thank you, didnt know that. makes sense that this would drop, everyone was talking recession back then
Global Macro Trading Journal
- Thread starter Daal
- Start date
Yesterday and today were a good 'mini' example of the US stock resilience I'm expecting in the next few years. Yes, they will drop but not much after buyers will come in, scoop them and take them higher. This drop was quite modest (-3.5%) but even if it were bigger (-5%, -10%), I believe the same outcome was likely. In fact, the more they drop, the better buy they will be, barring a major economic/policy setback. That healthcare vote bill if anything, might even get the republicans to get more united to pass the tax plan, is that likely? I have no idea but I do know that Trump is likely to pick up support in 2018 in the House and Senate, plus odds are he will stay 8 years. Stocks are a 20+ year duration asset, caring about this or that short-term issue is just begging to make a mistake. There is a lot of time to improve things in terms of the economy, profits, taxes, regulation, etc etc
Here is a trade/investment idea. Piggy back on Einhorn through a Long GM with a stop at $29
http://www.cnbc.com/2017/03/28/firs...ott-wapner-on-fast-money-halftime-report.html
"EINHORN: IT'S THE RIGHT PLAN BECAUSE GENERAL MOTOR'S STOCK IS CONFRONTING A VERY UNUSUAL DYNAMIC. IT TRADES BELOW ITS MULTIPLE IN THE S&P 500. THE PE IS LESS THAN SIX. THEY PAY OUT A DIVIDEND YIELD, WHICH IS MORE THAN 4%. WHICH PUTS IT AMONG THE HIGHEST AND FURTHER, THEY'RE ONLY PAYING OUT ABOUT QUARTER OF THEIR EARNINGS, SO IT'S VERY UNUSUAL FOR SUCH A HIGH YIELDING STOCK TO HAVE SUCH A LOW DIVIDEND PAYOUT RATIO. WHICH LEADS US TO THINK THERE'S SOME INVESTORS THAT JUST WANT IT FOR THE DIVIDENDS AND DON'T CARE ABOUT THE OTHER 75% OF THE EARNINGS. AND THERE'S OTHER INVESTORS THAT CARE ABOUT THE EARNINGS, BUT NOT THAT MUCH ABOUT THE DIVIDEND AND SO, WHEN YOU BUY GM STOCK, YOU'RE JUST KIND OF STUCK WITH HALF THAT YOU LIKE AND HALF YOU DON'T REALLY LIKE.
SO OUR IDEA IS ESSENTIALLY TO PAY THE SAME MONEY TO THE SAME PEOPLE JUST DO IT IN TWO DIFFERENT --, THAT WAY EVERYBODY CAN HAVE WHAT THEY WANT. IT DOESN'T CHANGE ANYTHING ELSE ABOUT WHAT'S GOING ON AT THE COM[ANY, BUT WHEN YOU DO SOME PRETTY SIMPLE VALUATION ANALYSIS, IF ACTUALLY IMPLEMENTED THIS PLAN, WHICH WE EXPECT THEY WILL, YOU'RE GOING TO UNLOCK A TREMENDOUS AMOUNT OF VALUE. WHAT'S UNCERTAIN IS WHETHER THEY'LL UNLOCK THE LOWER END OF OUR RANGE, WHICH WILL MAYBE BE $13 BILLION OF VALUE OR THE HIGHER END OF OUR RANGE, WHICH MIGHT BE $36 BILLION OF VALUE."
Einhorn is talking about an upside of 23% to 65% from the value unlock. If that doesn't happen, you still own a stock with a 6 PE and 4% dividend yield
The stop is to make sure one doesn't ride this down in case he is wrong about the whole thing (if the Trump economy sucks, etc), if that loses the support at $30 and the Trump election level, he is likely to be wrong. So downside is 20%, upside is 20-60%, perhaps more due the natural growth of the business plus dividends.
But maybe owning long-term calls is even better
I purchased a 1% position and will buy long-term calls tomorrow. Its a small position because I'm treating this as 'half investment half trade'. In my small cap trading strategy I have a lot of small bets in many stocks and try to capture their upside convexity with very limited risk (stops, etc), limited size, I got a lot of diversified bets. I'm sorta doing this here
http://www.cnbc.com/2017/03/28/firs...ott-wapner-on-fast-money-halftime-report.html
"EINHORN: IT'S THE RIGHT PLAN BECAUSE GENERAL MOTOR'S STOCK IS CONFRONTING A VERY UNUSUAL DYNAMIC. IT TRADES BELOW ITS MULTIPLE IN THE S&P 500. THE PE IS LESS THAN SIX. THEY PAY OUT A DIVIDEND YIELD, WHICH IS MORE THAN 4%. WHICH PUTS IT AMONG THE HIGHEST AND FURTHER, THEY'RE ONLY PAYING OUT ABOUT QUARTER OF THEIR EARNINGS, SO IT'S VERY UNUSUAL FOR SUCH A HIGH YIELDING STOCK TO HAVE SUCH A LOW DIVIDEND PAYOUT RATIO. WHICH LEADS US TO THINK THERE'S SOME INVESTORS THAT JUST WANT IT FOR THE DIVIDENDS AND DON'T CARE ABOUT THE OTHER 75% OF THE EARNINGS. AND THERE'S OTHER INVESTORS THAT CARE ABOUT THE EARNINGS, BUT NOT THAT MUCH ABOUT THE DIVIDEND AND SO, WHEN YOU BUY GM STOCK, YOU'RE JUST KIND OF STUCK WITH HALF THAT YOU LIKE AND HALF YOU DON'T REALLY LIKE.
