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Global Macro Trading and Resources for The Macro Trader

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Category: Global Macro

Active Beta

22 May, 2008 (18:19) | Diversification, Global Macro, Macro Trading, Models, Papers, Strategies | By: admin

Active Beta is a term that is not often heard but the concept is often discussed. In this post at The Macro Trader They discuss how they are implementing the concept of relatively passive, risk controlled, capturing of risk premia.

If you are searching for alpha the post is worth reading, as is the newsletter.

-Trade Macro

OZM Och-Ziff Capital Management Down First Two Days Of Trading

15 November, 2007 (10:58) | Global Macro, Hedge Funds, Macro Trading, Stock Market | By: admin

The title says it all. We are half way through the second day of trading for OZM the IPO of Och-Ziff Capital Management. Och-Ziff is a large hedge fund company that decided to cash out to the public. Following FIG and BX OZM has sold off as well and is currently below its offering price. Only time will tell how hedge funds work out as a stock market investment but for now they have been bad.

Our guess is just like any industry the good ones will thrive over time and bad ones will not but the timing on going public couldn’t have been much worse. Everything has gone down lately so going public in the middle of all the turmoil didn’t help it out much. Several other fund companies have indicated interest in going public so only time will tell. One interesting thing is that we have not heard about any of the “legendary managers” wanting to go public. Bruce Kovner, Paul Tudor Jones, Stanley Druckenmiller, George Soros, and Nick Roditi. No doubt the thought has crossed their mind but we haven’t seen anything in the press showing interest.

-Trade Macro-

Goldman Sachs Raises $4.5 Billion For Two New Hedge Funds

15 November, 2007 (10:45) | Economy, Global Macro, Hedge Funds, Macro Trading | By: admin

The title says a lot. Goldman just raised $4.5 billion for two new hedge funds. Guess what the funds strategy is? Credit and Distressed Debt. What does this tell us? To me it means that Goldman sees how bad the credit markets really are and see a way to profit from it. So if you have been following the current mess (and honestly if you are reading this then you are) this is a good indication that it is far from over.

In other Goldie Hedge Fund news they are still down in their two biggest funds Global Alpha a quant fund and Global Equity Opportunies a equity macro type fund.

-Trade Macro-

Morgan Stanley Buys >20% of Barton Biggs Traxis Partners

14 November, 2007 (15:41) | Diversification, Economy, Global Macro, Hedge Funds, Macro Trading | By: admin

Morgan Stanley has purchased a less than 20% stake in Traxis Partners. The Macro hedge fund started by Barton Biggs. This follows Morgan Stanley purchases of Avenue Capital, Front Point Partners, and Lansdowne partners in the past year. They are trying to buy their way into the hedge fund space and so far it is working all right.

This purchase was near and dear to Morgan because Biggs used to be the chief market strategist at Morgan before claiming that Hedge Funds were in a bubble and then leaving to start one. Traxis has about $1.5 billion under management and has done decent since inception. A few years ago Barton Biggs also wrote the book Hedge Hogging.

-Trade Macro-

Iluka Up 10% On Ospraie Purchase

14 November, 2007 (15:33) | Diversification, Economy, Global Macro, Hedge Funds, Macro Trading | By: admin

Ospraie Management the macro fund ran by Tiger Alumni Dwight Anderson purchased 12% of the Australian mineral sands miner Iluka. Wednesday on news of the purchase the stock was up 10% in the Australian market.

Ospraie Management is one of the premier Macro Commodity funds out there. They invest in many things but focus primarily on hard assets and companies that deal in hard assets such as metals, oil, etc. They have reportedly returned about 22% anually since inception with this year being one of their few underpreforming years.

-Trade Macro-

Pension Plans Intend On Investing More In Emerging Markets

13 November, 2007 (22:56) | Diversification, Global Macro, Stock Market | By: admin

GlobalPensions.com says that many pension plans are planning on raising their allocations to Emerging Markets. Most of the reasoning given is that they have been pleased that the current credit crunch in the United States has not had a very strong effect on the emerging markets.

