Disqus - Latest Comments for aki_izayoi

Re: Paolo Pellegrini's PSQR Capital: Investor Letter & Performance Update

Aki_Izayoi — Mon, 30 Nov 2009 22:18:35 -0000

There was a Bloomberg piece on Pellegrini...

It said he made a lot of his money shorting Treasuries in Janurary. He hasn't done anything else. I guessed he hedged that trade when Treasuries started range trading in April since his fund lost any discernable correlation to that asset class afterward.

Treasuries were objectively "overvalued" in Janurary during the environment of fear. Essentially it was a bet against yield volatility. perhaps 350 basis points provides a decent volatility premium. I do not think Treasuries are overvalued at 350 bpts because it is a good yield in a mildly deflationary environment where there are no other choices to save. Since savings equals investment, and since technology seems to be a in rut, it is unlikely one could earn high returns on capital without investing in innovation. In a world with a lack of innovation and deflation Treasuries at 350 seems decent.

http://pragcap.com/bill-gro...

Re: How Long Can The Rally Last?

Aki_Izayoi — Wed, 11 Nov 2009 23:57:19 -0000

As for me, I thought the S&P would fall below 1000, and then rally. I thought that a minor correction would draw some of the bears out of hiding to get them slaughtered again. However, I underestimated the effects of people buying the dip, and got stopped out.

I shorted SPY at S&P ~ 1095 (while going long during the start of earnings season, so I made money on the up and down), and lowered the stop at 1070 when it reached ~1040. If one is using short-term trading, ALWAYS use stops. It is best to stopped out, and cut your losses and leave because you could always get back in. Stops work because you get forcefully stopped out, and one cannot say that "I'll be correct" eventually. It just leaves your ego out of it. Furthermore, getting stopped out is annoying, and thus using stops gives an extra disincentive not to be trigger happy, and gives an incentive for one to optimally time their entrances.

I said these remarks earlier, as I correctly stated that the market is not ready to experience a major fall, but incorrectly thought the correction from the October highs would be larger. The moral of that story is that if you think we have some insight to explaining how the market moves, you may be wrong, and use stops to protect yourself from being wrong. Although my hypothesis about the moderate correction have been falsifed, I do think my remarks about a "built-in support" are relevent.

Oct 22.

The market is overbought…. this would probably spark a 10% pullback. Maybe 12%… the case for a much larger pullback is contingent on sentiment. There is no reason why the bear’s beatific vision or wet dream would occur now when so many people are long term bearish. I did feel we were due for a pullback in the beginning of October if there wasn’t earnings season to bring out the animal spirits. [since the S&P 500 plummeted after a bad jobs report in late September, but I did realize that earnings season would trump it.]

I am less convinced of the short/medium term bearish view (in bearish, I mean the bear’s wet dream of the S&P 500 below 500.) I doubt the will happen because there are so many people competing for return by looking for “value”, and low interest rates means one can put higher multiples on stocks. Furthermore, I think the market nows as a very strong built in support — too many people are long term bearish, and the ratings for CNBC has plummeted, and bearish websites such as zero-hedge, and seeking alpha are popular. In addition, mutual fund allocation to equity funds are at 44% far below the average of 51% from 1998-2009. Metagame considerations say that bearish views must be more long term bearish than other bearish views.

Tentatively, I think we will retest the new highs, although this seems to be a set up to weed out some of the longer term bearish deflationists (and inflationists). I lost my enthusiasm for certain deflation trades such as long Treasuries due to a poll on Zero Hedge that should about 2/3’s deflationists over an 18 month horizon.

Oct. 30.

From Rosie the soi-dissant “perma-bear”:

The man on the street sees it a little differently, perhaps less enthused by the fact that a lower rate of inventory destocking is arithmetically underpinning GDP growth at this time. Put simply, a Wall Street Journal/NBC News poll just found that 58% of the public believe the economic recession still has a ways to go — and that is up from 52% in September and means that the private investor, unlike the hedge fund manager, is not interested in adding risk to the portfolio even after a 60% surge in the equity market.

Only 29% of those polled believe the economy has hit bottom — imagine having that psychology with nearly zero interest rates, a bloated Fed balance sheet and unprecedented fiscal deficits (poll was taken from October 23-25). Nearly two in three (64%) said the rally in the stock market (still a bear market rally — not the onset of a new bull market) has not swayed their view (or ours for that matter). There is going to be some very tough slogging ahead as far as the economy is concerned.

http://www.creditwritedowns...

