Global Macro Trading Journal

Given the huge recent crash and assuming we've in fact seen the turn, GDX ought to dramatically outperform the metal itself for at least a time - six months to a year perhaps.

 

Miners have more beta.

 

From Soros on Soros:

"When the California residential home market collapsed, the market thought the company might go broke, but it survived the test and we made a fortune. That is when I made the rule that one should own stocks when they have successfully passed a difficult test, but one should avoid them during the test — something that is easier said than done."

 

I cut part of my EUR short exposure today. I don't think the Greek Election will lead to a bad outcome. TLT it not strong enough for me to buy more. EWH also, not weak enough to be shorted more

 

Thanks mate, thats a good insight. I read the book in 2009, seems I need to refresh it

 

http://www.athensnews.gr/portal/8/56276

Syriza seems unlikely to be able to form a government. The question is whether panic among depositors might force the government to take drastic measures(Which could include dropping EUR)

 

Not necessarily - if stocks go down significantly further on Europe concerns, then gold stocks could underperform again as they did earlier this year. Being long gold stocks is to some extent taking on stock market exposure.

 

But why is that a reason to own something? What matters is the risk/reward, and increased beta doesn't change the risk/reward in your favour, it just increases both - something you can get by simply putting on more size in gold futures.

 

In quick observation, beta has value from an asymmetrical perspective, because it acts like leverage you don't have to pay for.

Think of two low-priced stocks, both $5 per share, where stock A has 2x the beta of stock B. In both cases your downside is limited to $5, but, ceterus paribus, stock A will move higher faster.

Increased size also has its drawbacks. The problem with loading up on a low-beta instrument, to adjust for its slowness, is that a tail event can come along and hit you all the harder (think of the low beta stock that is halted and subsequently gets cut in half).

With that said, I would submit the debate between gold vs gold stocks is a lot more nuanced than simple beta measures...

 

A good chunk of the time a high beta stock has lots of debt. So the interest is being paid in the form of lower EPS, financed at rates that are higher than good brokers(IB)