Global Macro Trading Journal

It seems to me that for those folks that went to minimize volatility, just subscribing to the money/stability illusion of cash is not a good idea. It might be a better idea to have a conservative allocation to different assets in a way that preserves the month to month stability but it still protects long-term purchasing power and prevents big drawdowns. a 80% T-Bill, 10% stocks and 10% gold portfolio might be it

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The N-Ratio is CAGR/MedianDD. But the K-Ratio is a metric that captures 'stability' well since it pretty much measures that, by that metric (as well as maxDD) there is a significant improvement. But not only risk goes down but returns increase. This is a very nice example of more risk being added to a portfolio but the end result being less risky. Bottom line is, short-term traders shouldn't huge cash and think they are being prudent, it's actually a quite imprudent long-term decision
 
Its in fashion to be a bond bear now but I heard an interesting counter argument. We know for a fact that there will be a recession in the next 10 years.

When that happens, Fed funds will to go 0% and maybe QE will be done. Furthermore, that 0% will last for at least a year, maybe two. That means that we will see a period of 4-5 years with rates that will be quite low (the period where they are being slashed, the period where they are at 0% and the period where they are grinding slowly from 0%). So if anyone had to estimate what would be the AVERAGE fed funds over the next 10 years, its hard to come up with a number that is very different from what is implied in the 10Y T-Bond. If, for simplicity purposes, I assume rates will be at these levels or higher for the next 5 years and at these levels or lower for the 5 years after that, then the 10y bond doesnt look overvalued at all.

On the other hand what could wreck this thesis is a US sovereign debt crisis ala UK in the 70's

Just some food for thought
 
Today I'm going to swap half my VWO position into EWZ, the other half I sold a few weeks ago. I'm getting quite bullish in Brazil, the new dream team being built by the president just keeps getting better. He just nominated another Chicago University PhD to run the largest state bank (BNDES). Not that the Chicaco University is the end all be all but in a country where the 'right' would be called socialists in places like the US/UK (and I guess the left would be called communists), this is a move in a much needed direction. Law and order and economic liberalism, that is what the new president is proposing and its a much needed medicine given the issues over the past 10-15 years
 
"bulls make more money than bears so if anything, being an optimist about life and things in general is a great attribute to have as an investor, you just cant be naive" - Druckenmiller
This is quite similar to my article/idea from last year where I said optimism is inherently tied to the exploitation of convexity/big returns. Pessimists who made a lot of money are few and far between, balanced optimists (non-naive optimists) exist by the millions
 
Here is a nice graphical representation of an important concept I had not seen before in Antifragile (its in the Apendixes at the end of the book, which are not included in the aubiobook or its PDFs, which is why I had not seen)

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This is why bitcoin bears that aren't short are idiots. If they are not short, it means they are uncertain about what bitcoin will do, that uncertainty increases the chance and impact of both positive and negative black swans (essentially, large price moves) BUT since the loss is limited to the size of the investment but the gains are unlimited, there is a disproportional benefit to longs the more uncertainty there is (ie convexity) specially in the face of the history of BTC gigantic upside moves (so if it were to do it again, it wouldn't be such a surprise)
Its a logical contradiction to be bearish in BTC not have a short position (way more than in other markets). As a matter of fact, a smart bear would actually be BUYING right now. He would have to fade him own biases in the face of such large assymetry. Opinions and talk aren't worth a damn, what matters is making smart bets
 
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I calculated my macro/investing return for 2018 and the result was -3.5%. Some of the main contributors were

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EWZ and BRL interest income were adjustments made to backout FX fluctuations from my EWZ/EWZS and BRL futures positions (I lost $ in USD terms but made in BRL terms, which is what matters to me in that bucket). My 'benchmark' the Dalio portfolio returned -2.7% so I lagged it but not by much

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One of my mistakes this year was getting involved in some ICOs and Alt Coins back in Q1, I should have waited a quarter or two before getting involved. But it was so tempting, all it took to justify the entire effort was to have a 10x+ in one investment and the whole thing would have been paid for itself plus a profit. Unfortunately some of the keys of my thesis (namely that you could win on the fundamentals or by having speculation take over) was broken, speculation wasnt going to return anytime soon when BTC broke trend but that also hurt the fundamentals since a lot of these ICOs were sitting in money raised in crypto. The lower the market went the more they went into financial trouble and the less likely they were to suceed. This reflexitivy created a downward spiral in the ICO market. So as a result I had some unecessary losses.

On the stock/bond side nothing much happened, the market gyrated a bit on Q4 but I never made any big trades nor I thought one was justified. I played a bit the market short in September but by Oct I thought the market would calm down. It didn't but I never had any conviction in playing short big time. Recently I did go long bonds as a hedge against my stock positions but I was a little late to the party so I only made small gains there. I certainly didnt think (and still dont think) that selling all my stocks and going into cash made any sense so I never made any big changes. I will post a portfolio snapshot soon

On the daytrading and swing trading side I did a lot better returning over 20%, mostly as a result of the Marijuana volatility in early 2018 and late 2018 which offered a lot of opportunity. Sadly the boom turned into a bust and now volume and volatility in the sector is pretty much dead. Anyways, I look forward for a great and profitable 2019
 

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Portfolio Snapshort

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Stress test

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Risk weighted assets

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I'm over my risk limits with 64% in risk assets and Risk to Hedge Ratio of 5.48. My limit was for 50% in risk assets and a risk to hedge of 4. This is likely the result of me buying BRKB during the recent panic as it was inside the Buffett buyback range, Ajit Jain is also buying the stock. I also bought EWZ as I'm quite bullish in Brazil. Now that the market bounced I plan to lighten up some on BRKB to bring back my risk levels to my desired ranges. I also have some new positions that I didnt before like Galaxy Digital and Amazon. Lets see if any of my convexity bets do well this year
 
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