Feeling old

Yesterday witnessed a watershed event chez Macro Man.  Much to your author's chagrin and despite his best efforts, Macro Boy the Elder (aged 13) bested him for the first time ever in a game of 1-on-1 basketball.  As recently as the spring Macro Man would have put the over/under for his demise at 2017 or 2018; somehow his son closed the gap and surpassed him with bewildering speed.

Is this somehow an analogue for his professional life?  In many ways, it's tempting to say yes.  During the financial crisis and its immediate aftermath, he was a successful part of a small team of macro punters that made 10% per year with low vol and almost no drawdowns.   For reasons largely beyond our control, the fund was wound down in 2010.  Fast forward a few years....and no one other than the fund's founder is in any kind of seat, trading or otherwise.

Has the world changed so much that the skills that translated into superior performance a few years ago are now obsolete to the point of irrelevance?  To be sure, macro is not exactly the flavor of the month amongst investors and allocators, and a shrinking pie naturally leads to fewer risk taking opportunities.     Moreover, the emphasis on risk/compliance/legal functionalities after Madoff has squeezed the ability of small funds to survive and prosper, so AUM has tended to congregate in a handful of mega-funds rather than be dispersed across a broad range of hedge fund investment vehicles.  It's ironic, really....as regulators have embraced the mission to obliterate "too big to fail" across regulated banking institutions, you may be seeing the same issue arise in the much more loosely regulated world of leveraged fund management.

Moreover, even where there is appetite to take risk, it seems as if much of it is centered in quantitative models, be it HFT or quant asset allocation.  Macro Man touched on this issue in March, and things unsurprisingly haven't changed much.    The quest for the Holy Grail of a consistently profitable model is a tempting one, and it's frankly unsurprising to see the demand where it is.  However, we've learned the hard way over the years that models generally fail when exposed to shocks or other unforeseen circumstances that a more discretionary investment approach can pick up on, so the apparent lack of interest in discretionary investment professionals is curious.

It's a little hard not to sound like a grumpy old man, even though mid-40's isn't- or shouldn't be- "old".   But in a world dominated by coders on the one hand and box-tickers on the other (no MBA/no CFA/no dice), it feels like the experience of analyzing and trading part market cycles is an active detriment.  Either that, or the quality of Macro Man's analytical skills, like his basketball skills, has eroded badly since his younger days.  However his mind, unlike his jump shot, still feels fresh and sharp. 

But it doesn't matter how many jumpers you make if you can't get in the game.
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CV
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November 23, 2015 at 7:30 AM ×

Commiseration MM, but until he beats you in EURUSD trading etc, I would argue that there isn't much to worry about. Other than that, I couldn't agree more with your views if had written it myself. Macro will survive, but I have to say that while many smaller niche funds have been/are being squeezed by the concentration of AUM, they have ALSO been poor on performance. I am certain they will be back, however, and I have a sneaky feeling that their rise will coincide with the fall from grace of the mega institutions that you mention.

Maybe, though, macro trading like most other jobs in finance these days will be automated ... then we can just blame the computer when it goes wrong.

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Anonymous
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November 23, 2015 at 8:29 AM ×

c'mon mate... you are tougher than that and I know you are super fit. Your son was just lucky.

absolutely correct on where the industry is going but there is a major difference between banks being too big to fail and asset managers.

banks have savings and current accounts. Asset managers do not. Whoever subscribes a HF has to sign 57 pages of disclaimers. If that HF goes belly up, too bad.

it is never about doing the right thing. it is always about what sounds right. regulators did exactly that. A bank going belly up becomes a major social issue. a HF going belly up goes in the gossip section because of the celebs invested in it.

even if the consequences are the same at market level.

there is massive complacency in the system, thanks to the CBs QEing.

be ready for a vol expansion.

Ciao my friend

PS: Steeelers could be worse.

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Marko
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November 23, 2015 at 8:32 AM ×

All traders would be appallingly rich if it were that easy to make money on trading. If you don't have anybody to cheat (customers, ur bank etc) u are lucky to be alive after so many years that you have been around. Beef your bottomline up via taking paying milkable followers, write a book on how to invest :) Many people like your style. You have taught your son to play, do the same in the markets. You know so many ways for not making money that is has to be valuable for some aspiring traders, who still believe they can beat the Market.

