Global Macro Trading Journal

For people in the US looking for income ideas. Certain WFC and BAC preferreds (WFC-L and $BAC-L) look interesting
http://www.philosophicaleconomics.com/2017/03/a-value-opportunity-in-preferred-stocks/

I wish I could buy these to park some cash but I get hit with a 30% withholding tax. I'm usually forced into cash bonds (interest is tax free for non-US). Usually I stick with USTs bonds but I'm looking around for JPM and AAPL corporates. The AAPL is interesting because their liquidity (of the bonds) seem more reliable than others
 
The value of deferral

http://www.valuewalk.com/2016/08/how-warren-buffett-used-deferred-taxes-to-make-twice-as-much-money/

"Imagine that Berkshire had only $1, which we put in a security that doubled by yearend and was then sold. Imagine further that we used the after-tax proceeds to repeat this process in each of the next 19 years, scoring a double each time. At the end of 20 years, the 34% capital gains tax that we would have paid on the profits from each sale would have delivered about $13,000 to the government and we would be left with about $25,250. Not bad. If, however, we made a single fantastic investment that itself doubled 20 times during 20 years, our dollar would grow to $1,048,576. Were we then to cash out, we would pay a 34% tax of roughly $356,500 and be left with about $692,000.

The sole reason for this staggering difference in results would be the timing of tax payments. Interestingly, the government would gain from Scenario 2 in exactly the same 27:1 as we – taking in taxes of $356,500 vs. $13,000 - though admittedly, it would have to wait for its money."

Could perhaps be a reason for why non-market cap indexes are actually flawled?

Lets say you invest in a equal weight index (or one of those Arnott fundamental indexes). They will have to rebalance every year (generating taxes), in the mean time, if the market cap index catches a few huge runners (and keeps it holding for a really long-time) it will produce a significant compounding effect due lack of tax payments. It feels to me that the data (of market cap vs fundamental indexes) is extremely noisy and very much dependend on outliers, so therefore, historical tests for 1 or 2 decades are not enough to say that 'fundamental indices' are better than market cap

I got no strong view one way or the other (other than preferring market cap indices just because its more of a proven concept, so, as a precaution) but I do think that the level of sensitivity to outliers, especially when taxes are taken into consideration could create a significant difference in long-term performance
 
http://www.themoneyillusion.com/?p=32350

Sumner raises the possibility of only 1 recession happening in the next 30 years in the US. If this were to happen, it raises the possibility of a US equity market bubble becoming a reality

The 2 times Buffett came out to warn people about the stock market were the late 60's and 90s. These two were the largest uninterrupted economic expansions

economic-expansions-usually-dont-go-on-for-this-long.jpg


In a world with stock futures, options and ease to levering up, it won't be too hard for people to get carried away
 
One thing that could drive the confidence for a US equity market bubble is the fact the the US has shown a lot of resiliency during the 2008/2009 crisis and people will remember that.

I recall a Tony Robbins video from 2010 warning people about stocks and telling them to sell part of their positions. Yet, now in 2017 (with the market like 100% higher) he comes out with a new book talking about the resilience of the US stock market and how people should be in index funds and avoid listening to the the TV folks who tell them to sell
He is more sophisticated than the avg person but I'm noticing this in many investors (even myself). I believe Hugh Hendry was crucifying himself a few years back for selling positions during market dips

People think "well, this can't be worse than 2008 and the US handled that well, that was a great buy". So as a result they don't sell or they buy more during declines

If the economic expansion just keeps going and/or the Trump policies prove beneficial for US businesses this will just provide an story that people need to keep pushing stocks higher and higher. At some point that is likely to get out of hand (especially due to the ease in which people can obtain levered exposure through stock futures) and start a bubble or mini-bubble

I dont think US equities are there yet, especially because when there are growth/earnings catalysts (the Trump policies) there is an exponential/convex payoff for the bullish scenario that warrants a higher multiple (even if the bull scenario is not the baseline, due to the coumpounding effect of good earnings. That is, a good risk reward ratio) but its something to monitor over the coming 5 years.

