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Mercenary Trader

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  • Australian Dollar Could Be Headed For Low 80s [View article]
    Congratulations. Do you have a position?
    Jan 16 07:43 AM | Likes Like |Link to Comment
  • Who Gets Hit By A Vulnerable Housing Market? [View article]
    That depends on a lot of factors. Some smart observers (like Rich Yamarone of Bloomberg if I recall) think the next recession could surprise us as early as 2014. We don't know if that's accurate but it's meaningful that someone smart and thoughtful sees it as a possibility.

    We don't know how good the internal management processes of these large funds are, though Blackstone is clearly pretty good at everything it does. I wouldn't emphasize so much an inability to manage thousands of single family homes as the potential headache, as the problem of having a highly illiquid trade on if/when that trade goes bad.

    Re, buying residential homes, driving factors there would be very geographic in our opinion. So much depends on your target market, the quality of your rental pool, what kind of discounts you can get and so on... very different from the more liquid focus of broad housing market trends and their potential impact on nationwide market players (builders and home improvement etc etc). Real estate is probably the most situationally varied and due-diligence-oriented of all illiquid investment strategies.
    Dec 16 09:07 AM | Likes Like |Link to Comment
  • Who Gets Hit By A Vulnerable Housing Market? [View article]
    We are short the Aussie dollar in size and it's one of our favorite trades heading into 2014...
    Dec 14 10:52 AM | 2 Likes Like |Link to Comment
  • Who Gets Hit By A Vulnerable Housing Market? [View article]
    The giant private equity firms and well capitalized hedge funds playing the housing game are not going to face margin calls any time soon, and one cannot really panic out of a single family home portfolio (no way to "hit the bid" on, say, 500 houses at a time). With that said, their strategic decision to flip from buyers to sellers, perhaps motivated sellers, could certainly act as a long-term weight on the housing market (having helped elevate it these past few years).
    Dec 14 10:52 AM | 1 Like Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    Huh? We were the ones pointing out that the Fed could potentially "maintain their position for years"... and the case for a secular bull trend in the USD is strong whether the Fed tapers in the near future or not...
    Dec 5 07:59 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    This is a rabbit trail of an argument without much point. Nobody said downside scares can't happen, and market drivers are multiple and varied -- as are the groups responding to them. The whole market could tank on a reassessment of the outlook for corporate profit margins, for example. Or the media could assign a cause to an observed effect that is completely off-base. Very little is certain in a complex system. There are only good bets and bad bets, based on a logical weighting of factors, probabilities, and scenarios.
    Dec 4 05:07 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    Which traders are you talking about? The big institutionals, pension funds and the like are primarily long only and pro-equities. The big macro funds, meanwhile, are sharp enough to understand actual Fed dynamics. The body of money run off blatant misunderstanding or illogical expectation is small enough to represent maybe two cents out of every trading dollar. Not to say expectation dislocation is an impossibility, but as a hand waving explanation it leaves much to be desired...
    Dec 3 08:20 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    Yep, and it's further amusing to note the US dollar still represents more than 80% of all transactions in global trade finance. The number two competitor (the yuan) is around 8 percent. In dominance terms, that's like Lebron James versus a toddler. The dollar is still so colossal compared to every other currency competitor on the planet, anyone who misses it deserves a facepalm from Andre the Giant.
    Dec 3 05:08 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    Why does it matter how the Fed will exit if they can maintain their position for years? Again look at Japan.

    It's one thing to see the Fed as a giant hedge fund in danger of facing a margin call. It's another thing to see the Fed as the finance arm of a much larger entity -- like, say, GE Capital vs GE -- with an essentially inexhaustible line of credit. Alternatively, if real economic growth comes back into the picture, the USD strengthens anyway via growth differentials vs the rest of the world. Look what Brazil is doing right now. China is in a lot of trouble, big picture wise, in spite of short-term optimism over a baby boom. Europe is basically in a soft Great Depression, and so on.

