Global Macro Trading Journal

[Daal]

According to the WSJ, AMZN IPO has been a 500 bagger so far to investors. That's the kind of margin of error skeptics have in convexity plays, none. They got to be right almost every single time and longs can be wrong almost all the time!

But of course, the trick is to hold onto these sorts of winners. Who is the type of people that can do that? Studborn optimists, when I realized that its when I truly got convexity.

Taleb understands all the math behind it but he is the last man who earth that would hold onto plays like that, he is too pessimistic, he is too focused on whats wrong with things, he is the type that will sell after the first 50%, he might not make even to the first double. The type of people that holds these are San Franciscans/Sillicon Valleys types that have grandiose visions and stick with them, the type of people that will 'rationalize' a vision, that will have a reality distortion field like Jobs, that will ignore bad news, that will ignore discounted cash flow analysis, short sellers, etc etc.

That kind of mindset is A LOT more useful for wealth creation than the short seller mindset of trying to find fraud every waking hour of their lifes. That short mentality is actually extremely harmful because it becomes a habit, their ability to hold onto winners will be decreased, their ability to 'rationalize' a grand vision becomes compromised, they will find flaws in every big business plan, they will derive a sense of superiority from criticising CEOs, companies and big ideas. As a result, they will get very little sucess from becoming good longs, the easy way to get rich, but they will spend an enormeous amount of time in trying to become rich short selling, which is possible but its a LOT more difficult and a lot more vulnerable to black swans.

A good optimist just needs ONE Amazon his whole life to build a lot of wealth, retire and go into philatrophy, a good pessimist needs a Valeant EVERY YEAR

 

[Daal]

The beauty is that in some forms of convexity bet plays, you can be an complete imbecile and still have limited risk. Like in venture capital, or stock investing in convexity stocks. Worse case they go to $0 and you ride it there. A short has to actively manage risk because at some point they will short a giant multi bagger and if they don't do anything about it, they go broke.

That combined the unlimited upside for longs vs limited upside in shorts its what makes it easier for a long to have character flaws and still get away with it.

Still, the ideal is to be an responsible optimist, to know when to throw the towel, or to know when a convexity bet is too expensive and potentially has negative expected value, to be selective in making those bets, to be patient to wait for the best plays etc. Still, you need a high threshold for that responsability because its a form of skepticism, to balance these two is very difficult. Learning that is one of my goals going forward

 

[jj90]

Just as an aside @Daal I've began to cut out people who are not positive people in my personal life. Being skeptical is 1 thing, being around outright pessimist is seriously dangerous.

A few years ago, I wouldn't have believed it but hey time and experience changes all. Give it a shot if you will.

 

[Daal]

Just as an aside @Daal I've began to cut out people who are not positive people in my personal life. Being skeptical is 1 thing, being around outright pessimist is seriously dangerous.

A few years ago, I wouldn't have believed it but hey time and experience changes all. Give it a shot if you will.

Good idea. Its a shame it took me a long time to realize the harm that a NY type mindset has (which is like 90%+ of traders so almost everyone you talk to and most of the books in the topic), I should have been looking to learn from SF type people a long-time ago
At the very least, its good to keep a balance. From reading the media and hearing the market talk, you would think the last time the S&P500 was rationally priced was in 1994

 

[Daal]

A good balance for an investor mindset might be 75% San Francisco and 25% New York. 75% Elon Musk 25% Jim Chanos. I would lean more toward the optimistic side because its more robust/antifragile by its nature ($0 bound in assets and unlimited reward) and the pessimistic side is there for a dose of realism/responsability/risk control

 

[Daal]

http://theresurgent.com/i-know-one-of-the-sources/

This is probably pretty accurate, Trump is being a lot more hard headed than I expected. He needs to lay low for a while in order to keep his congressional support. If he doesn't, then he is toast. However, Mike Pence is likely to keep both Mnuchin and the economic agenda and an impeachment might unite the Republicans even more as they will be desperate to show work/progress to keep their seats in the 2018 mid-terms. So as far as that goes, it might not even matter much.
The risk is that impachment fragments the party and gridlocks everything

 

[Daal]

These days you cant even count on John Mccain and some others voting with the Republicans because they don't like Trump so its possible that Mike Pence would actually be more bullish than Trump as he might unite the Republicans and/or bring some Democrats on board. That's a real possibility people can't truly ignore

 

[Daal]

Fed futures are up quite a bit since Comey firing, up more today. Price action keeps telling me that I'm wrong but I just don't see it. Regardless of the Trump agenda dying or not, in all likelihood the US economy will continue to grow at a 1.5-2.5% clip in the next year or two. It will be hard for the Fed not to hike 0.25% every few months with employment. The Trump agenda is a bonus that will lead to additional hikes, if that dies, it still into question the current market yield pricing. There is just too little hikes priced in

 

[Daal]

Trump has not tweeted in the last 24 hrs. If he doesn't tweet today, it will be the first time since April 15. I think he got the message

 

[Daal]

With this impeachment thing, if there is one thing that I learned from the Brazil 2016 impeachment and the research I had to do around that time is that what consitutes grounds for an impeachment and what doesn't is largely irrelavant. It does not really matter whether someone 'deserves' impeachment on whether they don't (in practice), what matters is how much support the person has. Formally, there might be or there might not be grounds, but its the support that determines everything. As one Brazilian Supreme Court Justice said in one of his votes 'lack of bias is not a characteristc of Congress'

Someone can be tried in a jury, by a judge, by a group of judges or by congress. In these trials frequenly, there is a filtering process in which people that are biased are removed. Juries are asked about it and are removed if admit they can't be impartial in the case or if they lie and are caught in a lie about it. Judges routinely have to recuse themselves from cases when they have conflicts. An impeachment is completely different, there your own enemies and friends decide your fate, people with huge biases, people that hold grudges, people that have conflicts with the decisions that a President later is likely or unlikely to make, its the most unfair trial of all! Bias is a key player during the whole process. Yet society and the institutions have accepted that this process is good and needed, there is no filtering process and everybody accepts it. Indeed, if you check the "High Crimes and misdemeanors" wikipedia page (what constitutes grounds for a US impeachment), one of the first descriptions of what that is, is 'such as perjury of oath'. Yet Bill Clinton was saved by the Senate even though he committed perjury while in office (which could also be considered obstruction of justice). The economy was doing great at the time, so was the stock market, as a result he was saved. Had he done the same thing during a recession, he was a goner

As a result I don't think the facts will matter a great deal, unless they are so blatantly nuts that congress people are forced to abandon Trump to save themselves.

Most likely, Trump will lay low for a while, let the dust settle down and the Republican bias will prevent any kind of impeachment process be started