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Mercenary Trader

 
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  • Here's Why the Bond King Has Gotten Desperate [View article]
    Gold can still do well in a deflationary scenario. Notice how well it has held up in the recent selloff.

    This is in large part because, as currencies are actively debased in a failing fight against deflationary pressures (aka pushing on a string), gold winds up being the only 'neutral currency' not subject to the whims of a printing press.

    As for going with the "who's who," note that Paulson is down 20% at the halfway mark in one of his flagship funds, and Buffett is essentially a private equity investor now (with a willingness to endure huge drawdowns).

    Last but not least, Livermore: There is only one side to be on in the market, and it is not the bull side or the bear side, but the right side.
    Jun 17, 2011. 10:16 AM | 4 Likes Like |Link to Comment
  • Pension Funds and the Zero Bubble [View article]
    I posted a reply to a criticism in this thread, re, my lack of mention of corporate pensions and the PBGC (Pension Benefit Guaranty Corporation).

    My reply (along with the original criticism) seems to have now been deleted by SA -- not sure why -- so here is a reiteration of the key points:

    -- Corporate pensions were not mentioned mainly because state pensions are the "elephant in the room." They are gigantic enough an issue as it is.

    -- With that said, it seems obvious that corporate pensions are overall in plenty of hot water of their own, for the same basic reason that state pensions are. The temptation on the corporate side has been, as with state pensions, to underfund relative to liabilities, in order to save money and boost corporate profits, which is done by running artificially high assumed rates of return.

    -- From Fortune magazine: PBGC) will mitigate any problem, that is a joke as the PBGC is itself an underfunded liability mess, and does not have official access to U.S. taxpayer funds.
    Apr 30, 2011. 09:22 PM | 4 Likes Like |Link to Comment
  • Spreading Infection: Quick Thoughts on the Euro, USD [View article]
    Currency trading is neither a morality play nor a patriotism contest. The question is not which currency is "better," but potential for historical performance under extreme pressures, combined with the reward to risk of the current situation.

    Now if you wanted to argue that Europe is not susceptible to oil shock, or that the European sovereign debt crisis has actually been resolved and contained, or that the periphery countries were not jeopardized by austerity and rising oil prices, that would be a more interesting rebuttal of the hypothesis.
    Mar 7, 2011. 08:20 AM | 4 Likes Like |Link to Comment
  • Precious Metals Whacked by Grim Goldilocks [View article]
    No strong disagreements with your clarification -- in this case the devil is in the details, or rather the time frames.

    Those who buy physical PMs will naturally have more of a long-term investment orientation. The dynamics of a short trade lean more to a withdrawal of "hot money" and speculative holdings. At some price level the participation shifts back towards long-term accumulators -- the question is when.

    Agree also that U.S. recovery is a mixed bag and potentially a fraudulent bag, and further that Europe is still an accident waiting to happen. But again, it's all about odds, time frames, and perception vs reality in the short to medium term. Good trades are more often born of probabilities than certainties.
    Jan 21, 2011. 12:51 PM | 4 Likes Like |Link to Comment
  • Global Macro Notes: 12 Major Risks for 2011 [View article]
    Not sure why they left out the Howard Marks box quote, which was:

    "Most people tend to view the future as likely to repeat past patterns, which it may or may not do. They tend to think of the future in terms of a single scenario, whereas really it consists of a wide range of possibilities."

    mercenarytrader.com/20.../
    Dec 31, 2010. 11:40 AM | 4 Likes Like |Link to Comment
  • The Trouble With Modern Monetary Theory [View article]
    As posted in response on the original thread:

    mercenarytrader.com/20...

    Thanks for stopping by and encouraging a stimulating discussion.

    I agree with the operational realities of MMT within the context of real economic constraints. My problem comes in the policy-influencing assumptions born out of the technical assertions of the theory.

    I now realize that the assumptions that irk me may not in fact be your direct assumptions. But they apply to a great many followers of MMT, and those outsiders investigating MMT with an inquiring mind (such as yours truly and others I know) have come across these aggressive assumptions repeatedly.

    I also find it hard to separate operational realities from policy recommendations in the real world, because the worldview facilitated by one naturally shapes opinions of the other.

    It's definitely a "shades of gray" thing here too, because not only can dangerous assumptions flow from correct technical assertions, true statements can be interpreted in a way that is more false than true by many who hear them.

    Take the flat statement "the government cannot run out of money," for example. While I again agree with this statement technically, I think the nature of the statement is so ambiguous as to allow many indiviudals with less nuance to interpret it the wrong way, e.g. as an invitation to believe the government can operate with no policy constraints. Again, if this were only a theoretical concern it would not have been a large enough point to warrant a rebuttal. But many MMTers have reiterated it to me...

    p.s. You are right, I haven't yet read the 7 Frauds book. I owe you that and will give it a read...
    Dec 20, 2010. 09:26 AM | 4 Likes Like |Link to Comment
  • This Market Has No Safe Places [View article]
    Disagree on your confidence that $USD is all Europe and nothing else.