Rosie, the “permabear” gives a good case (although not explicitly) that we aren’t ready for the bear’s wet dream yet. Still, too many people are bearish…

I think we need a 10-15% decline (from the recent top) to give the shorts some confidence, and to cause another frustrating market rally to finally break their will (if it hasn’t already). I think we need to decline more to create another bear trap. Yesterday’s rally hasn’t falsified this view, although I do think (currently) that last week was the high for the year. That rally needed to test the will of the bears of went out of hibernation, and it is not surprising that large daily moves occur during corrections as volatility increases. It seems the recovery trade is somewhat popular (as most investment banks recommend the trade), and it worked for two quarters. Even if I am wrong, the risk/reward for the proposition that last week was the high seems good, since it seems that most of the shorts are out, and the Pavlovian effect of the “better-than-expected” earnings would wane.

Nov. 2
I am medium/short term bearish, but I do not feel comfortable with holding on to a short position for more than a few weeks. I do not think this is the downtrend where one could sit on their ass for a few months with a short position and profit from the trend. Too many people are long term bearish, and this creates a built-in support for the market (along with the aforementioned low interest rates.) In addition, corporations are defensive as I read recently in WSJ, that they have increased their cash to asset ratio. You have to wait for people to let their guard down, just like the top this October. (It was like drugs, one or two better than expected earnings will give you a nice high, but repeated iterations do not result in a new high as the body already adapted.)

Fundamentally, the market valuation can be justified by low interest rates and slow-roll deflation. Deflation actually benefits stocks because it makes the cash flows more valuable as it could buy more (labor-intensive) goods (as labor has been harmed the most in this deflationary environment), and lower rates on long-term "risk free" nominal assets i.e. treasuries. One might counter than deflation would put a higher risk premium due to revenue uncertainty and lower nominal earnings, but the goverment's actions reduced the risk premium (Bernanke put.) Furthermore, from a left-wing perspective, the stock market rally represents social injustice: deflation benefits stocks another way by lowering costs although the top line would not grow. Slow-roll deflation lows the risk-premium by making deflation occur slowly so corporations can service their debts without massive defaults.

Of course, what other people are doing is more important than fundamentals. If we do believe that the market is a zero-sum game (Peter Thiel asked the relevent question of how one gets high returns in a world of little innovation; without innovation, economics seems zero-sum), one can get an advantage through information asymmetry and have an optimal discount curve (knowing when to focus on the short-term and long-term). If you want a fundamental reason to believe in the rally despite the endless bearish rants on Market Oracle, Marketwatch, and Seeking Alpha, I've given it to you just to give you a reason to actually be a contrarian (i.e. being a bull). Assuming the obvious; for example, everyone and their mother believes the labor market would be weak, and assuming this means lower stock prices, will not lead to high returns. The market will likely fall when weak hands hold on to equities.

Re: Paul Tudor Jones Favors Gold & Curve Flatteners (Investor Letter)

Aki_Izayoi — Fri, 30 Oct 2009 01:03:14 -0000

Tudor was a fan of the Elliott Wave theory in 1987, but I think he lost reliance of it afterwards when Great Depression didn't happen in the late 1980s or in the 1990s. Regarding Tudor, I do not find him as a "great" fundamentalist, but he is a good trader. I am sure Jay is familar with a great fundamentalist (hint: according to Gawker he is gay and anti-immigration) who got his ass handed him this year because he was a great fundamentalist and (from the performance of his fund this year) a horrible trader. PTJ, on the other hand, utilizes momentum strategies and technicals to at least mitgate losses even if the market behaves "irrationally."

I see the risk/reward of flatteners compelling though... If the economy recovers and there is tightening on the front end, they will benefit. Also, if there is deflation, the long end would rally thus benefit the position. In addition, the search for carry would also be a force that would pull long end yields lower. I think it has a better risk/reward than the outright deflation trade of long 10 year Treasuries.

