Global Macro Trading Journal

When it comes to stocks, I want to avoid large drawdowns relative to wealth expectations. Those big/giant drops that take forever to recover from. I do not want to avoid 2016 type declines (not in my investment account). Those 10-20% drops that quickly are reversed because they were UNJUSTIFIED in the first place. Especially if you consider that these unjustified drops a lot of the time don't happen or when they do happen, its hard to tell how much they will go for.

I want to avoid those 'true' corrections driven by true risks, not the false corrections driven by fake risks. Yet, most people in the media spent all the time in the world talking about the latter, whether they know it or not. They also invest and induce others to invest according to their theories and models that are tied to the latter. To me, that is just an awful decision and it harms the public
 
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Daal said:
For small players like me I'm not sure I need to. I can always react after the fact. If people like Tepper can't go big because they are afraid of the negative scenarios (as they don't have the liquidity to get out), that means that those that have the liquidity (the small players) have a certain advantage. I can realize that advantage by shorting/selling after the event
I'm quite likely to short EURs and/or EU stocks after that event (the May second round) in case there is a surprise
The alternative is to buy puts, but it seems that people are buying that like crazy
so I dunno if that is a good trade. Post Brexit and Trump, these might be sucker trades, not sure
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Daal I believe EUR Puts are the best trades if you want to bet in a extreme scenario where either Le Pen or Melenchon wins the election of if they both goes to the 2nd round. I bought some EUR Put for June, 0.95 strike. If any of these outcomes happened, EUR should go under parity and this Puts will value 10x what they are trading today, vols are very cheap (around 16%) for an unexpected outcome...
 
CH1973 said:
Daal I believe EUR Puts are the best trades if you want to bet in a extreme scenario where either Le Pen or Melenchon wins the election of if they both goes to the 2nd round. I bought some EUR Put for June, 0.95 strike. If any of these outcomes happened, EUR should go under parity and this Puts will value 10x what they are trading today, vols are very cheap (around 16%) for an unexpected outcome...
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Its tough because before Brexit and Trump, betting in those outcomes seemed like a waste, most traders/investors weren't expecting it. Now, its the opposite, everyone is looking around to bet in a surprise. This suggests that those bets are more expensive that they would otherwise be. This wouldn't be a problem if I knew more about French politics and could asses whether that hearding effect was right or not but I don't, so I rather just stay out
 
US front end seems ridiculously priced now. Dec 2018 Fed futures is pricing in a 1.45% Fed funds by then, that against a 2.1% median Fed forecast, I'm losing on my shorts there but this just looks retarded. If GDP avgs 2% to that month, Fed funds will be 1.91%, at least, probably higher
 
I added a bit to the short Fed futures trade. As I see it, at these prices the risk is that the Fed only hikes once in the next 1.5 years. I lose 25bps, if they do anything other than that, I break even (on the adds) or gain a lot. Most likely scenario is that the Fed hikes 3-4 times
 
I'm not too worried about that healthcare thing messing this trade up beause the republicans can always do a 10 year Bush style corporate tax change, those ones don't need to balance the books. So if anything, if they cant agree on health care (and this messes up corporate tax reform) they are still likely to pass something and that something might very well stimulate the economy some which will require some offsetting by the Fed
 
But even if nothing gets passed, most likely the economy continues to grow at a 1.5%-2.5% pace. The US economy is very resilient, there is a lot of slowdowns and recessions predicted for every one that happens, it will take a lot to break this trend. At that pace, the Fed will be forced to hike every quarter or so, otherwise they will be risking overheating. They don't need evidence of overheating to hike, its the opposite, they will hike first and look for the effects later, that's the new policy per Yellen and others. This was true even before Trump
 
I'm down 1% on the Fed futures trade but that is offset by gains on my 30y UST and other UST positions plus gold and gold stocks. Overall, I"m probably down 0.5% or less, so because it has been a limited bleed, I'm considering increasing the position quite a bit, maybe even like in the old days. The trend on these contracts has been up, so I don't need to rush but its going to be my research focus in the coming days
 
"
Third, I think this take on Federal Reserve Chair Janet Yellen's talk last week from Marc Chandler is accurate:

'We had detected a shift in the Fed’s stance that we characterized as looking for data to confirm the recovery to now looking for opportunities to normalize conditions. Yellen sees similarly. She said the Fed has shifted from “a post-crisis exercise of healing” to now trying to sustain the economic progress.'

The Fed is not living in the crisis anymore. Policymakers no longer worry about trying to boost the pace of activity. The economy is, by their estimates, near full employment with growth is near potential growth. In this framework, a normal economy demands a more normal monetary policy. Policymakers are thinking that the expansion will be eight years old this summer with a good chance that this could turn into the longest running US economic expansion on record. They generally believe that preemptive but gradual rate hikes offer the best chance of expanding the expansion to ten years and beyond. Hence I tend to think their bias is to continue along the current policy path, which suggests they will continue to sound hawkish relative to what recent data would suggest.

Bottom Line: Fed likely to dismiss recent data as unrepresentative of underlying economic trends. "

http://economistsview.typepad.com/timduy/
 
The long-term Fed funds contracts tend to embbed a risk premium that reflects the chance of an economic downturn/stock market sell-off (and hence, they look off compared to the Fed forecasts) but that premium is just way too distorted right now, yields are too low, I mean Dec 2018 Fed funds pricing in 1.43% Fed funds against 0.91% right now just sounds retarded.

There is always the chance that the economic downturn will come from the Fed hikes, historically that has been the case, in that case, betting on low yields is just foolish. If you think there will be a recession, you bet on hikes, because that's how the economy will get there. I don't think thats the baseline, I think the Fed will be gradual but that graduality will require preemtive hikes even if the data is not perfect
 
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