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GoSeigen million challenge!

Honest reporting on shorter-term trading activity and ideas
Spet0789
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Re: GoSeigen million challenge!

#139292

Postby Spet0789 » May 16th, 2018, 7:53 am

GoSeigen wrote:
Spet0789 wrote:I’m afraid that’s a naive view.

Firstly, there are enough mortgages with LTV worse than 50% that, accompanied by the higher defaults we would expect to see in that environment, the banks would be foreclosing and booking losses. That would obviously hurt the numerator of their capital ratios.

Secondly and far more importantly, the risk weighted capital consumption of a mortgage book is a (highly convex) function of LTV. 1bn of 50% LTV mortgages consumes almost no capital. If those become 100% LTV following a fall in market value, even those mortgages that continue to be repaid will consume many many times more capital. It is this factor which will blow the doors off.

The PRA will either require a capital raise, or shut off divis for 5 odd years until capital is rebuilt. Either way, the stock is toast.

For this reason, until we see a normalisation of house prices (ie a fall>30%), I wouldn’t touch UK banks. I am more conservative than that.



Been there, done that. It happened in 2008/9: prices normalised, the repossessions** happened, the shareholders lost all their money, the capital was raised. It's not going to happen again in the foreseeable.


Meanwhile such negativity actually supports a bull thesis: conservative investors having no allocation to banks means lower prices for those willing to take the risk now. [Point 4 in the list here: https://www.lemonfool.co.uk/viewtopic.php?p=138139#p138139]


GS
(** foreclosure is not a term used in the UK; similarly you cannot "hand back the keys" here.)


Perfectly accurate correction. Repossession is the correct term (at least in E&W, no idea in Scotland) but the effects are the same for the banks.

You may be right about the banks. I am bearish on U.K. property. My point is simply that IF there is a meaningful correction in U.K. property prices, the U.K. banks will perform poorly as they will need to raise / conserve capital.

If you don’t share that view on property prices then you’re right to consider this an opportunity.

I’m not at all bearish about the banking business by the way. Some US regional banks and Wells Fargo are compelling in my view. I can see merit in owning Barclays. But I wouldn’t touch UK domestic banks as they are still too exposed to one asset class.

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Re: GoSeigen million challenge!

#177139

Postby GoSeigen » October 30th, 2018, 1:30 pm

Added a small purchase to the BARC position today, leaving a cash balance of £20-59.


Date Transaction Symbol Unit Cost Quantity Fees Value

30 Oct 2018 BUY BARC 171.02 800 £18.79 £1,386.95




So far, bank shares have produced scant returns, only dividends. Bank share prices remain depressed. However the environment is gradually and subtly changing: gilts are now falling, inflation-linked bonds have soared in the past couple of years, the banks are solidly profitable and returning chunks of cash to shareholders. Lloyds has promised ordinary shareholders roughly 10% next year.

Account value stands at £16,807.67 as of 13:30 today. This is disappointing but not unreasonable given general market uneasiness.


GS

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Re: GoSeigen million challenge!

#186393

Postby GoSeigen » December 12th, 2018, 4:28 pm

Two more trades to add, I have closed out the last of the short FTSE ETF hedge and bought Bank of Ireland Ordinary shares. Apologies for late reporting of the first leg and appalling timing of the sale...

This account constitutes a farm bet on the banking sector, but the star performer is actually the Liverpool Corp bonds, which are up 15% since purchase plus interest. Everything else is deep in the red. Clearly this is not the way to reach a million quickly, so maybe we'll have to get there slowly!

Frankly I'm not convinced it's the best time to buy BKIR/BIRG, but it's good enough for me. Bank of Ireland is the leading bank in the Irish Republic and trades in the UK through its Post Office brand. The troubles of the banking crisis are largely behind, it has been back in the funding market for some years and its subordinated debt trades at a mere 6.5% yield. Revenue is still falling but profitability has improved massively as write-downs and regulatory penalties have tailed off.



Date Transaction Symbol Unit Cost Quantity Fees Value

23 Nov 2018 SELL XUKS 413.7 500 £11.95 -£2,056.55
12 Dec 2018 BUY DBK 452.0946 450 £32.29 £2,066.72


Account value stands at £15,885 as of 16:00 today, down 13% from peak value in Feb 2018.


