Tag: quicknote

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

Ben Felix, an actual financial advisor, is out with a video about sequence of returns risk, a topic that we covered somewhat in Monte Carlo.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Sequence of Returns Risk

To put it simply, sequence of returns risk (or sequencing risk) is the risk that a series of bad market returns during the early years of your retirement can dramatically reduce your future purchasing power by diluting the value of your portfolio before it has a chance to grow, resulting in you having to withdraw “more expensive” money in the short term to meet day to day needs.

While Ben is right that historically, a portfolio of 100% stocks statistically works better, and that the other proposed methods of retirement planning (diversification, bucketing, safe withdrawal rate, etc.) tend to results in worse results (i.e. less money to spend) at least based on historical data, there are some points which I think he did not address:

• If you are planning on leaving an inheritance to your heirs, then having more assets left over at death need not be a bad thing — your heirs just get more in their inheritance.
• There is, arguably, a regime change in the financial markets recently compared to the past ~50 years — interest rates have been steadily coming down since the late 1970s to the early 2020s, but has since then broken the trend and started going up. Perhaps this is a blip and interest rates will resume going down, or they may continue going up — nobody really knows. But a diametrical change in interest rates trends can potentially have dramatic effects on how assets perform going forward.
• For retirement planning purposes, you have to make some assumptions about the future in terms of rates of return, spending needs, etc. Given that for some, retirement can be a semi-permanent thing (especially for tech workers, where the probability that you’ll be hired at a salary anywhere close to what you were making pre-retirement is very low), it makes sense to use more conservative estimates to build headroom for your calculations. After you actually retire, you can choose to adjust up your spending budget if your assumptions prove too conservative.

Note that none of the points above invalidates Ben’s arguments — his arguments are still very sound. But his arguments are based on historical data, and while there’s a good chance the arguments will prove true, there is also a non-negligible chance that, well, some things may change.

Whether you want to hedge that (possibly very small) risk, or are willing to chance it, depends on your tolerance for the risk.

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

Richard Koo, celebrated economist who has worked in the Federal Reserve and is now chief economist at Nomura Research Institute, joins Adam Taggart in this fascinating and detailed look into monetary policy, fiscal policy and central banks.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Fiscal policy vs monetary policy

Something which seems to confuse many people — monetary policy and fiscal policy are not the same thing.

Monetary policy is a set of actions taken to control the money supply, typically via interest rates policies and/or reserves requirements of banks. These are typically done by a country’s central bank.

Fiscal policy is the set of actions taken to control the cash flow of a country’s government, e.g. via public spending and taxation policies. These are typically done by the government of a country.

To put it somewhat crudely, monetary policy determines how easy it is to borrow money. It doesn’t mean that anyone actually has to borrow the money. Fiscal policy, on the other hand, determines how much money is coming in or going out of the government’s coffers, and if there is a deficit (i.e. more money going out than coming in), then the balance needs to be borrowed.

To simplify even more, monetary policy makes it easier for the government to borrow money, but fiscal policy determines if the government actually borrows money.

Choice quotes

• In so many countries, especially the United States but others as well, during the period after 2008, when we had the Global Financial Crisis, so many countries adopted, so called, non-conventional monetary easing measures, one of which was Quantitative Easing and even though huge amounts of liquidity was injected, none of those central banks actually met their inflation targets. So that shows that what we learned in universities — that when money supply double the price level will double and all that that Milton Friedman was associated with, was completely untrue after 2008 in the west and actually after 1990 in Japan.
• All the economics that we learn in universities are based on the world that exist in the 60s and 70s, right? But that world doesn’t exist anymore.

Enjoy!

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

Adam Taggart is out with a fantastic interview with Graham Weaver — professional PE fund manager, Stanford professor and blogger/youtuber.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Graham Weaver

Graham Weaver is a more traditional private equity fund manager, along the styles of Warren
Buffett — someone who invests in boring, predictable, but highly cash flow generative businesses, and holds them for the long term.

In this interview, he discusses the philosophy behind his investing style, and what contributes to his success. Well worth a watch.

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

Adam Taggart is out with a fantastic interview with Grant Williams.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Grant Williams

Grant Williams is the author of “Things That Make You Go Hmmm…”, which discusses interesting phenomena in finance over time.

In this interview, Grant talks about what he expects in the near-term future, the phenomenon such as the meme stock craze, crypto, etc.

In particular, at the 58m 52s mark, he talks about something dear and close to my heart — the differences between investing and speculating. Something which, it seems, many younger “investors” should really understand.

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

Patrick Boyle is out with another great video looking at what the modern financial system has become.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Financial Nihilism

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

PPI came in slightly below expectations, and the Fed goes full dove.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Coo.. cooo..

PPI came in cooler than expected by a smidge, and while stocks went up early in the day, they quickly reversed and was almost flat at around 1pm.

For someone with QQQ calls expiring today, that was painful to watch. Good thing I was busy at work and wasn’t really watching.

