Global Macro Trading Journal

With regards to all this trade war volatility, I'm on the camp that this wont matter all that much. This is a 'trade war with american characteristics'. They put out Steel and Aluminum tarrifs and then exempted like half of the world (I havent run the numbers but I believe they exempt more than half of their imports from the tarrifs, even Brazil is exempt, even though we tax almost every import at 60%).
Trump seems to be going after China to pressure N Korea into making a deal with him so he can brag about it and get reelected (it will be hard for him to lose with the Tax bill + N Korea Deal + Good economy). I dont know if this will all work but I doubt he will implode markets nonstop, at some point he backs down. Mnuchin and Ross aren't stupid, this is just negotiation game theory. He likes markets at all-time highs.

Given at on the late stages of a bull-market is where you tend to get a good deal of the final returns (the "melt-up"), with forward PEs at 17x (a lot due the tax cuts), the economy doing fine, and the Fed still very much on gradual hike mode, I'm not cutting down of my equity exposure. I expect weak hands to get shaken out and markets to continue to march higher later this year
 
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When Trump got elected I talked about how he would create a lot of equity volatility by using his negotiation tactics/game theory. I mentioned that I would not want to be short vol, that he would be doing a new kind of politics to achieve gains that historically werent achieved through normal means. That people used to the "Great Moderation" would be crying uncle. Turns out that I was completely wrong about that in 2017 but in 2018 that is proving to be a good guide
 
Daal said:
Trump seems to be going after China to pressure N Korea into making a deal with him so he can brag about it and get reelected (it will be hard for him to lose with the Tax bill + N Korea Deal + Good economy).
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There is also the fact that he is compromised with the whole Russia thing, so he NEEDs to get reelected otherwise he will be in huge legal trouble (with no executive privilege, no pardon power, no influence on Justice Department etc, etc). As a result he just does not care about the short-term, he will do whatever he needs to do to accomplish some goals now to get reelected. Right now it means running this theatre of a trade war with China so he can pressure N Korea and also say to the american worker 'see, I was tough on China'. But when he gets what he needs, he will cut back from this stuff and go back to the typical american way of quasi-free market economics
 
Two things that I AM worried about is a US goverment debt crisis (ala UK in the 70s)
https://www.zerohedge.com/news/2018-02-19/us-fiscal-policy-set-blow-us-economy-goldman
and a recession.
Perhaps it will be the recession that will lead to the debt crisis. And Trump made these risks worse with the tax cut and bigger budget bill
IIRC UK stocks went down 90% in the 70s if you factored in the peak to through equity decline, inflation and the loss of value of the GBP exchange rate (so 90% was the total loss to a foreign holder of UK stocks).
So if the US goes into a recession, I don't want to own much in terms of US risk assets. But this even could be 2-5-10-20 years in the future, timing is everything and worrying about this kind of shit and making no money for years, its the kind of garbage trading/investing that only retards like Peter Schiff engage in. I will own risk, until its no longer time to own risk. Right now, my assement is that its still fine to own risk. If this gets really bad (but still produce no recession like I expect), equities might drop 10-20% from the peak but then I think they will come right back up (like in 2016).
 
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tag: Returns from 2000 bubble peak to today, bubble returns, nasdaq
 
"The Naz in 2000 sported a P/E of 242 times at its March 10 peak, which worked out to an earnings yield of 0.41%! I’m being a little tongue in cheek with this measure. There were many more companies in 2000 devoid of profits, which inflated the number considerably. I remember that when excluding those companies with no earnings (a passive investor can’t do this), the P/E was a more “reasonable” 100 or so…"

So bubble buyers bought an index with an infinite PE at the peak and still beat T-Bill rates. Goes to show how unstable data/projections/forecasts are in financial markets, particularly with unbounded investments
 
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"Cash held by Berkshire across its segments and at the holding company totaled $109.3 billion at September 30. US T-bills were about 60% of the total. As recently as 18 months ago, cash yielded close to nothing. Now, cash yields average about 1.5%, producing over $1.6 billion in interest. Now taxed at 21%, the differential saves $224 million in tax that would have been due at 35%. We assign an optionality premium to most of the cash, which presumes balances north of one-year’s typical losses in the insurance businesses will be invested at decent returns. But this is for a discussion on valuation."

There is a lot of these little gains inside BRK. The writer says that the earnings power of BRK has increased by about $3B per year as a result of the tax changes
 
"Berkshire’s “hidden” earning power that our GAAP adjustments reveal, almost $10 billion more than GAAP net income, amounts to more than $170 billion in intrinsic value that an investor relying on reported GAAP profits at face value wouldn’t recognize. With an additional $3 billion (or more) in new net profitability created by tax reform late last year, another $50 billion is added to Berkshire’s value. Combined, the hidden and new sources of earnings power combine to provide well over $200 billion in intrinsic value that most investors won’t see by using GAAP income and using the tax code in place prior to December 2017."
 
TRUMP CALLS ON CONGRESS TO GIVE HIM LINE-ITEM VETO

This could save the US from having to go through a fiscal crisis. But of course, Congress will only do it when its too late, when the market forces them to
 
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