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Anonymous
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November 23, 2015 at 9:12 AM ×

I would love to read a good book on Macro Trading. An insight into the analysis of a trade, what firms actually do, the industry etc. Not being a Macro Trader.

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CV
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November 23, 2015 at 9:54 AM ×

Steve Drobny's "Invisible Hands" is a good intro to different macro strategies and approachses, even if it is written with the 2008 chaos in mind.


http://www.amazon.com/The-Invisible-Hands-Traders-Bubbles/dp/047060753X

But yes, I too would buy MM's version ;).

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Anonymous
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November 23, 2015 at 10:35 AM ×

Rampagingruss says:
If your son had beaten a friend of yours rather than yourself, rather than you, I am sure you would be overflowing with pride. Reflect on your skills in teaching your son to play ball!

As for getting back in the money game - despite all the restrictions on hedge funds - there is still loads of money out there looking for a home. Perhaps if Macro Man lost the pseudonym and got out there marketing someone would be able to stump up the money to launch a macro man fund.

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Adrem
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November 23, 2015 at 10:53 AM ×

MM...Its probably time to sit back and take a rest , freewheel until you see some clarity emerging. Because it wiil, one way or another.

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Hotairmail
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November 23, 2015 at 11:22 AM ×

Leopards and old gits have a lot in common.

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Anonymous
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November 23, 2015 at 12:21 PM ×

The answer to both of your quandaries is adaptation. If you want to win against a 13 year old don't play them at a sport that thrives on fast twitch muscles. I suspect something similar holds true for the other issue.

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Polemic
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November 23, 2015 at 12:28 PM ×

On the age issue. Get used to it and enjoy it.

I am sure you were NEVER like this..

https://www.youtube.com/watch?v=aPr88x4N5Ic
https://www.youtube.com/watch?v=TFq8rBe79L0
https://www.youtube.com/watch?v=K8USITOUBqk (don't get cocky Peter, you are not an American)

As for markets and trading, algos at the top, discretionary fkd, paying for people fkd, bank employment fkd, fund employment fkd, in fact I cant see it being a happy christmas for many in finance -

http://polemics-pains.blogspot.co.uk/2015/11/not-happy-christmas-for-bank-employees.html

Re Markets, you have to be a better political anaylist than economic analyst now to trade these markets what with CB's, Terror, Middle East, Russia, sanctions, Nuke deals, European political schisms.

Perhaps banks will cotton on to this and stop hiring quantoPhDeconobollocks 12 year olds and instead hire people who can work out WTF is really going on.

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Anonymous
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November 23, 2015 at 12:37 PM ×

+1 for the book, love the idea of reading something coherent. And no, not trying to commit you to academia MM :) As a full time trader on my own I can sympathize with your feelings. Sometimes one can feel irrelevant. However, staying patient over the years and picking the spots has been profitable, keeping the mind occupied and focused in between has been tougher though.
Thankfully my kid is five so I got a few years left before he dunks it over my head. Still, you should be proud of MM Jr.

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Leftback
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November 23, 2015 at 1:37 PM ×

Rite of passage, innit, me old China? Bloody marvelous, actually. He is 13 and is no longer a Micro or a mini-Macro.
Be justifiably proud of the Fruit of your Loins (and share the credit with Mrs. Macro too!).

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abee crombie
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November 23, 2015 at 1:39 PM ×

I am a big fan of Andrew Lo's evolutionary hypothesis on the markets. It always going to be harder today than it was yesterday, that's just how it is. But just like in a simple environment with 2 or 3 species, if one becomes too dominant, they mess up the food chain. That is what you have to wait for to be macro trader, for the stars to line up. Either that or be the fastest predator and make lots of small kills.

Expected Returns, by Ilmanen is a great macro read as well.

As for the whole hedge fund, other ppls money game, well its a great business model but a tough business and even worse now with all the regulations. I see quite a bit of funds, some with great performance, and no AUM and more with crappy performance and lots of AUM. But I really dont understand why pension fund money would make an allocation into them. Over the long run they are not going to beat equities, and who cares about minimizing risk if your time horizon is forever.