We think that they are mostly right. Being globally diversified is typically a good thing but their reasoning is a bit weak. In a short country specific credit crunch global diversity is a great thing but don’t fool yourselves. If the current crunch (todays market rally notwithstanding) is prolonged it will effect global markets as well. Especially the rapidly growing emerging markets companies that need financing to continue their growth.

Long-global diversification
Short-weak reasoning

-Trade Macro-

Where We Are

17 June, 2007 (23:30) | Economic Indicators, Economy, Global Macro, Macro Trading, Models, Stock Market, Trading Wisdom | By: admin

While we will probably get a short term pullback in interest rates we remain bearish on bonds.  Basically every indicator and model that we follow show bonds as a sell.  It is probably safe to say that the inflation numbers are a joke and while 2.7% may sound good it is wrong.  Just like calling a fat man skinny doesn’t make it true, the same goes for “low” inflation.  Guess what it is at least 1% higher and probably closer to double the reported numbers.  There will be more posts in the future on this.

For Bonds

-Governments-Sell

-Corporates-Sell

-Junk/High Yield-Sell

The signals for Government and Corporates have been on sells for weeks now but the high yield only came in as a sell three weeks ago.

As for stocks as much as it pains us to say it we see the SP500 staying in bull mode for the immediate future.  Virtually all of our models remain in a buy mode.  So although we wouldn’t be initiating or adding to our positions right now we remain on a Hold.

Stocks

US Domestic-Buy/Hold

Favored Area-Large Cap Value

Top Two Sectors-Energy and Materials (XLE and XLB)

As for precious metals we are bullish on them right now.  Not wildly so but we have had a few buys on for several weeks now.  So for metals we are 40% invested with the rest in cash right now.

Gold-Long 40% of metals allocation.

As for the economy as a whole we remain short term neutral and long term bearish.  In the next few months we should be alright but by  mid fall we wouldn’t be surprised if we see the fabled recession.  That is a ways off but we would not be surprised if it came about.

In the currency world we are short term short the Euro, Pound, Swiss Franc, and the Swedish Krona.  In the coming weeks or months we will revert back to the short dollar position that long term has done so well.  In addition to that we are long term bullish the Australian Dollar.  If we actually go into hyper inflation mode the AUD will benefit significantly and if inflation stays where its at the AUD will still be OK.  Overall a good risk reward trade.

That is it for now.  Come back often because we are ramping up the posting.

Happy Trading and as always Manage Your Risk,

The Macro Trader

Disclaimer-None of this is investment advice.  It is the opinion of the authors.  If you choose to trade off of this you do so at your own risk and none of the gains (unfortunately) or losses (fortunately) are the fault of TradeMacro.com.  Be safe, do your own due diligence on anything you see, and keep a level head.

One Way To Enter And Exit Asset Classes With Models

14 June, 2007 (12:10) | Diversification, Global Macro, Macro Trading, Models, Trading Wisdom | By: admin

Many people have the misguided impression that anyone that market times is either 100% in or 100% out of a market. Anyone that has successfully used multiple models knows that’s simply not the case. A long time ago we read an article interviewing Marty Zweig where he discussed that while he used timing extensively he was rarely 100% in or out. Since reading that we have found that it was excellent advice and have incorporated it into our trading.

As stated previously The Macro Trader uses multiple models for virtually every asset class. For instance in precious metals we currently run five models. Three are virtually 100% mechanical one is 75% mechanical and one is discretionary in order to build up a core position. So how do we position size this? Actually it’s pretty simple. We take our allocation to precious metals and divide it by the number of trading models, in this case five. So if for instance we have allocated $100K to metals each strategy gets $20K.

Why do we do this? Primarily for two reasons. We don’t know everything and we want to earn at least some of the risk premia built into each asset class. So unless we are extremely bearish one asset class and net short we will almost always have at least some money in play there. What about leverage you ask? Well we have rules built for that as well. Our use of leverage deserves a few of it’s own posts but basically if we are extremely bullish we will usually use options in order to lever up. Depending on the situation we might use futures for an asset class or margin in stocks but usually we like options to add leverage because we can usually control our risk better.

