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Abraxas

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  • Why QE3 Can't Work: Understanding The Liquidity Trap [View article]
    Joseph,

    I enjoyed the Market Euphoria article, although, as you might imagine by now, I disagree with the basic premise.

    I suppose that we are all somewhat prisoners of our backgrounds and see things in light of our own ideas. Whichever prism we choose will color our judgement. If you believe that markets are efficient and that the random walk theory is correct you probably end up setting up algorithmic trades with mean reversion as the basic underpinning. Your article seems to be based on these beliefs.

    Fair enough, that's how I started my trading career myself. With time, tough, like most Global Macro traders, I have come to believe that markets are far from being efficient, that they often miss price securities for rather long periods of time, and most importantly, that the markets are far from an accurate portrayal of the economy. Or, perhaps, it was the other way around: upon realizing that markets are indeed inefficient I became a Global Macro trader who could profit from it.

    In my humble opinion, this is why most economist make terrible traders: they can't quite understand that perception and psychology move markets and that they do not necessarily reflect or follow the underlying economy the way they think they should. So the markets are labeled 'wrong,' or 'irrational.' They are not. The markets are separate and independent entities with a 'life' of their own and one trades the markets, not the economy.

    Which brings me back to Keynes maxim. He really didn't mean to say that the markets were indeed irrational from time to time but would eventually come to their senses and follow the economy. He meant to say that the markets are what they are, they are independent constructs, that they can't really be wrong -they simply are - and that it is the trader's mistake to assign the 'irrationality' tag to the markets and bet on it, as it is the trader's own set of subjective beliefs (even if based on perceived objective economic theories) that labels what is rational and irrational behavior in the first place.
    As I wrote before: One should never be more invested in being right than in making money. This is the economists' cardinal and fatal sin!
    Sep 16 03:26 PM | 3 Likes Like |Link to Comment
  • Why QE3 Can't Work: Understanding The Liquidity Trap [View article]
    Joseph,

    You quoted Keynes regarding the liquidity trap. Nevertheless, you seem to have completely forgotten one of Keynes most famous maxims when you wrote:

    "There is no rational justification for stocks adding on to a 37% gain in a year."

    I personally believe that your are misreading the markets' reaction and their perceived lack of 'rational justification.' Nevertheless, even if you were to be correct, perhaps you would be well advised to remember Keynes this time, as well:

    “The market can stay irrational longer than you can stay solvent.”
    Sep 16 02:12 PM | 1 Like Like |Link to Comment
  • Why QE3 Can't Work: Understanding The Liquidity Trap [View article]
    The FOMC decision presented one of the easiest and potentially most profitable trading opportunities in a long time. The FED had been telegraphing its decision for quite some time and Mercedez Ben (I like the moniker) practically spelled it out at Jackson Hole.

    Since my job is to be pragmatic and make money, instead of arguing economic theory with the FED, I loaded up to take advantage of the decision several different ways: buying near term SPY calls and closing the short legs of the Iron Condor hedges; buying emerging markets and Europe (a risk on trade, as a result of reverse fly to safety); buying materials, housing and homebuilders; and finally, shorting even more bonds through TBT.

    Why shorting bonds? Well the risks of deflation have now almost disappeared and the FED stimulus will push inflation somewhat higher and cause Treasury yields to rise (they have risen the last two times around right after the FED’s easing). Here, it also helps that PIMCO sold 50 billion worth of Treasuries in August. That should tell us something.

    So, it has been a couple of unusually easy and profitable days. My point is not to brag, I am perfectly aware that these were unusual circumstances and successfully trading and investing is quite difficult. My point is to show that one ought to be pragmatic and try to profit from the circumstances presented regardless of one’s own particular point of view on whether the FED actions are right or wrong. Argue all you want about the FED’s decision but even if you completely disagree with it, turn around, forget the argument, be pragmatic, and profit from it.