GS

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Re: GoSeigen million challenge!

#291495

Postby bofh » March 17th, 2020, 9:11 am

Hi GS,

Fascinating thread. How is this portfolio looking now? Did you reinstate the FTSE hedge since your last post? Is Liverpool softening the drop in bank equities?

TIA

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Re: GoSeigen million challenge!

#291703

Postby GoSeigen » March 17th, 2020, 4:59 pm

bofh wrote:Hi GS,

Fascinating thread. How is this portfolio looking now? Did you reinstate the FTSE hedge since your last post? Is Liverpool softening the drop in bank equities?

TIA


bofh

Thanks for the comments. The account value is tear-inducing £10,000 (and this is a real-money exercise).

You're right that the Liverpool bond holding should be helping; however I called the brokers yesterday to get a price and no-one would bid. The bond yields 3.5% at par which is far better than all the run-of the-mill gilts so was very surprised no-one bit. So the lack of liquidity is disappointing. If I can get a buyer around par of course I'll sell them and buy something new.

GS

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Re: GoSeigen million challenge!

#291735

Postby bofh » March 17th, 2020, 6:18 pm

Thanks. This strategy piqued my interest as I'm reading up on market-neutral strategies, hence my questions. Your long investments reflected your bullish outlook on banks and by shorting the FTSE100 you were seeking absolute returns and eliminating market risk in the process. Your previous posts showed you were actively managing the size of the hedge over time, but then ultimately decided to liquidate the hedge. Was that an intentional change of investment strategy part way through or was eliminating market risk not a priority in this strategy? i.e. the hedge was purely to isolate the potential upside that you saw? Any tips or pointers on this topic much appreciated.

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Re: GoSeigen million challenge!

#291806

Postby GoSeigen » March 17th, 2020, 10:00 pm

bofh wrote:Thanks. This strategy piqued my interest as I'm reading up on market-neutral strategies, hence my questions. Your long investments reflected your bullish outlook on banks and by shorting the FTSE100 you were seeking absolute returns and eliminating market risk in the process. Your previous posts showed you were actively managing the size of the hedge over time, but then ultimately decided to liquidate the hedge. Was that an intentional change of investment strategy part way through or was eliminating market risk not a priority in this strategy? i.e. the hedge was purely to isolate the potential upside that you saw? Any tips or pointers on this topic much appreciated.


The bonds are supposed to be a partial hedge. I was always aware of the liquidity issue but kind of hoped it would disappear in this sort of extreme environment. I mean, when the longest UK gilts yield a mere 1% then surely this sort of municipal bond yielding 3.5% at par is pretty attractive, even to a tight market maker?

The lack of other hedges is maybe a blunder on my part. Over recent months I've become quite bullish on UK shares, which for now is looking seriously misguided. The next few months will show whether I was completely wrong; but it's still galling to see such huge short-term falls and end up victim to them, especially when the point of this challenge is to make money fast, not lose it fast!!!

I'll try to sell the Liverpool bonds again over the next few days, perhaps leave them to be worked by the MMs. The broker is HL so if anyone has ideas how to motivate them to sell for me I'd welcome them.

On hedging in general, I like hedging: in my other portfolios I have various weird holdings as hedges: e.g. DEPFA bank Turkish Lira bonds, gold and gold mining shares, short index futures, etc. I hedge for fun sometimes, like betting on a Trump win in 2016 which softened the disappointment and paid for a meal out in compensation ;-). But given my general bullishness and this strategy's need for risk concentration I must admit my hedges were minimal leading into this crash. I haven't checked precisely but ball-park I'm down 15-20% overall over 2 weeks, giving back gains made over the past year.


GS

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Re: GoSeigen million challenge!

#291822

Postby tjh290633 » March 17th, 2020, 11:20 pm

It's many years ago, but my mother left me three small tranches of bonds - London Co Council 5.5%, Commonwealth of Australia 7.875% and Salford County Borough Council 5.5%. There was no problem in selling those, but in the 1970s it was just a case of walking into your bank branch with the certificate and asking them to sell them for you. I don't have a note of when they were due to mature, but I suspect that they had a reasonably long life, as they all went well under par value. The Aussies in 1971 went for £81/£100 nominal, Salford in 1972 for £77/£100 nominal and the LCC in 1974 at £52/£100 nominal.