    Consider what happens if we get a housing double dip coupled with meaningful China slowdown (and ongoing austerity malaise in Europe). Monetary velocity again tanks. Safe havens again become paramount. Hedge funds de-leverage and exit their speculative asset inflation bets. Short dollar trades -- as put on by exporters and dollar-denominated debt holders, not just speculators -- get unwound.

    In sum, it remains possible that the biggest headfake of all was QE-driven inflationary expectations. If deflation emerges as the surprise victor in the next few quarters, coupled with stimulus-driven corporate earnings peaks, long $USD could be one of the biggest trades of the year in 2011. There would certainly be enough skepticism and disbelief to fuel it.

    Not predicting this, but outlining it as a distinct possibility...
    Nov 16, 2010. 12:22 PM | 4 Likes Like |Link to Comment
  • 3 Silver Stocks That Could Outshine Gold [View article]
    actually, you couldn't allocate the by-product extraction cost to a point where you were taking a LOSS on the by-products to show a negative extraction cost on silver.

    Whether you allocate the costs evenly across the board (and recognize an attractive gain on BOTH silver and the by-product extraction) - or allocate the costs to by-products and consider just the gains in silver - the final numbers look the same.

    Since silver is the company's primary resource, this way of perceiving the costs and revenue from selling the silver better illustrates the health of the company's primary business.

    Thanks for the comment!
    ~Mike
    MercenaryTrader.com
    Oct 10, 2010. 12:11 PM | 4 Likes Like |Link to Comment
  • Don’t Sell Till You See the Whites of Their Socks [View article]
    So you're saying fund managers have a herd mentality... That's all well and good, but WHAT is the herd going to do? Without the answer to that question, all we get is "there's going to be a move and it's going to happen soon..."

    I would offer an opinion that the move has already begun - and it's a flight to safety, away from paper assets.

    We're seeing significant strength in stocks sensitive to soft commodities as well as precious metals... (mercenarytrader.com/20.../ )

    The broad trend is also pressuring high-end and mid-tier retail companies (mercenarytrader.com/20.../ ). Sure, the last two days have featured bear market rallies, but the major trend is lower.

    Most institutional managers also have to play defense. They don't get paid to make money - they get paid to outperform their benchmarks. It's not the RIGHT strategy - but it's what Wall Street has designed.

    When your benchmark is US equities or some variation of fixed income and world equities, you have to BAIL OUT of industries that are outperforming. That's just as important to these lemmings as BUYING the next hot thing.

    You can just as easily get fired for owning poor sectors as you can for NOT participating in the relative strength areas.

    So I would say it's just as important to "Sell BEFORE you see the whites of their socks..." Because by the time you see white, it's already too late.

    ~Mike
    MercenaryTrader.com
    Sep 2, 2010. 02:17 PM | 4 Likes Like |Link to Comment
  • Let Them Eat iPads: Why Wage Suppression Is Key To The Market Puzzle [View article]
    Just now realizing Seeking Alpha made an edit to the original piece that doesn't make any sense.

    Some ham-fisted editor took this paragraph out:

    "In this week’s links, you will find an argument from Jim O’ Sullivan, chief economist at High Frequency Economics, that US wage growth is accelerating. You will also find a series of FRED charts, accumulated by Conor Sen, showing that slack in the labor market is falling. Even those with no high school diploma are seeing unemployment rates plummet."

    What the heck SA. Why would you make a change that removes an evidence reference from the logic chain. I guess because they took the links off the bottom too, which are available here:

    http://bit.ly/1oZN1hl
    Nov 18, 2014. 03:47 PM | 3 Likes Like |Link to Comment
  • The Dollar Is A Lawnmower, The World Is Grass, And Emerging Markets And U.S. Multinationals Are Next [View article]
    The dollar is the core factor uniting a negative equities / positive treasuries thesis.

    If the dollar strengthens rapidly via accelerating feedback loops, the outlook for multinationals will rapidly deteriorate at a time when corporate profit margins are the most overextended and mean-reversion-prone they have ever been. Meanwhile, a tightening domestic labor market in the US means corporate profit margins are in further danger of being pressured on the wage front, even as tax loopholes rapidly close and debt service costs for borrowed funds go up.

    Reference corporate profits to GDP: http://bit.ly/1xlGgYJ

    These factors make the equity outlook significantly unattractive. And yet, the United States economy will remain the "best house in a bad neighborhood" by far, on a relative basis as crisis looms for Europe / China / LatAm, even if the US recovery flatlines a bit.

