% of bonds affected by Greek law).
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Its a little more complicated than that, the 10y was already down 50% before the haircut, the market had already priced in the haircut. apparenly during that period there was a huge rally in the bonds:

"For example, investors who braved an investment in Greek bonds just prior to the restructuring of Greek debt in 2012 saw an average 80% return on their investments in just a little over six months. Overall since the 2012 debt restructuring, returns on Greek government debt are over 200%, according to the Bloomberg Greece Sovereign Bond Index."

Read more: Brave Enough to Invest in Greek Bonds? Here's How | Investopedia http://www.investopedia.com/article...nvest-greek-bonds-heres-how.asp#ixzz4WRaMZzWd

So I'm not sure where my data is wrong and by how much. The total drawdowns are probably right, its the terminal gains that are off
 
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I found a paper that explains more what happened

http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=5343&context=faculty_scholarship

"Finally, what was the combined effect of the debt exchange and buyback on Greece’s creditors? A creditor participating in both would have received 15 cents in quasi-cash and 31.5 cents of new face value per old unit of face value of quasi-cash in March or April, followed by 34 cents per unit of new face value in December. This sums to 15+0.315*34 = 25.7 cent per original face value. The creditor’s alternative was to keep the original debt. Discounted at the 11¾ per cent yield prevailing in the market after the buyback, this would have been worth just under 74 cents on the Euro, implying a haircut of (1-25.7/73.9) = 65 per cent – almost exactly the same result as obtained in Table 3 using the exit yield of 15.3. We conclude that participating investors lost about 65 per cent of the value of their claims on average as a result of both restructuring operations, with wide difference between holders of short maturities, who lost up to 74 per cent, and of longer maturities, who lost far less, as indicated in Figure 5"

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And there is a Greek bond index by S&P with excel data
http://us.spindices.com/indices/fixed-income/sp-greece-sovereign-bond-index

But that S&P index looks off, it appears that it overly focuses on the short end of the yield curve as the peak to through drawdown is an staggering -91%. That seems to be way too much, specially given that the back end was sparred of a lot of pain.

The issue is that I can't input the estimated 2012 loss as my return % because then I will miss out the huge rally on the new Greek bonds that happened from March 2012 to December 2012 (over 100%). If anyone has any suggestions on how to estimate the 2012 total return experience for greek bond investors in longer maturies, please let me know
 
"What explains the large variation in haircuts across bondholders? According to individuals close to the exchange, one motivation for the one-size-fits all approach was to keep it simple in order to get the deal done before March 20, 2012 when the next very large bond was coming due (€14.4 billion). It is also likely that the members of the creditor committee were mostly invested in longer-dated Greek instruments. Moreover, the Troika, Greece and the creditor committee may all have been sympathetic to taking a tough approach against short-term creditors, because many of these were distressed debt investors that had deliberately bought short-dated instruments at large discounts in the hope of still being repaid in full."
 
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