Thoughts from a Macro Trader

Those of us who invest on big global macro themes have always been in the minority and, now, are as out of favor as anytime I can recall with the exception of the late 1990s. We’re the guys that waste our time looking at economic statistics in search for hints of dislocations that may impact markets over long term trends. Most of us, while being profitable, have underperformed the market in the recent past. That is nothing new since our larger objectives are more focused on risk management and gaining average long term alpha than on single year returns. It’s in times like now when we’re subject to the greatest opprobrium – which, by the way, is a signal worth paying attention to. Jimmy Rogers is subjected to some level of ridicule to which, it’s noteworthy,  those who do don’t have as much money has he. Keep that in mind.

That’s not to say that I don’t trade. I do (although I’m not great at short time frame ideas) but it’s interesting to see the perspective of younger traders where three days is a swing trade. Frankly, the way I see it, any position exited within a year is a swing trade. But I’m old and crusty and my perception clock runs faster because a year relative to my life continues to get shorter at an increasing rate.

The shortness of time frame I’m seeing (and I admit that it’s only the anecdotal vibe I get from the traders I follow on Stocktwits and Twitter) rather reflects the social zeitgeist of “you only live once” (YOLO). Certainly the whole YOLO thing is so obviously true that it demands ignoring. The risk, however, is that you live longer than you think you will. Just sayin’.

Regardless of my personal style, I have great respect for great traders (because I’m not one.) The obvious problem is that there are a lot of young traders who have done very well over the past few years that might start to think they’re actually great traders instead of passengers on a bull run. It’s only a matter of time until hubris becomes their enemy and I’m convinced we’ll see the majority of them looking for other gainful employment at some point. I think it’s also  important to note how difficult it can be to start looking down when all you’ve done is look up for the last five years. Short traders like Bill Fleckenstein are a special breed and very few people have any clue the psychology it takes to really press a down market. I’m certainly not one.

Which gets me back to why I started writing this missive.

I’m starting to see some rather outsized dislocations in all sorts of places; from the valuation of $RUT and high yield bonds, Chinese CDS spreads, the potential for the unwinding of the Yen carry trade and the mismatch of economic optimism to the price of copper – just to name a few.  That’s not to say that the market won’t digest and correct any and all of these. It’s also not to say that it will.

But the mere mention of these things has subjected me (and a few people I highly respect) to some ridicule and bombed me with the (just as ignorable as the YOLO thing) “only price matters” bromide. I ask all of you this: who is it exactly that thinks price doesn’t matter? Do me a favor and drown that in the bathtub. I’ve been accused of being a ZeroHedge-esque scare monger (I don’t read ZH) and a perma-bear even though I’m 70% invested long stocks. I’ll admit, I have hedges. But I almost always have hedges because I’ve seen in my nearly four decades in finance that the risks that knock your schmuck into your watch pocket come from places few people are looking.

The reason I don’t read ZeroHedge is that it does me a disservice to get involved in doom and gloom thinking. At the same time, though, it does me an equal disservice to read a lot of Pollyannas. Risk never disappears – on the upside or down. And for those who correctly admonish ZH for keeping people out of the market I think they should check their own shit because, just maybe, they might keep people in the market longer than they should sooner of later. If you want to be a good mentor to new traders you just might include a word of caution. Otherwise I have little use for your opinion (not that you care.)

It’s not my job to encourage anyone to be in or out of the market even though I think it’s one of the best ways to build real wealth. But it is my responsibility to point out things that could have big implications to the financial health of people. You can live with your biases all you want. That’s not my concern. But I’ve lived – and traded – though both bull and bear markets and I’m still standing.

Criticize me all you want.

p.s. – My attempts at blogging more often have been a complete failure. But if/when things get dicey in the markets I’ll probably do more. Those are the markets that interest me most.





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