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  • Mostly Molehills [View article]
    Thanks.
    Oct 20, 2012. 03:24 PM | Likes Like |Link to Comment
  • Mostly Molehills [View article]
    Thanks, Mike.

    I still have my large TBT position, which is my most direct way of hedging. It has built in leverage so it is volatile in the short term, but the upside potential is great and I am confident it will produce a large payoff eventually. Patience is required. I was looking for an intermediate way of profiting and generating income and that's why I was thinking about TIPS but didn't see a way around the negative real rate. I could generate income and avoid a large capital loss by spending a lot of time scaling in and out and continuously rolling paper to be able to get out in the nick of time should things get dicey. I suspect that PIMCO does this and knows that it risks taking a hit later on but it is happy to keep on generating income in the mean time. Not a bad proposition if this is your core business, but I don't have the time or the inclination to try it.

    I believe that inflation has the potential for a very large and safe payoff trade. Then like Paulson, Soros and Druckenmiller I am willing to keep on building up my position and wait for the right moment to pull the trigger and go truly large with it. Soros said it and Paulson made sure to remember: If it is a once in a lifetime opportunity, you have to go for the jugular.

    Thanks again.
    Oct 20, 2012. 08:32 AM | Likes Like |Link to Comment
  • Mostly Molehills [View article]
    Mike,

    "But does it matter to the market?"

    That's the only question that really matters because if we are in the market and the answer is yes, then it also matters to us. As investors and traders we can act to profit or hedge, or not act, but we can't avoid the market.

    We all use some personal experiences as anecdotic evidence, as you do with Google. So, I have a couple of questions regarding TIPS:

    PIMCO's 1-5 Year U.S. TIPS Index Fund has a 2.91% one year performance, while their Broad U.S. TIPS Index Fund has a much higher 9.03%. The longer dated 15+ Year U.S. TIPS Index Fund has an extraordinary 15.5% one year return.

    Their seems to be an obvious and expected correlation between the underlying bonds' maturities and the funds' performances, although, at first glance, the difference seems so large that maturity by itself is unlikely to account for it. What does this suggest to you, and what can you infer (if anything) in terms of future expected inflation from this?

    Lastly, and I suppose this depends on your previous answers, what maturity or mix of maturities do you consider will provide the best inflation protection and return from this point on for a 2013-2014 time frame? When would you pull the trigger?
    Oct 19, 2012. 04:19 PM | 1 Like Like |Link to Comment
  • More on Google's Q3 bombshell: Those hopes of rebounding ad prices were misplaced: cost per click fell 3% Q/Q and 15% Y/Y, after rising 1% Q/Q in Q2. Mobile search is one culprit, could e-commerce ad competition be another? Paid clicks, boosted by mobile growth, rose 6% Q/Q and 33% Y/Y. 53% of revenue came from international markets, down slightly from Q2's 54% (is Europe weak?). Motorola revenue was $2.58B (-21% Y/Y). Opex was 34% of revenue vs. 33% in Q2. Capex was $872M, +12% Q/Q. CC at 4:30PM ET (webcast). GOOG -9%, shares halted. (PR[View news story]
    Talk about market overreaction and flash crash behavior. Everything fell down. Is there a significant reason why Europe or the emerging markets should collapse in sympathy? Of course not, but this clearly show that the "efficiency of the market" is simply a lot of hot air. The good thing is that we can profit from the inefficiency.

    Anyway, regarding Google itself, this is a good opportunity to but some leap year out-of-the-money calls at a lower price. Make sure you put your bid well below, though, and let scared market come to you when it reopens.

    ...not often, but sometimes it is just too easy!
    Oct 18, 2012. 01:09 PM | 1 Like Like |Link to Comment
  • Google's (GOOG -8.4%) Q3 results are out early, and they missed estimates. EPS of $9.03 missed by $1.62, and revenue of $11.33B (+51% Y/Y, boosted by Motorola acquisition) missed by $530M. Shares are diving. [View news story]
    Yes, talk about market overreaction and flash crash behavior. Everything fell down. Is there a significant reason why Europe or the emerging markets should collapse in sympathy? Of course not, but that a clear show that the "efficiency of the market" is simply a lot of hot air. The good thing is that we can profit from the inefficiency.

    Anyway, regarding Google itself, this is a good opportunity to but some leap year out-of-the-money calls at a lower price. Make sure you put your bid well below, though, and let scared market come to you... not often, but sometimes it is just too easy!
    Oct 18, 2012. 01:08 PM | 3 Likes Like |Link to Comment
  • The Good News On Inflation Seems Likely to End [View article]
    ¿BHO, lest people forget the H and what you silently imply it means?

    ¿The Soviets? ¿Seriously? ¿What is this 1964?
    Oct 16, 2012. 05:24 PM | 1 Like Like |Link to Comment
  • TIPS Point To Very Weak Economic Growth [View article]
    CPB,

    PIMCO's 1-5 Year U.S. TIPS Index Fund has a 2.91% one year performance, while their Broad U.S. TIPS Index Fund has a much higher 9.03%. The longer dated 15+ Year U.S. TIPS Index Fund has an extraordinary 15.5% one year return.

    Their seems to be an obvious and expected correlation between the underlying bonds' maturities and the funds' performances, although the difference is so large that maturity by itself is unlikely to account for it. What does this suggest to you, and what can you infer in terms of future expected inflation from this?

