Friday, August 17, 2012
TMM thought so highly of the Mark Dow piece we thought we’d expand upon it and explain a few garden varieties of macro tourists. Much like mushrooms after heavy rain they have sprung up all over the place and while some of them can give you tasty insights, others will send you on extremely bad drawdown trips or worse. TMM think that in investing there is both such thing as a little knowledge being extremely dangerous (a certain credit manager’s foray into JGBs comes to mind) and a little knowledge being enough to know it's time to get up from the table, find a hardhat and hide (Elliott Associates’ and Baupost’s evasion of the 2008 bloodshed for most credit/equity/value managers). This should not be construed as an argument against trading cross product or that “only big boys can do this”, but that deciding to put a lot of your fund into something you’ve been doing for 12 months is seldom a good way to keep the losses away - or the redemptions.
The Credit Manager Turned Macro Manager: After a few got 2008 oh-so-correct it was never going to be easy for these managers to keep their egos within the confines of a single asset class. However, for a good number of them, they probably should have. TMM think that the one problem with corporate credit guys (who know a great deal about corporate solvency) moving into sovereigns is pretty simple: they’re totally, completely and utterly different. While there are some analogues between countries and corporates, when you can’t issue local FX debt, those issues dissolve when you are looking at countries with a lot of FX reserves and big local debt markets like China and Japan. TMM think there’s a pretty simple solution to this – getting those accounting nit-picky types to learn how a balance of payments works as well as they know how a 10-Q does. Sadly most of them fail to bother.
The “Big Idea” Guy Turned Macro Manager: TMM think that if you want exhibit A of “Big Idea” blowups look no further than some of Jim Rogers’ calls. Light on detail, long on extremely long run trends (“entropy in resources!”), but light on intermediate catalysts, these guys,whose skill set is probably best adapted to betting on long run non mark-to-market trends (e.g. venture capital), seem to drop into macro every now and again with volatile results. TMM love listening to them because they are so interesting, but the lack of risk management does not make for great fund performance.
Event-Driven Equities Guy Turned Macro Manager: TMM know a few event-driven guys and their core competency is talking to everyone in an industry or supply chain and working out what will happen, given what they are thinking. Sounds like betting on political process? It more or less is and some of their skills have really come into their own during the Eurocrisis since it really is all politics. TMM think that while these skills might be here to stay, a time when fundamentals matter might not be so kind to them.
FX Guy Turned Macro Manager: In general FX could be considered the overlapping bit at the centre of the Venn diagram of all asset classes and so a general broad knowledge of all asset classes that is important in FX should give the FX shag a head start and indeed, if married to a decent economics background, they do very well. However, their history of being exposed to value being embedded in knowing what other people are doing makes it very hard for them to stay loyal to their own ideas. In fact we would suggest that this sector of Macro Tourist is more susceptible to influence from “well respected” research sources and peer behavior than any other. However macro their short trade may be, they will run for the hills on a whisper of “China on the bid”.