NEW – THE TPC REPORT
Due to high reader demand I’ve created a newsletter of sorts that will involve a macro view, a micro view and a strategy outlook. At some point I will add a model portfolio when I rectify a way to apply the actual trades to a somewhat realistic portfolio tracking system. I am working with a few online right now so we’ll see which one most closely correlates to the macro portion of my actual portfolio. For now, we’ll have to work with this because it’s impossible for me to track many of the instruments I usually trade – futures, options, currencies, etc. are difficult to mimic without me divulging my entire portfolio – something I will not do because this is one slice of the multi-strategy approach I use. Unfortunately, I have to make a living so you only get to see a portion of the TPC approach to investing. Apologies.
I should note that this is very much a work in progress for myself. Being a trader that has generally achieved most of my success in strategies other than global macro (such as the one I use on TPC) it will be interesting to see if I am able to achieve similar high risk adjusted returns in a lone global macro portfolio that I do using my multi-strategy approach. Global macro strategies do not generally account for a high percentage of my returns, but the macro trades I have made over the years have tended to produce extraordinarily high risk adjusted returns (my March 8th bottom call and “bond trade of the year” are good examples of such trades). Hopefully, we all benefit and learn as we move along. Enjoy!
Update 12PM EST – Unfortunate timing with this huge ramp in the market, but I didn’t expect us to near 1,000 so quickly and I sold out of all equity positions into the 2% move higher….It’s been a great run in the last few weeks, but the equity portion of this report has gotten too crowded for my taste.
I’ll revisit the equity portion of my portfolio in the weeks ahead. The hedges will remain in place however and serve as pseudo short positions.
* Thanks to reader Ovidio for the generous donation.
Hey TPC,
where exactly can I sign up for the newsletter to get it in my Inbox?
Best Regards
Snob
Snob,
register for the site or do it through the rss feed on the top right:
http://pragcap.com/wp-login.php?action=register
great report TPC. Best financial site on the web. Hands down.
Nice job keeping it brief and succint. In a world of information overload, brevity is good. You seem to understand that you don’t need thousands of good ideas to make money, you really only need a couple….sometimes only one.
This is a great report.
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Exxon just reported. Their earnings are not only down from last year’s $2.27 per share in Q2 2008 to $0.84 per share. But more interestingly also down $0.92 in Q1 2009. Oil prices are up versus Q1. The estimate was apparently $1.02. That is a big miss for a big company.
The drop in Q2 earnings from $12 billion last year to $4 billion this year amounts to a reduction of S&P500 aggregate earnings of more than 5% ($8 billion drop on $148 billion S&P earings). The reduction versus Q1 of about $
This is beig dismissed as a good thing since big oil had such huge profits last year. XOM has a big market cap. This will weigh on S&P 500 earnings.
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On the other hand, unemployment claims came in at a lower than expected 580K seasonally adjusted, 504K actual. That is the 2nd lowest actual rate this year. They will need to come in under 506K actual next week to avoid topping the 600K barrier. By August 15, actual claims will need to come in under 474K to not top 600K seasonally adjusted. We will now need to see steady improvement in actual claims to keep the reported number from going up.
I think that the markets will explode higher if GDP comes in better than expected tomorrow.
Just an FYI,
I didn’t expect us to near 1,000 so quickly, but I sold out of all equity positions into the 2% move higher….It’s been a great run, but the equity portion of this report has gotten too crowded for my taste.
I’ll revisit the equity portion of my portfolio in the weeks ahead. The hedges will remain in place however and serve as pseudo short positions.
TPC,
You sold all equity positions? You have no confidence that the market can go much higher? Even if GDP prints much better than expected?
I thought you had call options and were “hedged” for further upside not hedged to the downside. I don’t understand.
I am out on the equity side Rob. I still have hefty bond and currency allocations with a very small covered call position, but for the most part I am very uncomfortable being long here. Today’s rally just stinks of greed. What news sent us 2% higher? Meanwhile, tech has gone parabolic and China is in a straight line higher. I’ve ridden this move to near perfection for a 3 week 10% move – I am not getting greedy now.
My target all along has been 1,000 – 995 was close enough for me….
TPC, thank you for your report and this web site. I chanced upon it a month ago and have been reading it everyday. I find it very level headed and informative. It’s like having a true friend or a kindred spirit who’s willing to share his knowledge. For years I’ve been reading the “Business Week” magazine and it didn’t keep me from getting burned last year. I lost half of my children’s college fund that I’ve been saving since they were born plus our retirement fund. I bought into the ‘buy & hold and forget about it approach’ that many financial advisors advise. I see now that I can not afford to do this and that I need to take a more active role. I now visit Bloomberg.com, Seeking Alpha, Zero Hedge, TPC on a daily basis to come up on the curve of financial knowdedge and what’s really going on in Wall Street. But I find your site the most honest and easy to understand in terms of getting some clue about where the direction of the market will go and why. I’m still a very conservative investor but I think buy and hold is dangerous. Your web site have shed some light into this otherwise crazy maze of a market that’s not easy to be deciphered by an individual investor. Thank you for your good work and insight.