    In short, one should never forget this dictum: You should never be more invested in being right than in making money!
    Sep 16 01:58 PM | 4 Likes Like |Link to Comment
  • Deflation risk? As Treasurys plummet (TLT -2.4%), inflation-protected bonds (TIP +0.5%) move in the opposite direction. Michael Gayed tracks the ratio of TIP to the 7-10 year Treasury ETF (IEF) as a way to gauge inflation expectations, and it's spiked higher of late, suggesting far higher inflation fears. [View news story]
    Take look at this:

    http://bit.ly/RSk1Ra
    Sep 14 06:12 PM | Likes Like |Link to Comment
  • Deflation risk? As Treasurys plummet (TLT -2.4%), inflation-protected bonds (TIP +0.5%) move in the opposite direction. Michael Gayed tracks the ratio of TIP to the 7-10 year Treasury ETF (IEF) as a way to gauge inflation expectations, and it's spiked higher of late, suggesting far higher inflation fears. [View news story]
    http://bit.ly/RSk1Ra
    Sep 14 06:11 PM | Likes Like |Link to Comment
  • The Fed Stimulates Inflation Expectations [View article]
    The FOMC decision presented one of the easiest and potentially most profitable trading opportunities in a long time. The FED had been telegraphic its decision for quite some time and Mercedez Ben (I like the moniker) practically spell it out at Jackson Hole.

    Since my job is to be pragmatic and make money, instead of arguing economic theory with the FED, I loaded up to take advantage of the decision several different ways: buying near term SPY calls and closing the short legs of the Iron Condor hedges; buying emerging markets and Europe (a risk on trade as a result of reverse fly to safety); buying materials, housing and homebuilders; and finally, shorting even more bonds through TBT.

    Why shorting bonds? Well, I agree with the author in that the risks of deflation have now almost disappeared and the FED stimulus will push inflation somewhat higher and cause Treasury yields to rise (they have risen the last two times around after the FED’s easing). Here, it also helps that PIMCO sold 50 billion worth of Treasuries in August. That should tell us something.

    So, it has been a couple of unusually easy and profitable days. My point is not to brag, I am perfectly aware that these were unusual circumstances and successfully trading and investing is quite difficult. My point is to show that one ought to be pragmatic and try to profit from the circumstances presented regardless of one’s own particular points of view of what should be economically right or wrong. Argue all you want about the FED’s decision but even if you completely disagree with it, turn around, forget the argument, be pragmatic, and profit from it.

    In short, one should never forget this dictum: You should never be more invested in being right than in making money!
    Sep 14 04:37 PM | Likes Like |Link to Comment
  • Deflation risk? As Treasurys plummet (TLT -2.4%), inflation-protected bonds (TIP +0.5%) move in the opposite direction. Michael Gayed tracks the ratio of TIP to the 7-10 year Treasury ETF (IEF) as a way to gauge inflation expectations, and it's spiked higher of late, suggesting far higher inflation fears. [View news story]
    There was a deflation risk but such a risk has practically now almost disappeared. The FED stimulus will push inflation higher and cause Treasury yields to rise (they have risen the last two times around almost immediately after the FED’s easing).
    Sep 14 04:31 PM | 1 Like Like |Link to Comment
  • Mercedes Ben [View article]
    The FOMC decision presented one of the easiest and potentially most profitable trading opportunities in a long time. The FED had been telegraphic its decision for quite some time and Mercedez Ben (I like the moniker) practically spell it out at Jackson Hole.

    Since my job is to be pragmatic and make money, instead of arguing economic theory with the FED, I loaded up to take advantage of the decision several different ways: buying near term SPY calls and closing the short legs of the Iron Condor hedges; buying emerging markets and Europe (a risk on trade as a result of reverse fly to safety); buying materials, housing and homebuilders; and finally, shorting even more bonds through TBT.

    Why shorting bonds? Well the risks of deflation have now almost disappeared and the FED stimulus will push inflation higher and cause Treasury yields to rise (they have risen the last two times around after the FED’s easing). Here, it also helps that PIMCO sold 50 billion worth of Treasuries in August. That should tell us something.

    So, it has been a couple of unusually easy and profitable days. My point is not to brag, I am perfectly aware that these were unusual circumstances and successfully trading and investing is quite difficult. My point is to show that one ought to be pragmatic and try to profit from the circumstances presented regardless of one’s own particular point of view of what FED actions are right or wrong. Argue all you want about the FED’s decision but even if you completely disagree with it, turn around, forget the argument, be pragmatic, and profit from it.