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Anonymous
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November 23, 2015 at 2:04 PM ×

This discovery will change all markets... a computers ability to predict is moving ahead at light speed. All of us are about to become marginalized. Any communication/data over any network can no longer be hidden:


http://news.sciencemag.org/math/2015/11/mathematician-claims-breakthrough-complexity-theory

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washedup
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November 23, 2015 at 2:09 PM ×

@MM - what if Macro-boy was better than you for the last few years and was just letting you win?
Glad to see that apple didn't fall far.

As far as the macro stuff, be thankful your model keeps telling you to buy equities - I can't think of a more highly correlated career hedge for people in this line of punting. When returns on everything revert to 2% or less and tech unicorns bite the dust, currencies and relative value FI will be back to being the only game in town that may return, say, 5% - at 10%, imagine how smart you would look!

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Anonymous
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November 23, 2015 at 2:14 PM ×

The death of discretionary global macro has been greatly exaggerated. It is going to be the best strategy to invest in over the next few years. Vol is back and so is monetary policy divergence. The alternative is sticking with the "genius" L/S managers who all loooove hedge fund hotel stocks such as VRX and SEMI. Except that they forgot to "hedge". Down 15%-20% ytd. How do you like'em apples now, momo monkeys?

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washedup
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November 23, 2015 at 3:31 PM ×

On a different note - Mario Draghi's US salvation army donated growth spurt (which he no doubt would ascribe to his wisdom and courage) has gathered momentum - also, the fact that this growth is borrowed from the US (as evidenced by US manufacturing data) is also becoming glaringly obvious.
I would be very very cautious of long USD trade - really beginning to feel like Ms Yellen is going to need to snatch her toy back from Mario fairly soon.

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Anonymous
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November 23, 2015 at 3:54 PM ×

Agree with Anon @12:21 PM

Adaptation is how we survive and move forward. And it is great to see your son plays a better basketball than you MM. Now you can teach him to trade EURUSD for his monthly allowance.

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CV
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November 23, 2015 at 4:04 PM ×

Completely agree Washedup, but it seems to me that both are locked in for December, pointing to a final push.

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Anonymous
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November 23, 2015 at 4:52 PM ×

MM- I can relate to your experience vis a vis the markets. i traded well right through crisis and following years but lost seat last year due to" unsatisfactory performance"- guess you are only as good as your last trade in this business. forget full market cycle returns etc etc
now trading own account and while not getting easier going to give it a good go- so hang in there and keep going!

on markets-i think usd strength has further to go - think this overshoots.which makes me think us equities will struggle FANG or not....interesting to see vix floor has moved up -looks like vol expansion on the horizon




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Nico G
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November 23, 2015 at 9:35 PM ×

2014 was the most abnormal year in market history when it failed to correct 2013 30% Mickey mouse performance and even added to it. Cautious people like you have been shown the door for they cruelly underperformed. Moral hazard. Market will only becomes normal again when we trade under 1800.

trading littérature just means to make trading sensational and romantic, which it ain't. Books have no educational value whatsoever. Unless you find second hand NIederhoffer at about $2 you will just be wasting money. As it goes, successful traders are too busy making money to write a book teaching you how to crowd their trades or worse, frontrun them.

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Polemic
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November 23, 2015 at 9:39 PM ×

Amazed you even have the time to comment in this blog then, Nico. Let alone encourage folks to crowd your trades. :-)

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Nico G
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November 24, 2015 at 4:11 AM ×

haha im not posting trades anymore Pol - and spending much less time online due to a VERY beneficial timezone

i was reading about Pfizer's tax inversion on $128bn of overseas profit those last years... 'call'em unpatriotic' Goering would say

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Nico G
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November 24, 2015 at 6:06 AM ×

Citizens for Tax Justice reports that Fortune 500 companies are holding over $2 trillion in profits offshore to avoid taxes that would amount to over $600 billion.

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Anonymous
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November 24, 2015 at 7:18 AM ×

I think we will see another China yuan devaluation, perhaps before Fed raises rates or JUST after

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Anonymous
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November 24, 2015 at 7:54 AM ×

MM just trade your own money. It takes adjustment fixing all the habits built up over the years handling opm but it can be done.

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Anonymous
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November 24, 2015 at 1:36 PM ×

Ask MM Jnr to play for $20 per jump shot and see who cracks under pressure?
Looks like there still are some transferable skills from trading..
Move to Vegas and make the big bucks....

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