Global Macro Trading and Macroeconomics
In case you couldn't tell from the title, macro traders use economics a lot in their search for the best opportunities across the globe. The macro trader trades stocks, bonds, commodities, and currencies. Not only do they trade all four major asset classes but they trade them across the globe. That means that they need to follow at least the G-20 nations. This obviously multiplies the number of markets that they must have a solid grasp of.
Now that you understand that the macro trader covers everything everywhere it should make sense as to why they must understand economics. The macro trader must have a solid grasp of global macroeconomics as well as country specific economics.
Possibly the best example of a country where you need to understand the economic situation is that of Japan. Their stock market is essentially flat from 1982 all the way to 2009. During that time it has gone up ten times and then fallen back and then climbed and fallen again and again. This was not a random occurrence and if you understood the economic dynamics at play it would have made sense to you. Essentially once their bubble burst in the early nineties they entered a period of stagflation and occasionally deflation and they have not had asset growth for thirty years.
If you had bought that great value stock you would be back where you started. Unless of course you had taken the time to understand the macro economic picture before and during the investment. Stocks for the long run works except when it fails disastrously.
Another trade where you could have made a lot of money was in commodities, commodity currencies, and commodity stocks from 2002 to mid 2008. Not only were we coming out of the dot com bust but were also amazingly underinvested in our global natural resources.
If you have been paying attention you would have seen that emerging market economies were picking up which of course drove up commodity prices. This insight would have had you long Brazil, China, Russia, India, and commodities like oil and base metals. If you didn't pay attention to the global economy you would have missed the majority of the move.
Most value investors turn their noses upward saying that they don't follow the economy and that they just buy stocks. Guess what stocks are affected by all of this. In 2008 they learned their lesson as many lost over half of their funds under management due to an economic crisis.
Global macroeconomics and macro trading obviously go hand in hand. But it is also worth it for any type of investor to follow the economy so that they are better aware of the different risks out there that can destroy their investments. Don't trade in a vacuum, instead climb up on the mountain and look over the entire investment landscape. - 23212
Now that you understand that the macro trader covers everything everywhere it should make sense as to why they must understand economics. The macro trader must have a solid grasp of global macroeconomics as well as country specific economics.
Possibly the best example of a country where you need to understand the economic situation is that of Japan. Their stock market is essentially flat from 1982 all the way to 2009. During that time it has gone up ten times and then fallen back and then climbed and fallen again and again. This was not a random occurrence and if you understood the economic dynamics at play it would have made sense to you. Essentially once their bubble burst in the early nineties they entered a period of stagflation and occasionally deflation and they have not had asset growth for thirty years.
If you had bought that great value stock you would be back where you started. Unless of course you had taken the time to understand the macro economic picture before and during the investment. Stocks for the long run works except when it fails disastrously.
Another trade where you could have made a lot of money was in commodities, commodity currencies, and commodity stocks from 2002 to mid 2008. Not only were we coming out of the dot com bust but were also amazingly underinvested in our global natural resources.
If you have been paying attention you would have seen that emerging market economies were picking up which of course drove up commodity prices. This insight would have had you long Brazil, China, Russia, India, and commodities like oil and base metals. If you didn't pay attention to the global economy you would have missed the majority of the move.
Most value investors turn their noses upward saying that they don't follow the economy and that they just buy stocks. Guess what stocks are affected by all of this. In 2008 they learned their lesson as many lost over half of their funds under management due to an economic crisis.
Global macroeconomics and macro trading obviously go hand in hand. But it is also worth it for any type of investor to follow the economy so that they are better aware of the different risks out there that can destroy their investments. Don't trade in a vacuum, instead climb up on the mountain and look over the entire investment landscape. - 23212
About the Author:
If you need actionable trading ideas then check out The Macro Trader It is a weekly tactical asset allocation advisory publication with frequent intra-week updates for time-critical analysis and actionable trading ideas.
posted by X - Men @ 2:04 AM
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