A.I. Bets & All-Time Low Bond Volatility (Macro Musings)

Tyler here with this week’s Macro Musings.

Just a reminder, we’re releasing the newest issue of our Macro Intelligence Report (MIR) early next week. In it we’re covering a basket of agricultural stocks that are ready to rip just like our IPI play (if you don’t know what I’m talking about, read our article below). Phase 3, the Overheat Phase, is a target rich environment. There’s a lot of profits to be made. If you’d like to come along for the ride, make sure you subscribe to the MIR by clicking here.

Our Recent Articles —

The Overheat Phase: We review the Investment Clock theory and discuss how we’ve already used it to score huge profits on various commodity plays.

Mid-Year Performance Reviews (Part 1 / Part 2): If you haven’t seen them already, we published the mid-year results of our two portfolios — Strat Ops and Spec Ops. As part of our 100% transparency promise, you see all our results… the winners… and more importantly… the losers as well.

Article I’m reading —

The Massive Hedge Fund Betting on AI

I go through bouts of extreme interest in AI followed by extreme disinterest of it. I agree that AI will only become a larger and larger force in finance, the field is perfectly suited for it. But at the same time it’s probably not going to make as big of a change in the industry as some are predicting.

This article gives a good update on how the technology is weaving its way through the industry including multi-billion dollar funds once scared of it.

Of course AI is only as good as the amount and quality of data you can feed it which is why we’re in the middle of a data renaissance.

The article says, “An estimated 90 percent of all the data in existence today were created in the past two years.”

Whoa.

Podcast I’m listening to —

Chat With Traders Episode 141: Software millionaire fooled by ‘the dream’ and saved by global macro

This pod starts off exploring the backstory of Erik Townsend, the producer of the MacroVoices podcast.

Erik made millions during the tech bubble, cashed out, and bought a super-yacht only to discover that “ballin on a boat” gets incredibly old and unfulfilling after a while.

He ditched the Caribbean lifestyle and from there devoted his life to financial markets.

Erik has some interesting big picture theories on how he thinks the next 30 years will play out, as well as a grim prediction for the future of cryptocurrency.

Chart I’m looking at —

Information already known by the market is priced in so there is no profit opportunity. Instead of blindly looking at historical data we need to anticipate future scenarios that can surprise markets.

Surprise indices help us find what has been surprising markets right now so we can better understand the dominant narrative.

Global GDP has been consistently surprising higher which tells us that the market has still not gone all in on the “reflation” trade. There’s plenty of market strategists out there who can’t let go of their bearish bias.

Trade I’m looking at —

Bond volatility is currently at all time lows as seen in the chart below.

This is extremely counter-intuitive since we are about to enter one of the most uncertain periods for bond markets since the GFC. The Fed will begin Quantitative Tightening next month and I have a hard time believing that it won’t cause some degree of volatility.

No one knows what it’s like to trade bonds without the perpetual Fed bid. There’s going to be some volatility until people figure out how to cope without the punch bowl.

Quote I’m pondering —

“Whether you like it or not, radical transparency and algorithmic decision-making is coming at you fast, and it’s going to change your life.” – Ray Dalio

I think we’re going to see a huge shift in how companies organize and decide over the next decade. Ray Dalio has proven through his success that algorithmic data backed decision making is more effective than a boss or manager making all the decisions.

Companies won’t be able to compete at the margin if they rely on a single biased human with a tiny memory to make key decisions on how to best allocate time, energy, and money.

There’s two paths ahead I see for anyone wanting to win big from this transition rather than lose big.

Either you,

  1. Learn to program the machines or
  2. Focus on relationship building

Obviously all these new algos will need to be serviced, improved upon and maintained. But if that’s not your thing, there will always be a need in business for putting a smile on someone else’s face and creating that client connection.

Thanks for reading.

If you’re not already, be sure to follow us on Twitter: @MacroOps and on Stocktwits: @MacroOps. Alex posts his mindless drivel there daily.

And if you’d like to discuss macro with the rest of the Operator community, check out our Global Macro Facebook group by clicking here.

 

 

A.I. Bets & All-Time Low Bond Volatility

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.