By the time I could spare a moment, the FOMC announcement was out (at 2pm) and stocks went up in a straight line — instead of the 2 expected cuts, the Fed’s dot plots shows 3 cuts in 2024, and to top off the dove parade, Chairman Powell was (in my opinion) extremely dovish in his press conference at 2.30pm. See for yourself:

Long and longer

Which is why, if you follow me on StockClubs (1), you’ll notice that I took profits on the QQQ calls spread opened yesterday with a healthy profit, and almost immediately put most of that money into another call spread expiring today at a higher strike (i.e. more leverage).

It was a good trade, and I guess my kids get to eat dinner tonight.

Santa v2?

As of now (after the close) the only short term bet I have left is the CAVA short (via bearish put spread), which isn’t doing too hot.

But given how the market has reacted to events the past few days, and how dovish the Fed suddenly turned, I’m inclined to think that the Santa rally is back on, at least until the end of the year.

This Friday (12/15) is opex, which tends to be volatile and tricky to trade, so I’ll probably sit pat until Monday — if nothing changes my mind by then, I’ll probably play for a Santa rally into year end.

Footnotes

1. Disclaimer: I am an investor in StockClubs and I’m only showing 1 (out of 10+) of my brokerage accounts in the app.

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

CPI came in hotter than expected, the exact opposite of what I’ve expected yesterday, yet stocks are up, and my QQQ call spreads made money. Wut?

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Rabbit’s foot

As I’ve noted yesterday, I had expected CPI to come in cooler than expected, thus causing markets to rise. Instead, CPI came in slightly hotter than expected, but after a small dip in the morning, markets are now up.

So while my premise was entirely wrong, my QQQ call spreads are up and I’ve taken the profits.

As I’ve noted before — It’s good to be great, it’s better to be lucky.

PPI and FOMC

PPI and FOMC decisions are coming tomorrow. Given the unstoppable nature of the market, I’m inclined to just shrug my shoulders and go along with the flow.

If the market wishes to go up despite stronger NFP (last Friday) and stronger CPI, then it seems like there’s a decent chance it’ll find a reason to go up anyway tomorrow.

Sometimes you just have to laugh — If the world wants to throw money at you, the least you can do is to open your pockets.

StockClubs

If you want to follow along and see what other stupid things I do, feel free to follow me on StockClubs — note that this is only one of 10+ of my brokerage accounts, and I’m an investor in StockClubs.

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

In just a few more hours, we’ll get the latest and final CPI print for 2023, followed 24 hours later by the final PPI print, and on the same day of the PPI print, FOMC rate decisions plus Powell press conference. The next ~40 hours is going to be very interesting indeed.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Update

Update to the trades (prior post: https://jankythoughts.com/2023/11/16/november-16-2023-breather/):

I made a bunch more bets on various earning reports, and ended up with a slightly larger gain. As of now, the only short-term bets I have on are:

• Long CAVA bearish put spreads till 12/29
• Long TLT bullish call spreads till 12/29
• Long QQQ bullish call spreads till 12/12

CAVA

CAVA IPO’d on June 15th, 2023 with about 14m shares sold to the public — the rest of its shares are prevented from selling for 180 days due to the standard lock-up for insiders in IPOs.

That 180 days of lock up ends on December 12th, 2023 (tomorrow).

According to Yahoo Finance, CAVA has about 113m shares outstanding. 14m of those were initially sold during the IPO, leaving about 99m. Of the 99m, some were probably warrants/stock options that were exercised, though the exact number is unclear.

But no matter how you slice it, a large number of new shares will become eligible for sales tomorrow, possibly up to ~7x the number of shares in the initial sales, representing ~66x the average daily volume.

Even if a small fraction of those insiders decide to sell, there will likely be a lot of selling pressure on CAVA, hence the bearish positioning.

TLT

This is the remnants of my long TLT play from when I first flipped bullish. It is currently up a substantial amount, but I think it can possibly go up a little bit more before I close this remaining portion of the play (see below).

QQQ

And the final piece — today I entered into a levered long position on QQQ, because CPI is coming out tomorrow (December 12th) at 8.30am.

Looking at the last CPI breakdown, a large part of the inflation in the measure is from housing. However, talking/listening to the fund managers of my private equity real estate investments, the common thread is that rent across most of the USA is stalling or coming down. This trend of flat/lowering rents started becoming pronounced around August/September, and did not appear to abate in November.

Therefore, I’m expecting CPI numbers to come in weak tomorrow, same as inflation numbers from Europe has been relatively weak recently.

This should, hopefully, result in a short term sentiment boost to stocks as traders bet on Fed easing, or at least an end to rate hikes.

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

An update to the Santa Rally, 2023.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Update

Just a quick update for those who’ve been following my trades this year (prior post: https://jankythoughts.com/2023/11/05/november-5-2023-ho-ho-ho/).

Yesterday, November 15th, 2023, I’ve taken off basically all my call spreads which were betting on the Santa Rally.

Yes, I understand Christmas isn’t for another month and change.