TPC,
Corporate bonds or Treasury bonds or a mix? If a mix, how do you decide on the allocation?
Rob,
Personally I prefer t-bonds now over corporates. Corporates will deteriorate if the stock market relapses whereas t-bonds serve as a good anti-stock play. Corporates have had a huge run. They’re fairly valued in my opinion. T-bonds, however, I think have been unjustly trashed based on U.S. deficit fears and inflation fears. Over the long-term, both are legitimate fears, but in the near-term t-bonds have been hammered too much in my opinion.
Jenny,
Glad to be able to help. It’s nice to know that people are truly benefiting from the site. I wish I had started the site two years ago before so many portfolios got annihilated.
Ditto to what Jenny said. Work in an IT department, bought into the buy and hold dollar cost averaging mantra – college funds down, 401K down,…
TPC,
I would like you opinion if this makes any sense and what the risks would be.
I was looking at making on allocation of bonds as follows:
45% Long-term Muni – 13.2 year maturity – yield 4.34%
35% Long-term Treasury – 18 year avg maturity – yield 4.05%
10% Intermediate Investment Grade – 6 year maturity – yield 5.12%
10% High Yield Corporte – 6 year maturity – yield 8.71%.
The mix has a pretax yield of about 4.75% and an after tax yield of about 3.8 to 3.9% and the ups and downs in principle value seem to offset each other (since January and over the past week). I would rebalance buying more Treasuries if the risk trade continues.
I see the primary risk to bonds as a rise in inflation expectations and generally rising interest rates. Nevertheless, I am sitting on far too much cash. I think stocks have run too far too quick and I am not prepared for a major loss of capital.
I preserved all my capital by selling most of my stocks in October 2007 and moving largely into cash (so I feel lucky). I then froze as I saw the bond market crash and the stock market crash. I have played several rallys with my trading account but I have not had the confidence to commit a large amount of money to stocks or to bonds for that matter. I foolishly didn’t buy Treasuries early on for fear that inflation worries (oil spike and all) would drive the long rates up. I have never been so afraid to invest in my life. My cash is earning all of 1.3% after tax.
I have enough to retire provided I can get a return of 1% above inflation. Partially as a result I have become extremely risk averse. This has all played out so quickly and I have been far too slow.
I shake my head and just can’t believe that the crisis is over and stocks will continue to rise significantly from here or that inflation will pick up soon. I still see this crisis has having a long time to play out. I am maybe foolishly convinced that the equity markets should make a sigificant correction or sucessful retest of the lows, as has happened at the end of other major deep bear markets (1929-1933, 1973-1974, 2001-2003). I see the recovery in 1982 as being completely different since interest rates were falling quickly as the market rose and the market had bottom at single digit PE on trend earnings (close to the lowest PE this century).
I also don’t understand completely way corporate bonds continue rising, usually it is later in a recession that default rates rise.
The entire trade seem to be risk on, risk off. Diversification except Treasuries versus risk assets seem extremely difficult. (Munis are now partially a risk asset).
How are you going to allocate it? Specific bonds or some sort of funds? What instruments are you using?
I was thinking Vanguard funds for diversification (default risk). But Individual bonds can be held to maturity, but for corporates and California Munis, the default risk is not insignificant). Most likely funds for munis and corporate and individual Treasuries (of differing maturities).
In some ways I feel that cash in the better near term alternative. Either we get recovery and sentiment stays high, then interest rates will need to rise especially with the deficit (better to buy bonds) or we get a relapse in sentiment and stocks fall, which should offer better buying opportunities in the future. Neither bonds nor stocks seem to be a very good value now.
My level of uncertainty about what to do has never been higher. Even though I didn’t lose any principle, my fear of losing principle has never been higher than today.
I don’t understand the wild swings in market sentiment over the past several months. Today, it was interesting to see someone hit the sell button at the end of the day. The only reason I can see for the big run up is an expectation that GDP will be better than expected and stocks will soar tomorrow. If GDP were to come in worse than expectations I would expect a sell off after the huge rise of the last three weeks.
Another thank-you, TPC, backing up the comments from Jenny and Jeff. The best site on the web. Calm, lucid and sensible. Great back and forth comments too.
Rob, shoot me an email. I have some research that could help.
TPC
Thanks for the newsletter. Goodwork.
If one believes that the market is overbought, does it even make sense to talkaboput portfolio allocation ? What would be one’s strategy – except to hedge?
TPC, cld u pl talk abt what strategies are available for someone who faces this ddilemma: strongly feels that market is overbought but has a medium term perspective (1 – 2 years)?
Regarding the model portfolio… how risky and diversified will it be? How much leverage will be used? I hope it would be modeled like Clarium’s portfolio (they have about 10-20 positions with a 15% 3-sigma risk [they consider all their positions as one position and assume a 3 sigma move against all of their positions would cause a maximum 15% loss in one day.]).
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