I'm surprised that you are having problems.

TJH

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Re: GoSeigen million challenge!

#291832

Postby GoSeigen » March 18th, 2020, 5:31 am

tjh290633 wrote:It's many years ago, but my mother left me three small tranches of bonds - London Co Council 5.5%, Commonwealth of Australia 7.875% and Salford County Borough Council 5.5%. There was no problem in selling those, but in the 1970s it was just a case of walking into your bank branch with the certificate and asking them to sell them for you. I don't have a note of when they were due to mature, but I suspect that they had a reasonably long life, as they all went well under par value. The Aussies in 1971 went for £81/£100 nominal, Salford in 1972 for £77/£100 nominal and the LCC in 1974 at £52/£100 nominal.

I'm surprised that you are having problems.


It might just be a lack of real effort by an over-worked broker. I'll try again. I held some London County bonds in another account and they were redeemed this month, very pleasant surprise and good timing.

Impressive record keeping there TJH.

GS

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Re: GoSeigen million challenge!

#306603

Postby GoSeigen » May 8th, 2020, 8:35 am

GoSeigen wrote:I'll try to sell the Liverpool bonds again over the next few days, perhaps leave them to be worked by the MMs. The broker is HL so if anyone has ideas how to motivate them to sell for me I'd welcome them.

GS


Just an update on the Liverpool bonds. I haven't been able to find any buyers or even an indicative quote for these bonds. However, I did a good deal of sleuthing and finally discovered that they are still managed and paid by Liverpool City Council's treasury department. Might contact them to see what chance of selling, expecially having read this very informative column today on Bloomberg:

https://www.bloomberg.com/opinion/artic ... ket-in-u-k


Especially interesting to read that practically the first municipal bond in decades has been issued in the UK this year. The article implies that the issued yield was a spread of c100bp over gilts. If applied to the Liverpool bonds I hold, it would value them at 1.5%/200p which, if I could sell at that price or even close would be wonderful considering I bought them just a few years back at 65p!

Astonishing that long gilts yield <0.5% today. That's quite a middle finger to all the gilts bashers...


GS

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Re: GoSeigen million challenge!

#306750

Postby Bubblesofearth » May 8th, 2020, 3:44 pm

GoSeigen wrote:
Astonishing that long gilts yield <0.5% today. That's quite a middle finger to all the gilts bashers...


GS


It's not that astonishing when the BOE are buying £200bn of them! They must own close to 50% by now.

BoE

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Re: GoSeigen million challenge!

#306866

Postby GoSeigen » May 9th, 2020, 8:56 am

Bubblesofearth wrote:
GoSeigen wrote:
Astonishing that long gilts yield <0.5% today. That's quite a middle finger to all the gilts bashers...


GS


It's not that astonishing when the BOE are buying £200bn of them! They must own close to 50% by now.

BoE


Even BoE must know by now that the mere act of selling a large volume of an asset has nothing to do with its price getting higher. The price of an asset reflects the judgment of both the buyer and seller of the future returns of the asset and their appetite for those returns, no matter how many are being exchanged. He has fallen into the classic fallacy of believing there is only a buyer and no seller.

Interestingly, the corollary of the above is that the more gilts HMG issues (sells) the higher the price will go -- which is what I was arguing some ten years ago, so thanks to BoE for finally concurring; but, I fear he is doing so at the very moment it ceases to be true!


GS
EDIT: " They must own close to 50% by now." No not even close. Bubbles must have forgotten that recent inept governments have issued huge amounts of new debt and the BoE stopped QE half a decade ago. He also forgets how the BoE finances its purchases.

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Re: GoSeigen million challenge!

#306950

Postby dealtn » May 9th, 2020, 1:02 pm

GoSeigen wrote:
Interestingly, the corollary of the above is that the more gilts HMG issues (sells) the higher the price will go -- which is what I was arguing some ten years ago, so thanks to BoE for finally concurring; but, I fear he is doing so at the very moment it ceases to be true!




Can you explain please?

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Re: GoSeigen million challenge!

