Global Macro Trading Journal


The White House budget office now estimates that the deficit will rise to nearly $1.1 trillion in the fiscal year that begins this October, or 5.1% of gross domestic product, up from $984 billion projected in February’s budget proposal. The U.S. ran a deficit of $666 billion for the fiscal year that ended Sept. 30, 2017, or 3.4% of GDP.

“Gigantic deficits are not good, and we’re going to run, as a share of GDP, 4%, 5%,” said Lawrence Kudlow, director of the White House National Economic Council, at a conference hosted by CNBC on Wednesday. “That’s not bad. I’ve seen worse.”

Since World War II, the U.S. has posted budget deficits that exceeded 5% of GDP in just two periods—in 1983 and from 2009 through 2012. Both of those episodes followed periods of significant economic stress, including the only recessions in which the unemployment rate rose to at least 10%. The White House expects the unemployment rate, currently at 4%, to reach 3.7% next year.

https://www.wsj.com/articles/deficit-projected-to-top-1-trillion-starting-next-year-1531950742

They are planting the seeds of the next big crisis. The next US recession (where these numbers will get worse) will be a great period for macro traders. When will it happen I have no idea, anywhere from 1 year to 10 years from now
 
"But what would seem like great news for its shareholders comes with plenty of unanswered questions. This would be twice the size of the biggest buyout in history, one that ended in bankruptcy. And Tesla is the exact opposite of the type of company buyout firms want: It burns rather than generates cash and it is already neck deep in liabilities. If Mr. Musk hasn’t lined up the financing he claimed, he could be accused of trying to drive up Tesla’s stock to make the company’s many naysayers suffer. Tesla didn’t respond to questions about the nature of this committed financing."
https://www.wsj.com/articles/teslas...-add-up-1533677506?tesla=y&mod=article_inline

I'm considering putting a small short on TSLA on this move
 
Daal said:
"But what would seem like great news for its shareholders comes with plenty of unanswered questions. This would be twice the size of the biggest buyout in history, one that ended in bankruptcy. And Tesla is the exact opposite of the type of company buyout firms want: It burns rather than generates cash and it is already neck deep in liabilities. If Mr. Musk hasn’t lined up the financing he claimed, he could be accused of trying to drive up Tesla’s stock to make the company’s many naysayers suffer. Tesla didn’t respond to questions about the nature of this committed financing."
https://www.wsj.com/articles/teslas...-add-up-1533677506?tesla=y&mod=article_inline

I'm considering putting a small short on TSLA on this move
More...
I changed my mind on the short. Musk is not realling trying to pull an LBO, since that is impossible. He is trying to convince a lot of equity people to accept losing their liquidity needs and join a dream. He is a pretty good dream seller, so I dont want to bet against that. I mean, if every single large shareholder today accepted to own private shares, well, the company would be private, because all they would need would be to raise $10-$20B to take out the smaller shareholders and that's it. They would pull this off without having to raise a single dollar in debt capital. I wouldn't bet againt Musk convincing people, obviously he already suceeded with that soverign wealth fund (and I suspect that fund wants more shares that they bought, they disclosed a 5% stake, the first threshold for disclosure, there is no reason to think they stopped buying)
My mistake was confusing the word 'funding' with debt funding, Musk got equity funding, that's how he will get this done
 
One of the problems with going private is that you are not allowed to have a shitload of shareholders, so Musk has to buy them out or come up with a creative solution. Well, thats exactly what is going on, the Saudi fund is buying shares from small shareholders that are selling (in the open market or at least was) and he came up with the idea of a SPV to own shares on behalf of small stakeholders. Now he just needs to convince large shareholders to vote for the proposal, which is exactly why he said this is all contingent on a shareholder vote. But he already has the funding, its the Saudi fund and perhaps some other fund
 
All the 'funding' needs to do is to buy the stakes from the people that are against going private. So betting against the stock is to bet that the Saudis will not do what they are already doing. Its a $700B fund, $20-$50B is not all that much for them.
The more interesting bet here is to long the stock, not short it
 
"
The S&P 500 trades at 18.8 times earnings over the past 12 months, a basement valuation that is lower than the market’s February trough, when the index’s valuation was around 19 times earnings, according to FactSet. At the S&P 500’s peak in January, the index traded at nearly 22 times earnings.

Strong corporate earnings are making stocks look less pricey than they did before. Companies in the S&P 500 have posted double-digit profit growth for the past three quarters to help earnings catch up with the S&P 500’s 6.7% advance this year.
"
https://www.wsj.com/articles/valuat...over-near-records-1533812400?mod=hp_lead_pos7

This is also the reason why CAPE is completely shit these days. During earnings booms CAPE is worthless. By the time it adjusts and tells you that the market is no longer expensive, its way too late.
 
I suspect Musk decided to take TSLA private because he just couldn't take Wall Street's obessions with deadlines, numbers and targets. He had to work from the Tesla factory in order to reach the production targets that markets demanded. Can you imagine the same thing in SpaceX? the "you better send 5 rockets into space within 6 months or else" attitute?

Buffett talks about how "Mr. Market" is this bipolar lunatic with a short-term time horizon who swings from euphoria to panic from day to day but whats funny is that many individual participants (and the media) have the same attitute but they CANT see that they are behaving in such fashion, they think they are being rational and logical all along.
The whole drama about the car production targets and the deadlines was just flat out absurd, a pure creation from the Mr Market bipolar short-term attitute people have. The man was able to create rockets and land them back down. Really, people are worried he wont be able to produce cars? Which the world has information on how to do for decades? It was crazy but participants couldn't see it

I'm not above this phenomena, euphoria and panic can be infectious. That's why its important to realize that, be concious and humble about it. Its pervasive through trading and investing. Its very easy to think one is doing 'analysis' when all one is doing is finding confirmatory facts to back the tendency towards herding short-term behavior
 
This TSLA battle goes back to my NY vs SF mindsets idea. NY people are freaking out about the whole thing whereas SF people scratch their heads and think the whole take private thing is normal.
Having studied angel investing, venture capital and done some angel investing myself I find that it has helped me understand better these situations.
Here is Calacanis explaning this saga from a SF perspective

That does not mean he and I are right but it does mean that if someone is thinking about things from a NY perspective (LBOs, debt financing and freaking about girations in stock prices) they will miss and not be as a complete investor as they could be
 
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