    Timing issues could not only be months away, they could be years away. Just look at Japan for a sense of how this works. If we repeated the Japan scenario, things would muddle along until some Shinzo Abe type decided to try a 'big bang' circa 2019.

    At the end of the day, theory is fun but P&L is what it's all about. One difference between us and many of the commentators on these boards is that we are real traders with real capital at work. In terms of scenario odds / probability developments, the questions over a future Fed exit have little to do with the prospects of the USD seeing an uptrend in a multi-month or even multi-year timeframe.
    Dec 3 05:00 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    Monetary velocity is a "theory" akin to the theory of gravity or the theory of evolution. With understanding of what makes the money supply shrink or expand - which is far more a function of credit transactions and the turnover of those transactions than what a central bank does -- you can break the velocity concept into logical pieces which make perfect sense.
    Dec 3 04:53 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    Because it isn't actually money printing -- that is a misunderstanding of the mechanism, and monetary velocity is what matters. (I know you know this, was just giving voice to your rhetorical question.)

    Japan is interesting to bring up because Kyle Bass has been so dead wrong there. Wonder when he'll do a mea culpa if ever.
    Dec 3 04:51 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    It's not nonsense at all if you understand that healthy growth means a dynamic creative destruction process in which prices and credit leverage are fluid and opportunity oriented within the capital allocation process. The wheels of such are greased by a natural desire and intent to invest, which is why inflation on a subdued level is a net positive.

    I'm willing to bet you don't actually understand what was happening in the 1800s, and if your hand-waving reference to the central banks is "mad money printers" you might not have a nuanced grasp on what is happening in the present either. Not trying to be harsh, just calling a spade a spade. There is too much blatant ignorance in macro trying to pass itself off as common sense.
    Dec 3 04:50 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    If the "proper definition of deflation" is not what Japan has experienced, then the hypothetical proper definition is too technical to be of much use or value.

    The dictionary defines deflation as a reduction in the general level of prices in an economy, which seems a more reasonable and accurate description because varied factors can contribute to it.

    As for QE, it does not inevitably lead to more transactions. The assumption that QE now will create inflation later is based on a number of hypotheticals. One may feel strongly about these hypotheticals, but that is not the same as an inevitable or guaranteed outcome.

    We agree that QE is a lousy policy with problematic effects. It is the extension of a rescue effort, against the backdrop of ineffective legislation, that lasted way too long.
    Nov 30 02:53 PM | Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    You still miss the key point. To get a sense of a currency's purchasing power, you have to look at the purchasing power today as augmented by compound interest via investing that currency in highly safe and liquid government securities over a long period of time. Furthermore, one-to-one purchasing power comparisons to 1910 are largely pointless. How do you adjust for the lack of iPods in 1910, or sub-$500 laptops, or arthroscopic knee surgery.

    People believe the dollar is being relentlessly devalued because such belief suits them emotionally and ideologically. It fits their overly simplistic black-and-white, good-vs-evil view of the world. The truth is more complicated.
    Nov 29 04:38 PM | 2 Likes Like |Link to Comment
  • Don't Underestimate The U.S. Dollar [View article]
    It's not spin at all, just common sense. This is closer to engineering than finance. If you expand the size of an economy without expanding the amount of nominal currency in circulation, you will have a greater quantity of goods and services for purchase relative to the same amount of currency with which to make such purchases, which means prices have to fall, for the same reason why making twice as many pizzas with the same amount of cheese means less cheese goes on each pizza. Such a process would be less healthy than maintaining parity, which means nominal price rises along with expansion and healthy leverage creation. This is basic arithmetic.

    Furthermore, we have made no excuses for Yellen or indeed for any central banker at all. The fact that nominal prices will rise over time along with productivity expansion via commensurate rise in the currency supply (more a function of velocity than 'printing' by the way) is simply an observation of how things work. It says nothing about the other factors or lack thereof. For someone to completely fail to take this natural expansion into account, however, says a lot about their ignorance.
    Nov 29 04:25 PM | 2 Likes Like |Link to Comment
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