The reason for this is 2 fold:

• On Tuesday (11/14), markets and bonds ramped dramatically after a CPI print that is only slightly below expectations.
• After the ramp, the market was generally moribund and directionless, though trading feels a little heavy.

This is just a feeling, and well, trading is all about sentiments — it feels like the move on Tuesday was a massive short squeeze. Further, it feels like most of the shorts are now out of their positions.

Which suggests that at least in the short term, markets may trade weak/sideways. Since a call spread decays theta over time, it seems like a good idea to close out the spreads and take my profits.

Maybe if the market perks up again I’ll reenter the Santa trade. But for now, I’m taking a breather.

Foreword

This is a quick note, which tends to be just off the cuff thoughts/ideas that look at current market situations, and to try to encourage some discussions.

The end of the year is upon us, and as with most years, it appears that the Santa Rally is upon us.

As usual, a reminder that I am not a financial professional by training — I am a software engineer by training, and by trade. The following is based on my personal understanding, which is gained through self-study and working in finance for a few years.

If you find anything that you feel is incorrect, please feel free to leave a comment, and discuss your thoughts.

Update

Continuing with our short term trading updates:

If you follow me on StockClubs (1), you may notice that after the Treasury’s Quarterly Refunding Announcement (QRA), followed by the rather dovish FOMC meeting, I’ve closed my market shorts. Across all my accounts with a similar short, the losses and gains net out to a small gain.

At the same time, I had on a bunch of quarterly earnings reports plays, mostly doing with shorting tech names. While the majority of calls were wrong (TSLA – went down after earnings [right], NFLX – went up , GOOG – went down, MSFT – went up, SNAP – went up, META – went down, AMZN – went up, INTC- went up), the play was that given how markets were punishing weak and even decent earnings while not really rewarding beats, the overall risk/reward for shorting into earnings seemed good.

And I would have made a small profit too… if I hadn’t been too greedy. On the day of META’s earnings, the market went down just after I opened the short, giving me a small gain even before the earnings report. If I had left the trade on, or taken profit, I’d have a net gain (across all the trades). Instead, I closed the position, and reopened a put spread further out, while opening a call spread — the bet was that given the already downbeat market, META will likely move regardless of earnings, though it now had a higher chance of going up.

Well, META moved down the next day, and I was sitting on pretty decent gains on the new put spread — more than enough to cover the costs of the call spread… except that I got greedy and I decided to let it sit to capture more profits. Of course, that evening AMZN reported stellar earnings, so good in fact, that it caused the entire tech sector to rally, and my META short gains to vaporize.

So now my earnings report play is sitting on a bunch of losses, large enough that across both market and earnings plays, I’m down slightly. Bummer.

Santa Rally

Prior to the Treasury QRA, I was thinking that there’s a 50/50 chance of a Santa Rally this year — there are a lot of risks in the world:

• Potential of middle east regional war leading to oil price spike
• American consumer looks increasingly tapped out
• China financial weakness
• Potential Japanese tightening due to inflation
• Potential US government shutdown in mid November
• Credit losses on commercial real estate properties
• Housing market turning weaker
• Earnings from companies seemed weak

But there are also a lot of potential catalysts for a rally:

• Israel seems to be moderating their stance somewhat after international pressure
• American consumer is still much stronger than expected
• China seems to be starting to ease
• Ueda seems to be going about Japanese tightening very timidly
• US House of Representatives elected a speaker who seems to be keen to avoid a shutdown
• Losses on commercial real estate seems confined to commercial real estate, mostly office spaces
• Housing market weakness seems mostly limited to certain regions
• Earnings season is mostly done, at least for the big names.

So I was on the fence about holding my shorts, closing them or even opening longs.

But the Treasury QRA and the following Fed FOMC press conference suggested two things:

• Both the Treasury and the Fed seemed keen to avoid pushing the market too hard, and seemed in fact to be trying to limit longer duration Treasury bond weakness
• Future rate hikes seemed unlikely unless something dramatic changes

Given that both monetary and fiscal policies appear to be trying to keep markets happy, as long as nothing dramatic happens, it feels like on the net, betting on a Santa Rally seems like a better risk/reward play till the end of the year.

In that spirit, I’ve closed all my market shorts across all accounts. There are also no earnings report that I am really excited to play for the rest of this earnings season. Instead, I’ve opened a few bullish positions across my accounts:

• Call spreads on TLT
• Call spreads on QQQ
• Call spreads on VOO

The reason why I’m switching from betting on SPY is because of wash sales rules — I avoid trading the same names across the December/January divide, as that makes taxes regarding wash sales easier to deal with (you don’t have to carry losses into the new year). By only trading QQQ now, I can just avoid QQQ in January and only trade SPY then.

Hope and a prayer

Readers should be reminded that my previous short plays did not quite pan out as expected, so there’s a very good chance that this new long play will be rewarded with a lump of coal.

I guess we’ll see….

Footnotes

1. Disclaimer: I am an investor in StockClubs, and only one (out of 10+) of my brokerage accounts are shown there.