Thursday, June 19, 2008
Macro Man's going to have to figure out how to assign a macro to the shift-F9 keystroke that will automatically type out "it isn't getting any easier, is it?" Because it isn't getting any easier, is it? Just when you thought that sanity had returned to short-end interest rate markets, out comes the UK with a piece of data so far off the charts that it literally beggars belief.
Yes, despite rock-bottom consumer confidence, a plunging housing market, a rise in unemployment, and dire warnings from retailers, apparently retail sales in the UK rose by 3.5% in volume terms last month. On a value basis, sales rose even more- 4% m/m. To put this figure into context, the last time monthly sales rose this much, Margaret Thatcher had only been prime minister for two months.
According to the ONS, sales were powered primarily by food and apparel prices, the latter of which evidently rose more than 9% on the month. Riiggggghhhhhtttt. If something looks like a duck, walks like a duck, and quacks like a duck, but someone tells you it's a race horse, would you really expect to see it at Royal Ascot today? Probably not. This number is literally unbelievable, but the gap lower in short sterling is all too real. Once again, this market appears to be pretty much unplayable.
In that vein, Macro Man decided to do a bit of portfolio introspection this morning to see where he's had some hits, scored a few runs, and (perhaps most importantly of all) made his errors. Now usually, Macro Man enjoys a pretty good hit ratio on his trades, both at his old shop and in the old blog portfolio. Traditionally, roughly 55%-60% of his trades are winners.
It's instructive, therefore, to see that since he started the new gig, his hit ratio has been substandard- only 40%. As much as anything, this tells him what a difficult three months it has been for his style of trading. Fortunately, his position sizing has been relatively conservative, as he at least had the sense to recognize how difficult the market has been and has just tried to "chip away."
What's clear is that there have been a couple of classic "macro trades" that have worked over the last few months, and a host of others (as well as shorter term punts) that have not. The large cap/small cap RV trade in particular stands out as a high conviction trade that's not worked; fortunately, Macro Man had the sense to cut most of the position before it really fell off a cliff. The lack of success in that strategy would seem, it appears, to illustrate the difficulties of RV trading over the past couple of months.
What seems clear is that straying from his core competency has not been rewarded; in particular, forays into commodity and fixed income markets have been relatively luckless. Fortunately, some moderate success in his bread-and-butter skillset have given him a tiny positive result since inception. But he would be curious if other risk-taking readers have had the same experience: lower-than-normal hit ratios, RV trades gone wrong, a high correlation between core skillset and performance, and, ultimately, an unwillingness to swing the bat aggressively when hits and runs are so hard to come by and it's easy to make an error.