#307976

Postby 1nvest » May 12th, 2020, 12:54 pm

Looks to me that pre 2008 financial crisis, the UK had around £500Bn of gilts - perhaps paying (costing) 5% average/year (interest paid). The BoE then printed £400Bn and bought up most of those gilts, where the interest they received on the gilts they bought is returned back to the Treasury. Comparable to having written that debt off and where the Treasury sold £1Tn worth of new gilts, stretched out over longer and paying half the interest as the replacement, so still costs much the same as before to service. What that did however was flatten the yield curve, right out to long dated 50 years or more.

The US did similar, but have recently started a corporate bond purchase, where up to $8Tn of Corporate Bonds could be purchased (they've set a upper limit of 70% of any one issue maximum being bought). Capacity to print $8T, buy up 70% of the US corporate bond market and the state also collects the interest payments from those bonds.

Pension funds have to buy Gilts, mandatory, so as the prices rise so they have to buy more, which pushes prices higher/yields down, so they have to buy even more ... For others however, when bonds are up, so they might reduce bonds to buy stock in order to realign to target asset allocation weightings. The US Fed buying Corporate bonds is pushing stock prices up.

The EU is even more crazy. Massive bad German bets (debts) were moved over to the ECB post financial crisis, and the ECB printed/purchased 2 Trillion of assets to offset that, buying Treasury, corporate, junk and stocks. The rest of the EU in effect bailed out Germany (LOL! The others wont ever see that being reciprocated).

Conceptually when you can legally counterfeit, that could be abused to the extreme. So why not just print and buy up all bonds, stocks, houses ...etc. Well there are limits, beyond which others will accept the hit and dump, such that the currency would collapse and hyper-inflation follow. The Euro is perhaps at the greatest risk of the currency/bonds being dumped (only takes a sniff and the out-flight can be very hard/fast).

Each note added to the existing set of notes devalues all other notes. The counterfeiter gets the benefit of spending that new note, at the expense of all other notes being devalued a little (a form of micro-taxation). A form of total wealth taxation, on top of all other taxes already being paid. But where Central Banks can tweak things up/down as they see fit, given that raising/lowering interest rates is no longer viable when interest rates are at/near zero already.

If others don't buy more gilts/treasury bonds as they're created so that would export the countries problems onto others. A attempted devaluation of the currency when you hold billions of a countries bonds would otherwise have holders lose out. So those others have to buy more, likely after also printing more of their own money to do so. Such that all currencies are seeing declines, along with higher prices, lower yields and expanded holdings. But at the risk that at any point one could say enough is enough, start dumping and see others rapidly follow that lead.

My guess is the next round will involve protectionism. Where foreign holders are ejected out of holding a countries assets/bonds. Which then forces that countries problems being exported onto others, leading to those others opting to dump that countries bonds/currency. Again IMO the EU is at the greatest risk of that occurring.

How to play in that arena? A third each in £ (invested in gilts/bonds), primary reserve currency (US$ invested in US stocks) and gold (global currency/commodity). Draw a conservative SWR from that, 2% - enough to cover basic living expenses. Top slice additional income out of real gains as/when apparent (yearly reviews). There is a element of additional reward/benefit from taking a SWR, this for example indicates a CAGR after 2% SWR of 8.65% compared to 9.52% TWRR if no SWR is drawn https://tinyurl.com/y94vwe7v i.e. 2% SWR + 8.65% CAGR sums to > 9.52% (where no SWR was drawn).

A ten year gilt ladder is starting to run low (starting to earn < 2%), maturing 10 year gilts would roll into replacement 10 year gilts earning hardly any more than if rolled into a 1 year. Makes more sense to not roll into 10 year but instead roll into 1 year. So on the 'bond' front its pretty much just hold shorter term gilts. Even if real yields are negative it doesn't really matter as they're there to buy up stuff as opportunities present. Cash for instance has had the capacity to buy 30% more stock than at the start of year (30% increase in the stock purchase power of cash over a few months). If you rebalance yearly at/around the fiscal year end (5th April) then at the last rebalance you'd have been reducing gold and cash to buy more stock/shares.