I do not see a very compelling risk/reward in gold from a contrarian perspective though... I think many people are already positioned for gold's rise (although it hasn't reached mania levels yet, but there is plenty of enthusiasm for gold), but fundamentally, the trade can be justified. I see it as more of an anti-dollar play, as a dollar rally would reduce the purchasing power of emerging market currencies to buy gold with dollars as this is one risk for long gold. The opportunity cost for holding gold, however, has dropped since nominal interest rates on holding dollar-denominated (or GBP, JPY, or EUR, the majors) nominal assets are low so this will make people are willing to use a buy and hold strategy on gold. From a short-term time horizon, I do not like gold.

I do not like Taiwan even if one wants to play the "rising emerging markets" theme. I do not know about the valuation of Taiwanese equities, but if they are cheap enough for a "value" play (they currently have a high dividend yield.), it might be a good long term investment. I do not like it as a growth theme because of competition from other emerging markets. See here.

For a real contrarian investment... the best investment is not gold, but technology. The best investments are bets on a technological singularity; on second thought, these investments have to be "investments" in the singularity actively providing capital to make it happen, not merely betting on its outcome.

Peter recently talked to an LP (endowment) who was thinking of re-allocating its portfolio to hold less than 5% in venture capital as its recent returns had not matched expectations. Peter told the LP that they’re thinking is flawed: if their 5% allocated to vc eventually does not return a mega profit, the remaining 95% allocation is going to be worthless anyway. ”Investing in technology as a VC is like Pascal’s bet: if that isn’t going to work, nothing will.”

http://www.leveragingideas....

http://www.acceleratingfutu...

Re: S&P500: Highest Level Above Its 200-Day Moving Average In 25+ Years

Aki_Izayoi — Thu, 17 Sep 2009 18:19:04 -0000

marketfolly...

I remember the March bottom though. I do remember the market being technically oversold, and sentiment being extremely bearish. One reason for actually going long is that there is no good fundmental reasons for going long then. I did remember a poll from CNN in February that showed that 2/3rds didn't believe the economy would not recovery in 2012. That said to me, that the risk/reward for remaining bearish wasn't good.

How many people were calling a bottom the week before the rally? Was there capitulation among that crowd? Does anyone remember? anyone can cakk a bottom, and consequences for mistiming it aren't much.

Re: S&P500: Highest Level Above Its 200-Day Moving Average In 25+ Years

Aki_Izayoi — Thu, 17 Sep 2009 11:52:02 -0000

I didn't take my own warnings about continuation of this rally seriously. Do you (I am referring to myself here) think that an NYTimes article postulating a "pull-back" would be amiable for a pull-back? Do you think market forecasting by the NYTimes will cause of pullback?

I posted this on another blog on 9/05/09:

"On a trading note, I actually thought the best risk/reward for a short would come in August because sentiment was so bullish, and many people for calling for a collapse in September. From a trading perspective, that was a good call a priori, but it didn’t happen. It was still a good risk/reward bet from the past perspective, although it wasn’t a lucrative bet because it didn’t happen. Now, I see a New York Times article warning about a possible sell-off.

On a short term perspective, I do not like short equities… it seems too many bears on Seeking Alpha hate equities (many of these equities bears are also China bulls, dollar bears, commodity bulls, and precious metal bulls) and it seems that talk about the Fed manipulating the market has somewhat ceased. However, it seems that the bear market is ending… I heard of sell-offs on “good” news. Perhaps, it is better for one to place bets in short term interest rates, bond, commodity, and currency markets where the deflationist can truly be a contrarian.

I wonder how popular the “better-than-expected” earnings (or economic statistics) trade is on now. I suppose it is unwinding due to the market selling off on good news sometimes, but bearishness went up too fast. We need bullishness to persist in order to get some people to buy during the sell offs."

Maximum pain to the maximum number. In order for this rule to be satisified, must the market lure more people in to long positions, and have most of the shorts gotten out? I do not know how this will end... but it surely isn't going to end when a lot of bears correctly timed the top, or many bears endured the purgatory of rallies and will now face the beatific vision of a sell off -- instead most of those bears would not have option and short positions for sell off and thus capitulated. Many bears will miss the sell-off even though they "anticipated" it. My working hypotheses require an actual bear market requires: I bears to capitulate in frustration, II people to actually be bullish on the economy or stock market (these would be analogous to shorts during the bear market rally) and III a catalyst that causes earnings to decline since many long positions are based on "better-than-expected earnings." However, condition I and II need not occur simulataneously. Extremely frustration by the bears would be enough for a sell-off, or optimism.

