Tag Archives: HPQ

Risk on but be hedged

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Have an article forthcoming for the last few weeks, but I have been struggling to find time to publish it. Will try to do so in the coming days.

In the meantime, just want to put out that since the beginning of the month, the risk return balance has shifted tremendously to a short vol, long equity with a macro hedge strategy. Sounds complicated but basically it’s that mega-cap equities should outperform in the next couple of years if debt stays at this level more or less. Only in the most dire situation will debt outperform megacap equities and I don’t think we are there yet.

An example is Walmart which has growing foreign business and is the low cost retailer for the us. The stock hasn’t moved in ten years while over the same period earnings per share have quadrupled.

Given that it was a ten year trend to cheapness, I expect the reversion to take at least a year, but there should be money to be made.

Similarly tech is very cheap – MSFT, INTC, HPQ.

Buy long dated calls where you can get the cheaply, sell medium dated puts where you can get paid dearly, and manage risk by hedging in the macro indices.

Try not to lose money,
Arthur O’Keefe
São Paulo Value

Tony Robbins – An Important Note of Caution

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I know I have fallen off the planet for the last few months, but I have been very busy getting settled in São Paulo…. I remain super bullish long-term on Brazil and see enormous opportunities here. Some of those periodically consume a lot of my time.

In any case I continue to read and analyze what’s going on. Volume in the markets has been extremely light and conditions are pretty dangerous in my opinion. Very large moves on very small volume affect asset values of enormous scale. I call that a form a leverage in the system. In a way I think it would be better if the market just remained shut rather than have +/- 2+% days on less than 200mm shares changing hands on the SPY.

I advocate running very small direction either long or short (depends on what you own or are short I suppose) in this market and keeping gross leverage low as well (gross leverage is [ABS(longs) + ABS(shorts)]/[Net Equity] where ABS is absolute value).

If you’re dying to have a position, WMT is looking pretty cheap. HPQ is as well. But hedge out some of the Beta to the market in any positions (including these). Don’t stretch at all in this market and try to get some sort of seniority in the capital structure. I think the general direction continues down in the long term. Maybe some miracle happens and the market somehow rallies, but the risk is more weighted to the downside in my opinion.

So I will leave with this video warning on the state of the market that I came across from Tony Robbins. I am trying to figure out who’s he referring to in his opening (if I do I will post an update), as he never reveals his source. I don’t think, based on the numbers that he mentioned, that his client is Paul Tudor Jones, but it sounds like someone of equal stature. What’s significant is that I have to take Tony’s claim that he is well connected at face value given what I know of him. So if he felt strongly enough to go on the record with a warning saying that his best clients are worried, especially given that Tony doesn’t need to say any of this to gain credibility, it’s worth listening to and considering. It at least adds to the body of data to be analyzed.

Take a look at this video: