Thought Bubbles from the Deep

[galumay]

Thanks to those who offered kind words of support but it is not my intention to post regularly anymore. I only really got my login re-stated to access some of the links posted and for occasional topics like this when I’m trying to clear a roadblock in my thinking.

I am with McLovin, may there be many more roadblocks, you always elevate the level and intensity of discussion when you engage on the forums. Same with Sinner, its been very refreshing to have both of you popping up again. I am in awe of the level of discussion when you guys are on.

As pointed out, use the ignore function to clear the chaff and keep on coming back. We gain so much from the discussion!

 

[kid hustlr]

I always know things are too far beyond me when I read it twice and still don't come close to understanding. Still fascinating to hear the discussion.

Whilst we are talking 10 year returns, anyone care to lend a thought on the decreasing AUS-USA 10 year spread? Both the causes of the spread tightening and the implications on capital flows?

Is this in anyway linked to the AUD?



Perhaps there is no relevance - I really don't know.

 

[DeepState]

I always know things are too far beyond me when I read it twice and still don't come close to understanding. Still fascinating to hear the discussion.

Whilst we are talking 10 year returns, anyone care to lend a thought on the decreasing AUS-USA 10 year spread? Both the causes of the spread tightening and the implications on capital flows?

Is this in anyway linked to the AUD?

View attachment 64478

Perhaps there is no relevance - I really don't know.

US 10 yr yields are rising (ie. Aust spread tightening) relative to all other major developed markets. It is rising, in a relative sense, for a range of possible reasons:
+ The US inflation outlook is improving
+ The US rate tightening path is more assured
+ US government fiscal situation has improved...is less bad
+ QE is more present in Europe and Japan and being unwound in the US slowly.
+ China downside risk
+ Australian bonds becoming more of a reserve asset
+ Aust banks financing greater amounts of their balance sheets via domestic deposits rather than offshore sourced loans (reduced supply of Aust debt)
+ Aust GDP outlook still very mixed and generally disappointing.

Cross border finance is gradually increasing since the GFC for developed nations. All in all, this observation is a small force in favour of increasing the value of the USD vs other developed currencies including Australia via currency carry trades (borrow in the low interest rate country to invest in the higher rate country on an unhedged basis).

It is also relevant from a global financial stability standpoint. To the extent that emerging markets companies have borrowed in USD and are less able to repay that debt because of depreciation of their currency, stuff happens.

 

[shouldaindex]

Quality discussions, love reading this thread.

I've just been reading Whirlpool and HotCopper and feel like I just graduated from primary school to the real world.

 

[DeepState]

Desperately Seeking Beta. In the insto market, the lower prospective returns to equities, the terrible returns available from bonds and the ever-present need to accumulate real wealth has led to an ever more substantive push into illiquid assets of all kinds to seek additional returns from the illiquidity premium. From Bridgewater:

 

[DeepState]

Credit Risk.

iTraxx CDS Spreads are rising around the world:




Part of it is to do with oil:




Which has impacts on Emerging markets producers and also US indebted oil/shale industries (look at those spreads!!):




Found this interesting. The decline in oil prices was largely due to reduction in demand. You can see, though, that supply also contributed, but this has been waning. As capex for oil projects drop like a stone, what happens?

 

[DeepState]

Around the threads there are lots of references to buying in at market lows with balls of steel because earnings will be there in the long term. Mr Market, weighing machine, prices looking tasty etc. The ASX is down about 16% from the recent peak. Trading at levels seen in 2011... So who is stepping in?

 

[kid hustlr]

I'm sure I read an article not that long ago suggesting 1 year forward p/e's for the asx were only at long term averages now - that was before today mind you.

valuations aren't that cheap?

 

[Triathlete]

Around the threads there are lots of references to buying in at market lows with balls of steel because earnings will be there in the long term. Mr Market, weighing machine, prices looking tasty etc. The ASX is down about 16% from the recent peak. Trading at levels seen in 2011... So who is stepping in?
View attachment 64516

Not me...Since I am mainly a medium term trader I have been out since April 2015 when the market turned down. I was looking for it to hold above 5070 find support and then continue upwards again.
If after tomorrow we are below this level then from a purely Technical view we would be in an EW C and further falls are likely.

I just hope it is not going to be a total meltdown

 

[DeepState]

I'm sure I read an article not that long ago suggesting 1 year forward p/e's for the asx were only at long term averages now - that was before today mind you.

valuations aren't that cheap?

Forward looking P/E is at around average levels since 2001. However, given interest rates are super low, it could be argued that the fair P/E should be much higher than average.

 

[luutzu]

Forward looking P/E is at around average levels since 2001. However, given interest rates are super low, it could be argued that the fair P/E should be much higher than average.

Ever see yourself as a better paid, much glorified, trend trader DS?
You sound like one mate.

If low PE indicate market is cheap, and so businesses are generally cheap... How does low interest make that cheap business expensive again? Serious question because I can't understand it.

Say I run a business and borrowed some money... The market price of my business is now very low, it's cheap. I could now borrow or renegotiate the debt at lower interests, so more to the bottom line. How does that make my business more expensive?

Oh wait, you're doing the discount model stuff.

 

[DeepState]

The options market is currently pricing a 22% chance that the ASX 200 will finish below 4450 (approx. -10% from here after forward points adjustments) by 15 Dec.

 

[shouldaindex]

Hi DeepState,

Just wondering what information you use to assess with the 22% chance of 4450?

Thanks.

 

[Triathlete]

If we move lower from here then 4535 - 4550 looks like a strong level to find support for the ASX200.

 

[DeepState]

Hi DeepState,

Just wondering what information you use to assess with the 22% chance of 4450?

Thanks.

It is the delta for a put option on ASX200 Dec 2015 futures with calculation inputs including current price, strike price (4450), option price and days to maturity.

 

[DeepState]

If we move lower from here then 4535 - 4550 looks like a strong level to find support for the ASX200.

Then you should sell Dec 2015 4500 puts with impunity...

 

[Triathlete]

Then you should sell Dec 2015 4500 puts with impunity...

Maybe if I new more about options....no experience here for me, something I will need to learn in the future.

 

[DeepState]

Maybe if I new more about options....no experience here for me, something I will need to learn in the future.

Pretty straight forward. Sell ASX 200 Dec 2015 4500 puts. Collect premium of about $1,120 per contract whose face value is $49,105. Sell a lot of them. If the support really is support and the index closes above 4500 at 15 Dec, you'll keep the lot.

If the index closes at 4388, you get nothing. If it closes below that [SUB]you may lose more than you have to your name.[/SUB]

Simple.

 

[skc]

Desperately Seeking Beta. In the insto market, the lower prospective returns to equities, the terrible returns available from bonds and the ever-present need to accumulate real wealth has led to an ever more substantive push into illiquid assets of all kinds to seek additional returns from the illiquidity premium. From Bridgewater:

Have you ever come across BLA? An ASX listed company specialising in alternate (aka illiquid) assets. They have rode the trend very well in the past few years and grown their FUM successfully. Profits are growing but, from what I can see, mostly through revaluation than actual exits of investments.

It won't be pretty when the music stops...

 

[DeepState]

Have you ever come across BLA? An ASX listed company specialising in alternate (aka illiquid) assets. They have rode the trend very well in the past few years and grown their FUM successfully. Profits are growing but, from what I can see, mostly through revaluation than actual exits of investments.

It won't be pretty when the music stops...

Thanks. Interesting.