I. I thought that has happened in August and with the decline of short interest
II. The comment sections on Seeking Alpha and MarketWatch says this hasn't happened. There are too many doubts about a sustained rally there.
III. Since of ~45% S&P 500 earnings are derived from foreign sources, I believe a dollar rally (which I believe has a high chance of happening) could act as a fundamental catalyst. A 10% dollar rally would probably affect earnings enough that it would be below analysts' expectations.

On another note, I really thought the dollar bottomed, but I do not have any regrets about being wrong about the dollar even though the position moved against me (actually it was an FX account held by my father). I am more comfortable with dollar longs (as it is contrarian trade because it doesn't agree with the Seeking Alpha equity and dollar bears). (Perhaps the Seeking Alpha and Marketwatch comment section is the new CNBC. CNBC [or Cramer] is no longer a contrarian indicator anymore since their ratings plummet. CNBC and Cramer are already reviled by everyone.) I wished I "hedged" the dollar longs with equity longs in the short term; unfortunately, I kept the S&P shorts despite my temporary bullishness.

Re: Hedge Fund Clarium Capital's August Commentary: Save Now, Invest Later

Aki_Izayoi — Thu, 10 Sep 2009 14:38:11 -0000

This piece seems be an elaboration of Peter Thiel's idea that innovation will be stagnant, and we will have to accept where the returns on investment would be lower.

I did like the elaboration about health care and education. I didn't learn anything new from it, but I did appreciate the piece's quantification on the returns of education and health care spending.

However, although the piece doesn't explicitly advocate betting on long term Treasuries... I suppose that may be one of the best options in an environment where there would be a low real return on investment and deflation. I like the trade because it is contrarian (as it doesn't focus on prevalent rants about China and the value of the dollar) and it has some thought behind it. I do not know any other good investments besides Treasuries (maybe gold, but that is too crowded.)

I loved this quote:

"But optimism about China as a local triumph exposes a complementary pessimism about innovation in the world. "

Re: Two Reasons To Be Bearish

Aki_Izayoi — Fri, 28 Aug 2009 12:48:48 -0000

A good speculator would put little emphasis on fundamentals especially if many people shares the same thoughts. Here's a tautology: fundmamentals don't matter until they do. The most important thing is knowing what the metagame is doing (or thinking) and understanding sentiment.

I also did not know how crowded short equities were at the end of June. Einhorn's purchase of S&P puts were on indication as this is a value investor entering the macro arena. The Darwinian flush of bears needed to happen, and the environment should make them long or out of the market when the sell off happens. As for myself, I am humilated; I never believed Robert Prechter's prophesy of extreme optimism until it was fulfilled. I thought such optimism would never happen. It was never a question of fundamentals regarding equities (although deflation vs. inflation interests me more, and it is one arena where one can speculate against other fundamental views. Shorting equities is too obvious, but other trades such as long Treasuries, long dollar, and short base metals are actually contrarian )

Well, if it is bearish speculators vs. bearish speculators, I prefer to position myself for prolonged deflation. Deflation seems to be a minority opinion (although many people hold it) since most people are talking about higher gold prices (yes, high deficits and monetary debauchery are not reasons for going long on gold from a trading perspective since everyone already knows those reasons), higher interest rates, "eventual" inflation, dollar collapse, etc.

Although "macro" is exciting and high risk, for those who cannot do it, one should try event arbitrage/special situations (or diversified multistrategy). Maybe a strategy that can generate 10% returns without regardless of sentiment or macroeconomics is very nice and has very high risk/adjusted returns in an environment were the 10 year treasury is yielding between 3-4% and where equites will likely be flat for years. I wonder what is the cost for such strategies in terms of the intellectual manpower for such a task .

I wonder how crowded is fixed income, merger, and convertible arbitrage are now. Is there too much money chasing too little trades? What are the barriers to entry for such strategies? Although in merger arbitrage, I suppose the lack of debt financing would reduce the number of deals, and low short term interest rates would make spreads tighter.

Re: Passport Capital Details Curve Steepener Play (Investor Letter)

Aki_Izayoi — Thu, 30 Jul 2009 19:27:36 -0000

What are the political pressures for inflation? Of course, the US has a high debt to GDP ratio and inflation helps people to delever. But what "specific inflation" and who wants inflation? Do "political pressures" lead to economic reality? I doubt it...