As of right now, US equities seem to trading at a level consistent with a 5-6% return (divs+buybacks plus growth) with the potential for more in case the Trump policies work. There are plenty of skeptics about the rally, mainstream media is still not talking about stocks.
Its only the Shiller PE folks that are seeing bubbles because they don't seem to understand what the Shiller PE is (a backward looking indicator applied to a forward looking investment that offers convex payoffs, this is bound to hurt people everytime there is significant progress in the corporate world)
 
Real interest rates (10yr yield - CPI YoY) in the US are in negative territory and in Germany it's getting even hotter. This implies that spending will keep rising until yields rise much more higher.
Where do you prefer to hold on your positions: Stocks, bonds or cash? Given that we have not even seen yet possible infrastructure stimulus, stocks are absolutely no-brainer investment right now.
 
http://fortune.com/2016/04/29/warren-buffett-foreign-trade/

Buffett talking about the dangers of the Trade deficit back in 2003. He suggested a tarrif system to get rid of it

"This plan would not be copied by nations that are net exporters, because their ICs would be valueless. Would major exporting countries retaliate in other ways? Would this start another Smoot-Hawley tariff war? Hardly. At the time of Smoot-Hawley we ran an unreasonable trade surplus that we wished to maintain. We now run a damaging deficit that the whole world knows we must correct.

For decades the world has struggled with a shifting maze of punitive tariffs, export subsidies, quotas, dollar-locked currencies, and the like. Many of these import-inhibiting and export-encouraging devices have long been employed by major exporting countries trying to amass ever larger surpluses--yet significant trade wars have not erupted. Surely one will not be precipitated by a proposal that simply aims at balancing the books of the world's largest trade debtor. Major exporting countries have behaved quite rationally in the past and they will continue to do so--though, as always, it may be in their interest to attempt to convince us that they will behave otherwise." (That's where looking crazy/tough will help game theory wise)

Buffett can say all of this and others will back him to the end, if Trump suggests a similar mechanism, it's 'lunacy'
 
I noticed the carry on the EUR futures is much better than on Oanda so I switched over my short to there. I'm seeing a 1% positive carry per year on short EURUSD futures. That seems quite generous. So I'm going to keep a small long-term short there just as a reminder to keep following the currency and the EU. When a catalyst shows up (Le Pen victory or some other surprise) and things start to fall apart, I will increase my size by 2-4x and try to make some money
 
http://www.iii.co.uk/articles/395208/ken-fisher:-why-cape-useless

Why CAPE is useless

"CAPE's flaws are manifold. Averaging 10 years of earnings might make it smoother, but it also makes CAPE extra backward-looking. Today's CAPE still includes earnings from 2008-2009's recession. How are those relevant now? Markets weigh future profitability, not what happened a decade ago. Past performance doesn't predict future returns. Heck, two years from now, CAPE could fall just because those recessionary earnings are out of the 10-year calculation. So would it suddenly be bullish?"

"The calculations are also problematic. Shiller uses GAAP earnings on his website, but GAAP standards have changed over time and the dataset doesn't account for shifts, rendering historical comparison useless."

CAPE could be useful to find out cheap markets, that is because stocks can only fall 100% (there is a zero bound there) this makes the math when dealing with Extremistan data sets (like financial markets) a lot easier. The problem with applying it to the upside (to call out overvalued markets) is that unlimited upside. That lack of upper bound makes valuation metrics very error prone and bound to blow up and hurt people following then (ESPECIALLY if they go to cash/bonds instead of another stock market, that's when they watch things rise 100-500% without them)
 
Exited SNAP pre-market at 22.40. Lost 4 bucks a share but had this worked I would have made 25-35 bucks a share, maybe more if the person can notice that the upside of the stock is increasing as it goes along. That's a bet I will take everytime. Bears will celebrate and then scratch their heads when some other stock pops 500% from the point they said it was overvalued
 
You must log in or register to reply here.
Back
Top