What is global macro? Before we look at how we trade its important to answer the question What is Global Macro? The best answer weve heard is that its simply looking for the best risk- to-reward opportunities in the world. That means that if the Singapore equities look cheap and we can see why they would go up significantly and they present us with a low risk entry, we buy them. If US Treasuries look grossly overvalued and present us with a low risk shorting opportunity, we short them. If US Investment Grade Bonds have the highest yield spread in 30 years and strong balance sheets, we look for a low risk entry and buy them. If the Euro/US Dollar looks relatively cheap and the interest rate differential is favorable, we look for a low risk entry to buy it. Hopefully you see the basic thought process: We are simply going wherever the best opportunities are.
While many investors only invest in US Equities and possibly US fixed income products, global macro traders focus on every liquid asset class they can find. By doing this, we are able to capitalize on far more opportunities.
So why would we want to look at other asset classes and countries? One of the reasons is diversification. many pundits talk about diversifying as some type of holy grail. And yet they don't adequately diversify you. They will put some in stocks and some in bonds and call it good. Global macro investors will instead look at countries as well asset classes to determine where is the best trade. They look at stocks, bonds, commodities, currencies, real estate, and even private equity.
The main problem with indexing is as Keynes puts it "in the long run we are all dead." If you have forever then buy and hold is great. Over decades and centuries stock indexes have performed well. But over some 20 year periods they have done absolutely horrid. So let go of that limiting belief and learn a better way to look at things.
The long run is fraught with different hazards. Not the least of which is that the market has gone virtually nowhere for up to 20 years at a time more then once in the last 50 years. if you can sit with zero or even negative returns for years on end then be my guest. if you want something better then read on.
Hopefully by now you realize that this is not a sound investment plan and that you can't sit around forever in an index that is treading water or even drowning. If you had bought the SP500 20 years ago as of this writing you would only be up 235% total. That comes out to a meager 4.6% annual return. You could have done that in Treasury bonds with zero risk. Was it worth the ride? No, it was not.
If waiting 10 years to have the same amount of money or even less than you have today is what you are striving for, then go ahead and index your money. If you want more certainty that you will have positive returns over a ten-year period that are higher than inflation then you will want a different approach and global macro is a great way to go.
While many investors only invest in US Equities and possibly US fixed income products, global macro traders focus on every liquid asset class they can find. By doing this, we are able to capitalize on far more opportunities.
So why would we want to look at other asset classes and countries? One of the reasons is diversification. many pundits talk about diversifying as some type of holy grail. And yet they don't adequately diversify you. They will put some in stocks and some in bonds and call it good. Global macro investors will instead look at countries as well asset classes to determine where is the best trade. They look at stocks, bonds, commodities, currencies, real estate, and even private equity.
The main problem with indexing is as Keynes puts it "in the long run we are all dead." If you have forever then buy and hold is great. Over decades and centuries stock indexes have performed well. But over some 20 year periods they have done absolutely horrid. So let go of that limiting belief and learn a better way to look at things.
The long run is fraught with different hazards. Not the least of which is that the market has gone virtually nowhere for up to 20 years at a time more then once in the last 50 years. if you can sit with zero or even negative returns for years on end then be my guest. if you want something better then read on.
Hopefully by now you realize that this is not a sound investment plan and that you can't sit around forever in an index that is treading water or even drowning. If you had bought the SP500 20 years ago as of this writing you would only be up 235% total. That comes out to a meager 4.6% annual return. You could have done that in Treasury bonds with zero risk. Was it worth the ride? No, it was not.
If waiting 10 years to have the same amount of money or even less than you have today is what you are striving for, then go ahead and index your money. If you want more certainty that you will have positive returns over a ten-year period that are higher than inflation then you will want a different approach and global macro is a great way to go.
About the Author:
Jesse helps people find different Global Macro Trading opportunities. The Macro Trader is a research firm that writes a weekly newsletter focused on actionable macro trading opportunities using ETF's.
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