There are several other ways to use models such as ranking each strategy and putting X% in the top one, less % in the next, etc. We will cover more ways to position size each model in future posts but for the most part we have found that while you can make this as complicated (not to be confused with sophisticated) or as simple as you want many times simple works best.

Happy Trading,
The Macro Trader

Real Diversification Part-1

22 May, 2007 (22:08) | Diversification, Global Macro, Hedge Funds, Trading Wisdom | By: admin

It is said that diversification is the only free lunch in regards to investments.  While that may very well be the case, done the traditional way it is one of many ways to not be able to pay for your next lunch.

 If you go to most financial planners or stockbrokers they will tell you things like be 60% in stocks and 40% in bonds.  Or maybe X% in Large Caps, X% in Small Caps, X% in Treasuries, and X% in Corporate.  Sounds great right?  Along with this “diversified portfolio” you get the whole pitch that some of these will zig while the others zag so being in these separate asset classes smoothes out your returns so that you never have a drastic loss.

 Do you see a problem with any of this so far?  The problem is not that diversification can be a wonderful tool.  The problem is that just because you are in a bunch of different funds you aren’t necessarily diversified.  Take the above example: two classes of stocks and two classes of bonds.  If you actually look at what drives those asset classes you will find that over time you don’t really have four positions you have two.  Interest rates drive bond returns for the most part regardless of if they are corporates or treasuries.  What drives stocks?  Interest rates and corporate earnings.   

 I already hear some of you saying “well in the last crash Large Caps went down while Small Caps went up.”  Yes, this time that is what happened but over the long haul this doesn’t hold up.  In fact since 1995 the returns between the SP500 and SP600 had an 80% correlation.  And while the SP600 has definitely outperformed guess when it got hardest hit……..yep 1998, 2002, and summer of 2006 the same times as the SP500.  So when you needed it most the diversification fell apart.

 So how do you properly diversify?  Invest in multiple strategies in multiple asset classes.  For instance instead of just domestic stocks and bonds you could add commodities (energy, metals, agriculture, etc.), global stocks (both developed and emerging markets), global bonds (again developed and emerging markets), and real estate (same thing developed and emerging markets), hedge funds, private equity, venture capital, currency trading, and possibly even collectibles like art.  Obviously some of these have minimum net-worth requirements but the point is to invest in as many disparate and risky asset classes that you can. 

 Why diversify so much?  Because that is the only way to achieve true diversification in a portfolio.  Stocks zig a little differently from bonds which zag differently from commodities which zig differently from global stocks etc. 

 Obviously this is not all there is to it but it is a lot better then the traditional 60/40 stock bond mix.  In Part Two we will discuss how to decide what types of strategies to look for.  And in Part Three we will discuss different ways to decide how to weight your investments in each asset class.

 Happy Trading,

The Macro Trader

Who Profits When Bubbles Pop?

21 May, 2007 (13:07) | Global Macro, Hedge Funds, Macro Trading | By: admin

Many fund managers have been saying that we are in another bubble, but this time it is different. Not in the sense that “It won’t happen this time,” but in the sense that it is a global bubble and that almost every asset class is taking part in the bubble.

Jeremy Grantham recently popularized this concept with his paper
It’s Everywhere, In Everything: The First Truly Global Bubble

There are several articles worth of information and opinions here but my question today is: If there really is an all asset class bubble, who will be able to profit from it? Probably not your mutual fund manager since he is most likely long only and 98% invested, probably not your bond fund manager since he is also most likely held to the same long only and mostly invested constraints, probably not your private equity fund since money would dry up and we would be in a slow if not retracting economy, etc. Basically the majority of fund managers out there not only won’t profit from it but because of their investment constraints they will most likely lose a lot of money from it.

So who is left to profit from popping bubbles?  Funds that have a flexible mandate.  Obviously we feel that Global Macro Funds should benefit the most from this type of scenario.  Other types of trading that should benefit would be CTA’s, good Short Sellers, and funds that for the most part are long volatility.

Happy Trading,

The Macro Trader

P.S. download and read the Grantham paper. Even if you disagree with what he says it will make you think.