SO OUR IDEA IS ESSENTIALLY TO PAY THE SAME MONEY TO THE SAME PEOPLE JUST DO IT IN TWO DIFFERENT --, THAT WAY EVERYBODY CAN HAVE WHAT THEY WANT. IT DOESN'T CHANGE ANYTHING ELSE ABOUT WHAT'S GOING ON AT THE COM[ANY, BUT WHEN YOU DO SOME PRETTY SIMPLE VALUATION ANALYSIS, IF ACTUALLY IMPLEMENTED THIS PLAN, WHICH WE EXPECT THEY WILL, YOU'RE GOING TO UNLOCK A TREMENDOUS AMOUNT OF VALUE. WHAT'S UNCERTAIN IS WHETHER THEY'LL UNLOCK THE LOWER END OF OUR RANGE, WHICH WILL MAYBE BE $13 BILLION OF VALUE OR THE HIGHER END OF OUR RANGE, WHICH MIGHT BE $36 BILLION OF VALUE."
Einhorn is talking about an upside of 23% to 65% from the value unlock. If that doesn't happen, you still own a stock with a 6 PE and 4% dividend yield
The stop is to make sure one doesn't ride this down in case he is wrong about the whole thing (if the Trump economy sucks, etc), if that loses the support at $30 and the Trump election level, he is likely to be wrong. So downside is 20%, upside is 20-60%, perhaps more due the natural growth of the business plus dividends.
But maybe owning long-term calls is even better
I purchased a 1% position and will buy long-term calls tomorrow. Its a small position because I'm treating this as 'half investment half trade'. In my small cap trading strategy I have a lot of small bets in many stocks and try to capture their upside convexity with very limited risk (stops, etc), limited size, I got a lot of diversified bets. I'm sorta doing this here
https://www.greenlightcapital.com/934618.pdf
Einhorn presentation. Seems that his thesis is that dividend investors are keeping GM from rising due lack of good income alternatives right now. If GM stock pops, they will be sellers as the yield will go down. By separating the dividend and capital appreciation shares, this distortion would stop.
I took a shot here, purchased some Jan 2019 $45 and $50 calls in addition to outright longs. I figure, at the very least, this will be a sensitive way to play the Trump bull market
Einhorn presentation. Seems that his thesis is that dividend investors are keeping GM from rising due lack of good income alternatives right now. If GM stock pops, they will be sellers as the yield will go down. By separating the dividend and capital appreciation shares, this distortion would stop.
I took a shot here, purchased some Jan 2019 $45 and $50 calls in addition to outright longs. I figure, at the very least, this will be a sensitive way to play the Trump bull market
Daal, don´t forget US can also print money to pay their debt.
I cant see any safe heaven other than physical gold or tangible assets if you are concerned about a fiscal crisis US.
I expect a combination of money printing, cutting of retiree benefits, higher taxes and other spending cuts (perhaps the defense budget). But it will take a crisis to get there, Congress doesn't seem to be in a hurry to do anything about it. A UK 70's style crisis seem quite possible to get them to act. In that crisis, UK assets got pounded (pun intended)
Inflation adjusted returns:
UK Stocks dropped -68% real, Gilts -43%. That on yearly data, on monthly data (without the smoothing effect), it was probably quite a bit worse. Yet US stocks and US bonds dropped a lot less, so they were a 'haven'. If the US goes into a crisis like that perhaps the same effect can be achieved by choosing the right safe havens. It will be hard since it will impact every country out there but I'm sure some will get hit more than others. As you point out, gold and hard assets are good bets. But I'm sure there will be others, CHF is likely to drop less than the USD (that is, USDCHF will fall) but its tricky because UBS and CS could get into trouble.
I will certaintly try to liquidate most of my stock and bond positions by then. I want to be in cash in the currencies from my 'safe haven index' so CHF, DKK, AUD, CAD and maybe GBP. I certaintly will want to be overweight in gold. Question is, how long until this happens. Jim Rogers has been calling for this since the 80's. He will probably die before we need any US fiscal crisis, so it might take time but its good to be prepared
You never know what is a haven until after the fact, by owning many you are protected against surprises
Thing is, if you sell, you still got to own something. USD cash will tank a lot in a US fiscal crisis scenario (like the GBP did in the 70's, -30% peak to through). So diversifying out of USD cash would be important. A combo of many different havens is probably better than picking one and having that go bad.