JS Global Macro Notes

[darkhorse]

Quote from hughb:

From the article: "More so, however, is the psychic impact. For this super-competitive breed, to admit that that a market has confounded them is to concede a small measure of defeat." This market has been kicking my as for a year and a half now, and it seems to be due to gyrations from the European crisis. US stocks don't act like they did a few years ago. They are more choppy, and they move in synch, making it difficult to find ones trending against the grain, which has been my bread and butter in the past.

The global macro titans have been posting single-digit returns since 2008*. I'm pretty sure Quantum lost 15% in 2011. It's just a very frustrating backdrop. I'm sure that's part of the reason Druckenmiller and Soros bowed out.

The good news is, markets are the same b/c they are always changing. These conditions are workable for short-term swing trading (though obviously far from ideal), and better conditions will return.

*Bridgewater the glaring exception

 

[darkhorse]

Quote from hughb:

Another interesting point on Bacon: "In 1990, a series of winning bets he made that Saddam Hussein would invade Kuwait and would be quickly routed with no lasting market impact became the foundation of his legend -- securing a 115 percent two-year investment return and a flood of investment assets."

I was a stockbroker in 1990, (my first day of work was the day Iraq invaded, talk about bad luck!), and I made literally hundreds of calls every day to prospective investors, along with the dozen or so other brokers in the office. Every single person we talked to, and I mean there were NO exceptions, believed that the market would crash when the inevitible ground war would start between the US and Iraq. In fact, it was a joke in the office for people to say, "I ain't doing nuthin' til this Iraq thing is over," because we heard it hundreds of times every day. So to see people like Bacon, (there were others too), who correctly called the outcome of the conflict really shows their skill.

You might really enjoy "More Money Than God" by Sebastian Mallaby. It's a look at the macro legends and a dissection of their strategies.

The section on PTJ is my favorite. He basically approaches markets like a poker player, thinking through the positioning of his opponents and how he can strategically exploit it. Waiting until a market is clearly skewed to one side or the other in terms of bias and positioning, then profiting from a big rip the other way, is classic PTJ. And he's the guy Bacon learned from as a broker.

 

[darkhorse]

<iframe width="560" height="315" src="http://www.youtube.com/embed/BhkY28_9Ra4" frameborder="0" allowfullscreen></iframe>

Post-Fed theme song

 

[darkhorse]

Or maybe not. Strange day... USD moving strongly against euro, aussie, yen, not sure where this equity strength is coming from.

Some weird trading on the open too -- this may partially explain:

http://online.wsj.com/article/SB100...3001717194274.html?mod=WSJ_hps_LEFTTopStories

U.S. stock markets were struck Wednesday by the latest in a series of technical problems that have undermined investor confidence, as high order volume triggered unusual price swings in about 150 stocks.

Knight Capital Group Inc, one of the market's largest brokerages, said it was probing software problems and told clients to send their orders to other firms as a wave of orders shook the market and prompted exchanges to halt trading in some securities.

 

[darkhorse]

The market developed a split personality post-Fed.

While Bernanke did exactly what we thought he was going to do, the schizophrenic nature of the reaction was a surprise.

Large caps (Dow and S&P) largely held fire.

Small caps and transports, on the other hand, largely got crushed. IYT looks awful, and IWM saw a brutal sell-off into the closing bell.

Adding to the confusion, Wednesday's dollar strength has now been aggressively reversed. Euro, Aussie ripping along with S&P futs this morning as ECB leaves rates unchanged.

And now, HOLY SHIT -- major flip as I write -- ES goes from up 10 handles to down 7 handles... don't know what Draghi said, but it had to be BAD...

Throw in the Knight Capital Group / algo mess, and WOW what a fucked up market.

p.s.

 

[darkhorse]

Italian bond yields react (just a little bit) to Draghi

 

[darkhorse]

This is why Mr. Market puked up a lung (bold emphasis mine):

http://www.reuters.com/article/2012/08/02/us-ecb-rates-decision-idUSBRE8710MQ20120802

The European Central Bank will gear up to buy Italian and Spanish bonds on the open market but would only act after euro zone governments have activated bailout funds to do the same, ECB President Mario Draghi said on Thursday.

Draghi indicated that any ECB intervention would start at the earliest in September and would depend on countries in trouble on bond markets making a request and accepting strict conditions and supervision.

He also indicated that German central bank chief Jens Weidmann had expressed reservations about bond-buying and further efforts would be needed to persuade the Bundesbank before a final vote to take action.

 

[darkhorse]

China slowdown forces discounting from Gome to McDonald's

http://www.bloomberg.com/news/2012-...orcing-discounting-at-gome-to-mcdonald-s.html

And guess what, wing-and-a-prayer China bulls hoping for policy to save them: STIMULUS WON'T WORK HERE EITHER.

There is no artificial drug in existence with a diminishing return profile -- such as the one stimulus exhibits -- that can yet work in perpetuity. Use it for years on end, while prolonging and exacerbating the underlying issues you were supposed to address but never did, and what else can you possibly expect to happen?

It is in turns amazing, amusing and irritating to observe how investors, in their collective mob form, never seem to learn anything. Ever.

I mean, rationally and analytically you know that it's true... it gets sunk deep into your bones via study of market history, and up-close observations of human behavior... but still, from a gut perspective, you sometimes have to stop and ask: Can the hope-jaggers really be that dumb?

And the answer is pretty much always: Yep!

 

[darkhorse]

Fed leaker Hilsenrath still peddling the Hopium:

http://online.wsj.com/article/SB10000872396390443545504577565304095581834.html

Ben Bernanke and Mario Draghi, with words but not yet actions, demonstrated this week that they are on red alert about the global economy.

Expectations are now high that Mr. Bernanke's Federal Reserve and Mr. Draghi's European Central Bank will act soon to address those worries. But both face immense tactical and political challenges and neither has a handbook to follow.

In other words: They're gonna act soon, guys! Really! Pinky swear!

 

[darkhorse]

This is pretty awesome:

Asian Millionaires Firing Banks to Take Charge of Their Own Wealth

http://www.bloomberg.com/news/2012-...es-firing-bankers-take-control-of-wealth.html

Good for them. The landscape is really shifting under the big banks now. Another interesting notion:

Negative rates as a precursor to the death of banking

http://ftalphaville.ft.com/blog/201...rates-as-a-precursor-to-the-death-of-banking/

Losing trust, losing regulatory elbow room, losing clients, losing assets, losing the spread...

What's left for these guys? Is the financial services industry a massive long-term short?