So let's ask the question again: what are the political pressures for inflation?

Populist: Although they are vocally afraid of inflation (commodity price inflation), they actually fear deflation in wages and unemployment. One potential outlet for these fears is increased sympathy for protectionism (which would actually produce inflation if the domestic production of goods is relatively expensive, and it would reduce the supply of labor as they would be more manufacturing jobs, and give domestic firms more pricing power.) But aren't there populist pressures for protectionism? Those political pressures for protectionism did not yield anything significant though. It does not seem likely that populist political pressure would go through.

Populism wants inflation, but specifically, they want wage and benefit inflation without commodity price inflation (in the form of energy and food prices). I do not see how "ordinary" monetary policy can be used to achieve this and it doesn't seem possible with a large global reserve army of labour and labor saving technology. And besides, the Fed is "politically independent;" there are NOT going to print money and deliver it via helicopters to satisfy populist objectives. It is not going to destroy an important asset - its credibility - to satisfy a populist political agenda. Even when considering non-populist political objectives, take the example of the PPIP; the Fed didn't want to load their balance sheet with shit (most of their asset purchases were agency debt and Treasuries), so that risk had to be socialized using FDIC funds as a form of insurance. (Also see the analysis of Patrick Wolff for a more articulate view.)

There might be a demand for deficit spending, but I fail to see how this would be inflationary.

Investors: For buy and hold investors, asset price inflation without other forms of inflation are a good thing. In the case of stagflation, asset prices would initially fall because of larger discount rates on future nominal cash flows. After the initial valuation compression, cash flows may keep up with inflation and stocks may become a nice inflation hedge (although this assumes that firms have pricing power if they can pass input cost on to keep up with inflation). So overall, for investors, it depends on when you buy the assets; one wouldn't lose that much if you buy after the valuation compression. Historically, the bull market of the 90s concurrently happened in a disinflationary environment with lower Treasury yields (with the exceptions of 1994 and 1999), globalization to keep the prices of tradable goods and labor down, increasing leverage, and the bottoming of commodity prices.

BTW: What are the "political realities" and "favorable demographics" that favor health care? I suppose more senior citizens favor the health care sector. I wonder what is the correlation of health care and other asset class? I heard it did well after HillaryCare got defeated. Presumably it underperformed the market in the 1990s. I am curious about its correlation and its valuation. Are health care equities trading at a discount or premium (defined by P/E or dividend yield) to other sectors?

Re: Passport Capital Details Curve Steepener Play (Investor Letter)

Aki_Izayoi — Thu, 30 Jul 2009 15:39:49 -0000

Of course, it seems obvious to "long the economies" of India, China, etc... One could argue that those economics have excellent long term prospects for growth, but one cannot "long" an economy, but one can long asset prices. Isn't everyone bullish on these economies now? What are there P/Es and growth prospects? Are they already priced-in? I suppose going long would be a good idea if you know there would be a bubble in asset prices there (in China most people acknowledge an asset bubble caused by lending.) The thesis of an emerging markets asset bubble seems plausible because unlike people forecasting higher interest rates in the US, I am a deflationist like Hendry and see lower interest rates. People searching for yield in this environment will buy emerging market assets and there is a plausible fundamental thesis for this.

I like short JGBs instead of short Treasuries. I don't think Australia has a trade surplus though.

Re: Viking Global's Short Positions Cause Lag: Investor Letter

Aki_Izayoi — Tue, 28 Jul 2009 14:40:12 -0000

Do you have Clarium's sheet?

I still like them... I promise I wouldn't ostenatiously post it. If they wouldn't allow you to post then, e-mail would be fine.

I wonder if Clarium still has shorts in equities or they covered. They have a long term time horizon so they will put on their shorts back soon.

If you are not going to do that... just saying the lost a% of nav in commodities, gained b% in foreign debt etc. and they have x% of NAV in short currencies US, y% of NAV long foreign debt, z% short foreign debt, etc. You're a credible source.

So any sources within Clarium... do they favor deflation trades in currencies and bonds? What about commodities? I just hope a "deflationist" would do well. I am cheerleading them.

Re: Hedge Fund Performance Numbers: June 2009 Update

Aki_Izayoi — Fri, 17 Jul 2009 11:44:34 -0000

I am cheering for my favorite nativist: Peter Thiel.

Do you have any info on Clarium's performance, yet?