Thursday, September 17, 2009
Macro trading is often a thankless and frustrating endeavour, not least because when things go wrong (as they often do), it is difficult to explain to a layman (or woman, or child.) Macro Man generally tries to leave his frustrations, as well as his victories, at the office; in a sense, he tries conduct his real life separately from his "Macro Man" alter ego.
Still, there are inevitable leakages. Take yesterday, when what was shaping up as a rare stellar day this month was derailed by a "paid advisory service" report suggesting that some Fed voters would already like to push for rate hikes, and that the committee generally senses that the output gap has narrowed quite dramatically. Although the report was evidently denied (perhaps after an angry phone call from the Eccles Building?), some of Macro Man's positions took a nasty dent, and his overall portfolio performance wasn't helped by a spot of execrable short term trading.
So last night, when it came time to tell the Macro Boys a bedtime story, Macro Man intended to tell them the story of The Boy Who Cried Wolf. Somehow, the nature of the story changed in the telling, however. Last night's story revolved around a paid advisory service that used to have good contacts in policy circles, oh, about fifteen years ago. Ever since then, however, this service has been consistently wrong. They issue a "ground-breaking report" which moves the market....only to be proven dead wrong. Eventually (though sadly not yet), they lose all their subscribers....so if and when they finally do get one right again, nobody listens and they go out of business.
Sadly, this wasn't the first time that Macro Man's day job has intruded on the evening ritual. Consider these other (macro) bedtime stories:
The Three Little Pigs: Three little piggies each built a house: one of straw, one of sticks, and one of stone. Unfortunately, each took out an ARM with a 1% teaser that reset after two years to LIBOR + 800. When this happened, they defaulted on their mortgages. This in turn bankrupted the big, bad, wolf, who received a hefty government bailout and a stern warning not to lend to little piggies ever again.
Jack and the Beanstalk: Jack was a young man who managed his mother's retirement finances. He put them all into structured credit vehicles which blew up, leaving Jack and his mother with nothing but three magic beans. Jack's mother was so irate that she kicked Jack out of the house and threw the beans out of the window. With nothing better to do, Jack pledged the beans as collateral to the government in their PPIP program. Eventually, the beans sprouted into mighty green shoots; Jack climbed up and paid himself a big fat bonus with the pot of gold he found at the top.
The Five Chinese Brothers: Once upon a time, there were five Chinese brothers. The first brother owned a toy factory in the Pearl River delta, but it went bankrupt when labour costs rose and Western consumers quit buying so many toys. The second brother applied for a loan to speculate on the price of copper. The third brother applied for a loan to speculate on equities. The fourth brother applied or a loan to set up a joint venture with a foreign electronics manufacturer, so that he could reverse engineer the products and eventually set up his own factory to make cheap replicas. The fifth brother was in charge of the local disbursement of central government stimulus funding; he fast-tracked all the loans, and the entire family became fabulously wealthy.
Dr. Strangelove, or how I learned to stop worrying and love the stock market: It's not really suitable for children, and in any case the story is still being told. Macro Man'll let you know how it ends....