Macro Man Returns

Where to start?

Those were the very first words ever published in this space, and now, some seven and a half years (!) later, Macro Man must confront the same question.  It is an odd coincidence, to say the least, that only a couple of weeks after the last remaining member of TMM packed it in, Macro Man finds himself a free agent and is once again able to pick up his virtual pen to fill the void.

Perhaps the best place to begin, therefore, is with a heartfelt "thank you" to Nemo, cpmppi, and especially Polemic for looking after the place over the past four years.  They kept the structure intact but put their own lick of paint on it, for which Macro Man is genuinely grateful.

Thomas Wolfe once wrote that "you can't go home again", but Macro Man hopes to disprove that theory.  However, even Michael Jordan struggled a bit when he first came out of retirement, so your author hopes readers will indulge him if it takes a few posts to get back into the swing of things.   Having written little but arid investment commentaries since 2010, Macro Man finds that his keyboard is a little rusty, so to speak.

So what to make of the world, or at least the global macro investment landscape?  First, consider a few of the things that have happened since Macro Man last inflicted his thoughts upon the world:

US
* The unemployment has fallen from 9.9% to 6.7%
* The SPX has risen 58%, not including dividends
* The Fed has engaged in QE2....
* ...and Operation Twist....
* ...and QE3....
* ...while providing calendar based guidance....
* ...and threshold based guidance....
* ...and "qualitative guidance"
* 10 year Treasury yields are 0.82% lower despite the loss of AAA rating
* The DXY is 1.6% lower

Europe
* Greece blew up
* The ECB bought sovereign bonds
* Ireland blew up
* Portugal blew up
* Trichet's ECB hiked rates....
* ...twice!
* Italy almost blew up
* Spain almost blew up
* Draghi cut rates...
* ...and delivered 3 year LTROs.....
* but only put a lid on the sovereign crisis with the OMT and a new set of clothes
* For old times' sake, Cyprus blew up
* Draghi cut rates to 0.25%...
* ...despite which EUR/USD has remained consistently stronger than in May 2010
* Mark Carney took the reins of the BOE...
* ..and proved that he was no better at forecasting the unemployment rate than his predecessor was at forecasting inflation...
* ...so after six months decided he didn't want to play with forecasting any more

Japan
* Had a terrible earthquake...
* ...which put the kibosh on nuclear power...
* ...and kept the yen strong...
* ...despite the trade balance moving into deficit for the first time in decades...
* ...which prompted erstwhile post-Koizumi disaster Shizo Abe to run on a platform of economic revitalization...
* ...thus generating the best macro theme of the last 18 months...
*  ...but now faces a challenge via the consumption tax hike

China
* Re-floated the exchange rate
* Spurred a last-gasp commodity boom
* Decided to target credit growth including the shadow banking system
* Changed leadership
* Decided at long last to purge some excess leverage in the system
* Has thrown a spanner in the works of the "can't lose" RMB trade

Other EM
* Moaned about QE2
* Moaned about Operation Twist
* Moaned about QE3
* Moaned about the taper
* Annexed Crimea

Macro Man has no doubt missed plenty in these far-from-exhaustive lists, but if he can distill a few choice morsels from the above, it would be the following:

* The Fed, BOE, and post-Trichet ECB have pursued a policy of pushing interest rates as low as possible and suppressing volatility as much as possible

* Exchange rates have borne only a passing resemblance to perceived fundamentals; if the euro cannot meaningfully sell off during a sovereign debt crisis, when could it?

* Genuine policy activism has delivered market-moving results in Japan

That's not a whole lot of meat on the bone for classic rates/FX macro punters.   Perhaps the most telling symptom of the market environment has been the dead-calm nature of the front end of the US yield curve.  Consider the slope of the 2nd vs the 4th eurodollar contracts, which offers some insight into monetary policy dynamism.    Generally speaking, volatility in this curve is a good environment for fundamentally-driven macro investors such as your author.


Alas, there's been little to do for much of the past three years, and very little carry on offer to compensate for the occasional hiccup.   In other words, it's been something of a global macro alpha-generating Sufferfest.

Indeed, Macro Man has often felt like the chap below, working as hard as he can to spin his wheels and go nowhere.



(n.b.  No Macro Men were harmed in the filming of this video.)

None of this, of course, addresses the brave-new-world regulatory environment, where the authorities appear to view the phrases "more regulations" and "better regulations" as synonymous.  This is a topic worthy of its own screed; suffice to say that while Macro Man is certainly sympathetic to the notion that prior abuses needed to be addressed, the current regime is quite decidedly suboptimal- and likely to get more so.

Fortunately, not everything is doom and gloom.  The ongoing taper and debate over the timing/scale of the Federal Reserve tightening cycle should inject a breath of fresh air into the macro trading environment once the initial dust settles.  One can only hope that in this context, the betawhore long/longer/longest strategy in equities and credit will prove a little more challenging than in the recent era of financial repression.

On a personal level, Macro Man must confess that he dearly missed setting down his thoughts on a daily basis in this space.   The utility of organizing his views and writing them down in a coherent fashion, subject to external scrutiny, only became truly evident once it was no longer available.   Your author, it appears, is one of those chaps who thinks best by expressing himself.  In a moment of weakness, he might also admit that he missed the occasional trip to 221B Baker Street, as well as the occasional rant.   

But now Macro Man's back, for the time being at least, at what promises to be an interesting juncture in financial markets- and more volatile, one hopes, than the financial repression of the last few years.   He looks forward to sketching out his views, and hopes readers will be as assiduous in picking holes in them as they were during his first tour of duty.  If so, it promises to be a fun ride.

To hell with Thomas Wolfe.

It's good to be home.