In GS's case, investing for (grand)children (accumulating), it can still be appropriate to take SWR and top slice real gains into cash holdings. But then looking to deploy that cash elsewhere and/or at another time. In some years the real gains after SWR will be large, high rewards achieved over a short period of time. Taking some/all of that off the table can coincide with having reduced at above average valuation levels (reduce high). And then feed that back into the market in a more cost averaged manner (add low) or where better value seems apparent. GS is way way better of a bond vigilante than I. Mostly I've been reducing bonds in ISA space to buy stock comparable to the amount of stock sold outside of ISA space, and using that outside of ISA cash (stock sale proceeds) to buy into high street bonds (5 year ladder) for the higher interest being paid. I really should get more into rolling down the yield curve and other similar strategies to what GS does. Frankly though, I'm rather lazy on that front. 'Cash' pacing inflation versus losing -2% relative to inflation when a third weighted (0.7%/year relative to the total portfolio) is borderline 'being worth the time/effort'. Asset allocation/management is the more productive, for instance UK stocks down -30% versus cash near break even, gold up +16%, US stocks down -6% year (in £'s, -10% in US$ terms) to recent type comparisons.

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Re: GoSeigen million challenge!

#307988

Postby 1nvest » May 12th, 2020, 1:37 pm

Here's a table of a three way US stock, UK gilts, gold yearly rebalanced asset allocation. The '3-way' column shows the % nominal yearly gains for that asset allocation. The next column shows the yearly gain factor when adjusted for inflation. The column after that shows the running real gain, where the column after that value is removed (drawn) i.e. top slicing real gains at the end of each year as/when real gains are apparent.



To end of 2019 from a start of January 2010 nearly 64% of the inflation adjusted portfolio would have been drawn to cash (top sliced). For accumulation wherever that cash might have been invested would also need to be factored in. I didn't bother with factoring in a 2% yearly SWR (2% of initial portfolio value that is uplifted by inflation each year as the amount drawn in subsequent years).

With 64% of the inflation adjusted portfolio value having been 'repaid', that's like 46% of the original start date portfolio value having grown to 100% over 10 years in inflation adjusted terms - so around 8.1% annualised real. And additionally having thrown off 64% income (top slicing) = 5% annualised. Of sorts :) Sooner or later and 100% will have been repaid such that the portfolio will have grown to 100% of the inflation adjusted value for £0 actual cost. Infinity annualised gain :). Such that making a million cost nothing :). The only issue :( is that you have to have had a million to start with. [Have cake and eat it :)]
Last edited by 1nvest on May 12th, 2020, 1:39 pm, edited 1 time in total.

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Re: GoSeigen million challenge!

#307989

Postby Bubblesofearth » May 12th, 2020, 1:37 pm

GoSeigen wrote:Even BoE must know by now that the mere act of selling a large volume of an asset has nothing to do with its price getting higher. The price of an asset reflects the judgment of both the buyer and seller of the future returns of the asset and their appetite for those returns, no matter how many are being exchanged. He has fallen into the classic fallacy of believing there is only a buyer and no seller.


Even GS must understand that if the overall demand for an asset rises then the price will rise.




Bubbles must have forgotten that recent inept governments have issued huge amounts of new debt and the BoE stopped QE half a decade ago. He also forgets how the BoE finances its purchases.


GS is perhaps unaware of the recent £200bn covid-induced QE extension?

https://www.reuters.com/article/us-brit ... SKBN2172OU

BoE

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Re: GoSeigen million challenge!

#307994

Postby 1nvest » May 12th, 2020, 1:52 pm

Furloughing employees is another form of QE - helicopter money.

So far the UK has bailed out banks (2008/9) and now helicoptered money to some, but not others. Rightfully IMO should have been paid to all households equally as a fairer means. One neighbouring being paid £2500/month whilst another receives nothing just causes more issues than it cures. Would have been better if both received £1250/month each. The government have also indicated that both households will however be expected to repay that cost later !!!

London has striven to get the homeless off the streets, however as quickly as they are finding accommodation so newly homeless numbers are rising quicker than the rate of accommodations being found.

What with Johnson on Sunday evening saying return to work on Monday if you cannot work from home, and the massively overcrowded Tube system on Monday morning will no doubt see R soar back up again - pretty much wiping out all of the prior 6 weeks of cost/efforts (expect hospital admissions and deaths to rise in 10 to 14 days from last Sunday).


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