    In short, one should never forget this dictum: You should never be more invested in being right than in making money!
    Sep 14 04:28 PM | 4 Likes Like |Link to Comment
  • The conventional wisdom amongst Street economists is Bernanke will not use his Jackson Hole speech to signal additional QE, reports Bloomberg. This doesn't mean no more easing, contends JPMorgan's Michael Feroli, it means Bernanke doesn't want Jackson Hole to become a policy change event, preferring that to be reserved for FOMC meetings. Too late for that Mr. Chairman. [View news story]
    "We could see some serious inflation and higher interest rates on the horizon."

    Fair enough. This may be the case regardless who wins. So, then you need to act accordingly and profit from your forecast (with which I, coincidentally, happen to agree). What to do? I suggest you short bonds. The easiest way is to but TBT. Good luck!
    Aug 27 01:43 PM | 1 Like Like |Link to Comment
  • The conventional wisdom amongst Street economists is Bernanke will not use his Jackson Hole speech to signal additional QE, reports Bloomberg. This doesn't mean no more easing, contends JPMorgan's Michael Feroli, it means Bernanke doesn't want Jackson Hole to become a policy change event, preferring that to be reserved for FOMC meetings. Too late for that Mr. Chairman. [View news story]
    An investor's job is to make money by pragmatically assessing the situation and acting accordingly. Regardless of one's own personal political preferences, the truth is that, as of today, the most likely next president is Obama not Rommey. Hence, you owe it to yourself to act accordingly to profit from it until this fact changes. Frankly, from an investment point of view, everything else, including one's own biases, is utterly irrelevant.
    Aug 27 12:41 PM | 2 Likes Like |Link to Comment
  • Why A QE3 Won't Be Good For Bonds [View article]
    Very good post. Thank you.
    I have been short bonds for what it seems like a long time now. Too long, perhaps, if you ask John Paulson. Unlike Paulson, I believe that, short of a complete economic meltdown, it is inevitable that interest rates move up higher. As you eloquently put it, the very policies that the FED implements to help the economy, if successful, will, directly or indirectly, help restore confidence and help economic growth, which will, in turn, stock inflation and push interest rates up. So, the question is not whether interest rates will go up. They will. The question is when and how much.
    Aug 24 11:20 AM | Likes Like |Link to Comment
  • Significant Upcoming Market Event: It's In 'The Hole' [View article]
    If you are correct, Mike, and the intention is to telegraph in advance further policy easing to be cuasi-officially announced at Jackson Hole, then, at the very least, we will have a couple of safe up trading days coming up (probably the 29th, but surely the 30th). Cynical or not, a rational and pragmatic investor would take advantage of the short term trading opportunity. Wouldn't he? We'll do.
    Aug 21 03:36 PM | Likes Like |Link to Comment
  • What Happens If And When The Interest Rate Rises? [View article]
    Nice article, Cullen. I must confess that I was a bit deceived by the title as I was expecting an article about the implications of a rate rise in the U.S. Perhaps you would like to tackle this topic next. It would make for interesting discussion.
    Jul 12 09:08 AM | 3 Likes Like |Link to Comment
  • Fallacy Of International ETFs [View article]
    I am sorry, Michael, but this is not very relevant. If one looks for exposure to Swiss companies the ETF delivers that exposure. The fact that many of these companies are huge multinationals that derive most of the income from outside Switzerland would not surprise anyone. One would face exactly the same situation if one decided to directly invest in the companies themselves.
    Jun 26 04:00 PM | 1 Like Like |Link to Comment
  • A Whimper: What Is All The Calm About? [View article]
    Congrats on you 500th article.

    "Greece will still leave the Euro. Government or no government, austerity or no austerity - the fiscal math simply doesn't make sense unless Europe wants to pay for Greece forever."

    Alternatively, the bailout conditions are relaxed a bit and some of the growth ideas that have been floated are finally accepted by Germany and implemented. In the end, in spite of the insanely slow progress, there will be more Europe and tighter integration.
    Jun 19 02:30 PM | Likes Like |Link to Comment
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