Category Archives: Models

Active Beta

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

Where We Are

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

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