    Lastly, and I suppose this depends on your previous answers, what maturity or mix of maturities do you consider will provide the best inflation protection and return from this point on for a 2013-2014 time frame?
    Oct 11, 2012. 02:05 PM | Likes Like |Link to Comment
  • The rescue of Spain's banks will cause the country's budget deficit to hit 7.4% this year, above its 6.3% target, the government said yesterday. Authorities reckon Spain could require €40B of its EU credit line after stress tests showed the sector needs €53.75B. Spain's debt-to-GDP ratio will rise to 85.3% in 2012 - above a previous forecast of 80% - and 90.5% in 2013. [View news story]
    At around 40% of GDP, before the current crisis hit GDP and the government revenue stream so hard, the Spanish deficit was lower that most other European nations. Like Greece's deficit, it has gone up substantially due to the recession bringing GDP contraction and diminished tax revenue and not, as some think, due to more spending.

    Greece has cut its spending massively, and yet, five consecutive years of negative GDP growth have made its economy smaller. Thus, the deficit being measured as a percentage of GDP has ballooned. That is why is can be so harmful to only look at it from a percentage basis and impose draconian austerity measures, as the Germans so insisted, which harm the economy and make matters worse.

    Beyond reasonable and serious austerity measures, what these countries need is real growth. Once they achieve it, the deficits will come back down again.
    Oct 1, 2012. 06:06 AM | Likes Like |Link to Comment
  • The rescue of Spain's banks will cause the country's budget deficit to hit 7.4% this year, above its 6.3% target, the government said yesterday. Authorities reckon Spain could require €40B of its EU credit line after stress tests showed the sector needs €53.75B. Spain's debt-to-GDP ratio will rise to 85.3% in 2012 - above a previous forecast of 80% - and 90.5% in 2013. [View news story]
    "They are still spending more than they take in, and want those on the tax roles to pay for their folly."

    That is absolutely incorrect. The deficit move has nothing to do with spending. It has to do with the fact that the money needed for the banks, even if it comes from the ECB, counts against the Spanish government deficit because it goes through the system.

    That is why there is work being done so that the ECB can, in future, give the banks the money they may need directly, without to have it go though the various countries.

    That is one of the obvious disadvantages of the way the EU is structured today, compared to a fully sovereign country like the US that can flush the banking system or the housing market with liquidity directly without increasing the US deficit.
    Sep 30, 2012. 01:02 PM | Likes Like |Link to Comment
  • At Long Last, Sustained Signs Of A Housing Rebound - And An ETF To Play It [View article]
    If you want housing exposure, there is no reason not to use housing and homebuilders ETFs. After all there are options on them so you can get the exposure you desire and use the option strategies all the same.
    Sep 30, 2012. 12:53 PM | Likes Like |Link to Comment
  • Keep An Eye On Ecopetrol For A Shorting Opportunity [View article]
    Thank you, once again.
    Sep 29, 2012. 08:01 AM | Likes Like |Link to Comment
  • At Long Last, Sustained Signs Of A Housing Rebound - And An ETF To Play It [View article]
    Good post.

    I prefer XHB over ITB because is much, but much more, liquid and because long dated options are available on it and using options is the cheapest and safest way to profit from a potential move.

    I was going to mention that in spite of their differences their performance is also highly correlated, which means they are, for all practical purposes, interchangeable, but you mentioned this yourself in the very last sentence.

    Which begs the question: Why do you prefer ITB over XHB?
    Sep 28, 2012. 04:55 PM | Likes Like |Link to Comment
  • Slow Growth Is Not Necessarily Bad News [View article]
    True, but it was the original 2007-2008 solvency problem in the US that triggered the liquidity problem in the US and Europe.
    Sep 28, 2012. 02:48 PM | Likes Like |Link to Comment
  • Keep An Eye On Ecopetrol For A Shorting Opportunity [View article]
    Thank you for the note. Very much appreciated.

    What do you consider the impact of the expansion of the Cartagena refinery will be?
    Sep 27, 2012. 05:16 PM | Likes Like |Link to Comment
  • Keep An Eye On Ecopetrol For A Shorting Opportunity [View article]
    If Ecopetrol were a financial company or even a regular company your analysis, which is solely based upon the correlation between share price and internal financial numbers today, would make sense. Being that Ecopetrol is a petroleum and gas exploration and commercialization company, the analysis has major fatal flows.

    One may short a petroleum company if it is badly run, which Ecopetrol is not, or if the analysis shows that the company's exploration efforts and investments will come up short and hence, that future revenues and profits may be impaired while the share price fails to reflect this. You make not mention whatsoever of Ecopetrol real business, of its expected discoveries and production flow, nor of their future revenue impact. Is Ecopetrol behind in any or all of these factors? If so, by how much? And, has the marketplace failed to account for this?

    I am all for shorting. I think it is a valuable and important tool and it may well be that Ecopetrol is a great short. Nevertheless, shorting the stock of a petroleum company without the most basic information amounts to blind gambling. Worse, shorting it based on the basis provided by you is even worse, as it gives the investor a very dangerous sense of security, which could easily backfire.
    Sep 25, 2012. 12:36 PM | Likes Like |Link to Comment
COMMENTS STATS
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