    Meanwhile, the current fear, with justification, is a global deflationary scare. Currency wars are deflationary. Various countries are trying to create positive inflation at home by exporting deflation by way of devaluation. Commodity prices collapsing, also deflationary. Even the US economic outlook, bright as it is, is seen as a bit subpar and prone to weakness. What does all of this favor? US treasuries.

    The Fed is rightly seen as deeply hesitant to raise rates, even if their days of active stimulus are done. What broad markets have likely not processed yet is that even a "neutral" Fed counts as uber-hawkish in RELATIVE terms, as the Fed's various global counterparts go super-dove a la BOJ. This weakened and deflationary prone world -- with more deflation pressure coming from instances of credit collapse -- favors the oldest and most liquid safe haven, USTs over equities.
    Nov 8, 2014. 02:50 PM | 3 Likes Like |Link to Comment
  • Herbalife: Advantage Ackman? [View article]
    If you think Herbalife's aggressive buybacks were not the actions of a company under siege, you are fooling yourself. Nor is the statement wrong. There is more to it than that in broader context, of course, but that is why in the very next sentence (which you omit to mention) we added "There is a long-term calculus of distributing future earnings over a smaller share base."

    The reasons for buying back shares are varied in situational context, but all basically amount to either supporting the stock, distributing future earnings over a smaller share base (thus causing shares to appreciate faster long term), pleasing investors for PR purposes (or giving in to greenmail), making use of idle cash with a lack of better purpose, making a rational calculation as to opportunity vis a vis intrinsic value, or some combination of the five. When a company is under public siege, one can add the sixth reason of counter-offensive, to try and hurt very public shorts or at the least drive off copy-cats.

    We understand this logic intimately, and assumed that so too did the audience. But apparently some HLF longs are such sensitive souls, any article that might dare hurt the sentiment for their pet investment is to be attacked at all costs, including the laughably pedantic action of taking sentences out of context and showing a level of investment 101 nitpickery that, on balance, is not even correct. If HLF is a wonderful company with shares bound to go up, then a simple observation such as ours will not hurt it. You need not fret or snipe, embarrassing yourself does not help.
    May 2, 2014. 09:21 PM | 3 Likes Like |Link to Comment
  • Behold The Apex Predator: 'The Everything Store: Jeff Bezos And The Age Of Amazon' Review [View article]
    First of all, if Amazon is a slam dunk short then Ackman and Einhorn and others should get together and broadcast a 150-slide bear presentation at Ira Sohn having already bought a billion dollars worth of puts on the shares. Broader point being, if the bad business model argument were that cut and dried SOMEone high up in the hedge fund world would not be afraid to make a fuss and a big asymmetrically structured bearish bet -- and there are a number of these guys who could step up, no?

    Aside from that, note that this book review said nothing yay or nay about Amazon's current shareprice, EXCEPT to point out that it is entirely rational of Bezos to exploit whatever opportunity Wall Street wants to give him.

    If I could train a group of investors to bid my net worth up to $25 billion while not requiring profits from my company for twenty years straight, allowing me to build my business into leviathan size along the way with their capital, then I would do it too.

    There is no attempt here to make a valuation case or justify a price target. Amazon shares could crash 60% in the next big market correction and Bezos would keep doing what he's doing. Love him or hate him, the guy has built an impressive organization by exploiting the cutting edge of logistical theory and technology. And millions of customers benefit. That's all I'm saying really. It's a great story and an impressive feat. Everyone knows a great company and a great stock price aren't anywhere near the same thing.
    Nov 13, 2013. 03:05 PM | 3 Likes Like |Link to Comment
  • Behold The Apex Predator: 'The Everything Store: Jeff Bezos And The Age Of Amazon' Review [View article]
    Seriously? It makes perfect sense in the context of the very next sentence:

    "As for the prodigious capital expenditures, Amazon's most recent quarterly revenue figure, as of this writing, was roughly $17 billion. Bezos no doubt foresees the day when that quarterly number will hit $100 billion."

    Got any other rakes to step on?
    Nov 13, 2013. 02:58 PM | 3 Likes Like |Link to Comment
  • Dry Bulk Shippers: Turnaround Or Mirage? [View article]
    It seems like GNK's prospects and DRYS' stake in ORIG are the source of most the comments here.

    1)Low costs or not, GNK was trading below $1.50 back in May. We are suggesting they are a prime target for a short if and only if this rally in rates reverses. Furthermore, Capesizes are a smaller percentage of its fleet than for every other stock we have listed.

    2)As important as DRYS' stake in ORIG is, ORIG is currently trading at the same level as it was in early May. DRYS was trading for $2 a share at the time and now trades at $3.50. Saying the rally in dry bulk rates had no part in that seems disingenuous. As for their Capesize charters, the hope of a long-term bottoming taking place is underpinning DRYS shares beyond a mere sympathy rally.
    Sep 24, 2013. 01:15 PM | 3 Likes Like |Link to Comment
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