Great discussion ralph and Martin! Keep it going - This is where ET shines at times. At times, you can get a threadbare discussion of an important issue with both sides putting forth good points. Another interesting point is the anonymity that internet offers - you can act as stupid as you want to 'in pursuit of truth' which is sometimes hard to do in real-life because our ego comes in front of us. I haven't worked for Bridgewater, but not many organizations have that kind of ego-less, hierarchy-less, truth-seeking philosophy in the owner, which really helps to get to core of an issue.
Daal, Nice thread. 20% annum now for 3 yrs is a good track record. Any reason why you don't recruit OPM and scale up a fund, or do you have plans to in the future?
How do you figure that? Given that the only thing that this paper has done is go absolutely offer-less up to now, what makes you think it can only fall in value from this point onwards? That's logic I don't really understand... Furthermore, German schatz trades at smth like -40bps in repo. It's pure gold dust, at the moment, regardless of what it yields (e.g. German bubills auctioned at negative yields recently). Well, whatever makes you think that with EURUSD at 0.9, schatz is going to trade at 0? Firstly, it can easily trade negative. In fact, there's a whole lot of people that have been buying schatz calls with strikes implying -1% etc yields on the bonds. Secondly, I know the SNB marks to market (sorta), but aren't we speculating about what happens to their reserves in case of the EMU dissolution? If the EMU actually sticks together and EURUSD is at 0.9, do you think that will be a massive problem for the Swiss economy? Yeah, and if they decide to suddenly sell all their gold and the mkt finds out, they'll lose a lot of money as well. If the SNB, regardless of who's running the show, is stupid enough to do what you describe, I am 100% with you. Switzerland should go to the IMF. I hope the IMF has some sort of a "Stand-By Stupidity Arrangement". Well, who said it's a free lunch. The Swiss economy is paying a high price for the exchange rate. In fact, I can even kinda quantify it for you (very very roughly). Let's say that the SMI (the Swiss equity index) is a rough measure of value-added in the Swiss economy. The SMI has rallied 20% from the pre-floor lows of the beginning of August (4792 to 5996 currently; the SPX is roughly unch in the same period). Current market cap of the index is Sfr730bn, so, using an extremely rough estimate, the "benefits" of the floor are "worth" arnd Sfr146bn. From what I can see, based on their data up to end of Nov-2011, in the same period the SNB has lost smth like Sfr19bn on their EUR-denominated FX reserves (and made arnd Sfr5bn on their gold holdings). Sure looks pretty cost-effective from where I am sitting. Personally, as a trader, I wouldn't mind sitting on a portfolio like theirs: long gold, long German schatz, long Swiss economy, short CHF. It's quite long both tail risks with positive carry. What's not to like?
SNB made CHF 13B in 2011 thanks to gold and the Sept peg. Sehr gut. http://www.snb.ch/en/mmr/reference/pre_20120113/source/pre_20120113.en.pdf Almost makes up for the CHF 19B lost in 2010.
I do plan to run a hedge fund at some point, the reason I don't go after that right now is -I feel like I haven't been tested enough running my own money. I was fortunate enough to see how ridiculous easy money was to be long Fed futures that was the bulk of my returns. I'm yet to trade markets where I don't have that luxury, this year will be my first without that -Running OPM should involve a cost in terms of social life I'm not willing to pay at this time in my life -I want to accumulate more knowledge in accounting, finance, history, risk management, portfolio construction, position sizing, mathematics. -I need to improve my stock picking skills
Gold lost >20% peak to trough in '08 on source of funds liquidation (insert rationale). And it's now doubled from the trough. Seems a little lopsided to the upside tail. I am not (at all) into Europe macro, but are you suggesting they are short CHF via the long Schatz position? Or are they distinct in your mind (even worse)?
Well, I would say that both gold and Schatz are pretty good tail hedges for the EMU blowup (gold especially so, given you're a CB and need a degree of diversification). I am not sure what you mean about the Schatz. Being long Schatz here and now is more or less equivalent to being long CHF. I have a hard time imagining how a CB can be either short or long its own ccy ('cause that implies knowing the right amount of foreign reserves it needs to hold for all eventualities). EDIT: Yeah, actually, I see what you mean. I shouldn't have put "short CHF" originally. That's silly, 'cause that's already captured by the "long Swiss economy" bit. My only excuse is that it's been a long week.
if EUR goes to hell you want to get your monies converted into DEM. The best way to assure of that is to own the German debt. DEM has a huge trade (favorable) imbalance and should get stronger compared to other EUR components - similar to what CHF would do. i am baffled why one need 1 page of ET discussion for such a simple thought. scaling in a short swiss position is an easy trade imo...