The Global Macro Trader and the Use of Macroeconomics
Global macro traders trade everything on earth. They are typically very active in stocks, commodities, bonds, and currencies. Not only do they follow these markets but they follow them at least across the G-7 nations which multiplies the number of different markets and economies on their radar. Why do they do this? Primarily so that they can find the greatest amount of major dislocation possible. One great risk reward opportunity can make your year. Two or three can make you a fortune.
Obviously if you are trading everything across the globe it would make sense to have a firm grasp on the global economy as well as a familiarity of the situation of any one country that you may invest in. So not only a grasp of macroeconomics but a grasp of individual countries as well.
Probably the most well known example of a country where it is critical to understand the global macroeconomic dynamics is Japan. If you had bought a great looking value stock in 1982 you would have likely seen it climb the entire decade and then crash. Thirty years later you would be at breakeven. In the early nineties Japan became stagflationary meaning that they didn't grow at all for year. In fact some years they were deflationary and occasionally they had inflation but it was always under one percent.
If you had put money to work in Japan without understanding the macroeconomic situation you would have lost or best case broken even after years and years of work. Stocks do not always go up and the long term in Japans case has been 30 years so far. Yes, macroeconomics are important.
Another great macro trade using macro economics was buying commodities in 2002. At that point we had not only had the dot com bust but also several years of under development in our natural resources worldwide.
If you were tuned into the macro economy you would have noticed the BRIC nations picking up considerably and gone long. You would have bought Brazil, oil, base metals, etc. as the emerging markets expanded at a very fast pace for a while.
Value investors and supposed pure stock pickers are notorious for claiming to not need economics. We only buy stocks they say. Well the truth is that all stocks are part of and are affected by the economy. You can lose fifty percent of your money when a supposed surprise economic disaster happens or look at the signs, see it coming, and profit.
Global macro trading and macro economics obviously are very complimentary to your account when used properly. Don't trade in ignorance. You should instead learn everything you can and set up the best risk to reward scenarios possible. - 23229
Obviously if you are trading everything across the globe it would make sense to have a firm grasp on the global economy as well as a familiarity of the situation of any one country that you may invest in. So not only a grasp of macroeconomics but a grasp of individual countries as well.
Probably the most well known example of a country where it is critical to understand the global macroeconomic dynamics is Japan. If you had bought a great looking value stock in 1982 you would have likely seen it climb the entire decade and then crash. Thirty years later you would be at breakeven. In the early nineties Japan became stagflationary meaning that they didn't grow at all for year. In fact some years they were deflationary and occasionally they had inflation but it was always under one percent.
If you had put money to work in Japan without understanding the macroeconomic situation you would have lost or best case broken even after years and years of work. Stocks do not always go up and the long term in Japans case has been 30 years so far. Yes, macroeconomics are important.
Another great macro trade using macro economics was buying commodities in 2002. At that point we had not only had the dot com bust but also several years of under development in our natural resources worldwide.
If you were tuned into the macro economy you would have noticed the BRIC nations picking up considerably and gone long. You would have bought Brazil, oil, base metals, etc. as the emerging markets expanded at a very fast pace for a while.
Value investors and supposed pure stock pickers are notorious for claiming to not need economics. We only buy stocks they say. Well the truth is that all stocks are part of and are affected by the economy. You can lose fifty percent of your money when a supposed surprise economic disaster happens or look at the signs, see it coming, and profit.
Global macro trading and macro economics obviously are very complimentary to your account when used properly. Don't trade in ignorance. You should instead learn everything you can and set up the best risk to reward scenarios possible. - 23229
About the Author:
If you need actionable trading ideas then check out The Macro Trader It is a weekly global macro trader advisory publication with frequent intra-week updates for time-critical analysis and actionable trading ideas.
posted by X - Men @ 2:06 AM
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