Carry, The Death of Gold, and Antimodels

Tyler here with this week’s Macro Musings.

As always, if you come across something cool during the week, shoot me an email at and I’ll share it with the group.

Recent Articles/Videos —

Explaining The Yield Curve — AK covers what’s going on with the yield curve including why it’s flattening, what that flattening means, and how long we have till a recession hits.

Articles I’m reading —

One of the Hottest Short-Dollar Trades Just Fell Into the Red – Emerging markets FX has been our radar recently as we just completed a Masterclass on it for the Collective.

One of the largest drivers of EM FX trading is the carry — or the spread between the interest that you earn owning the foreign currency minus the interest you pay on the funding currency. (The USD is one of the most popular funding currencies.)

This trade is incredibly profitable during a dollar bear market. But it doesn’t work well at all when the dollar turns around and enters a cyclical bull market. As you can see from the chart below things haven’t been working out too great for the EM FX carry trade until recently in 2016-2017 as the dollar retraced it’s 2014 gains.

But now after the recent move up in the dollar this week, the carry trade is under fire yet again. The year-to-date returns are now at a scratch and headed for the red.

Book I’m reading —

I’ve been wanting to do a deep dive into COT data for awhile now, and I’ve finally started this process last week. The Commitments of Traders Bible was recommended to me by another trader so I decided to pick up a copy.

The author, Stephen Briese, really did write the ultimate reference on the subject. It’s probably the only book you’ll ever need on COT data. Briese starts with the history of the reports, then picks apart each and every data point so you get a thorough understanding of exactly what’s included in these COT releases. He caps off the book by telling us how to turn all that data into actionable trading signals.

If your a fanatic about positioning data and you think it can really bolster your trading edge, check this book out. You won’t be disappointed.

Chart I’m looking at —

Tech stocks that like to grow revenue no matter the cost have been the darlings of this bull market. But eventually this will come to an end once these stocks break trend. Investors will flock back into good ‘ole fashion value companies that are more robust to poor macro conditions. The chart below suggests that the “value comeback” will happen earlier rather than later.

Trade I’m looking at —

Short gold looks attractive here and we have already initiated positions.

After the big breakout failure on April 11th, gold has been going straight down.

Gold has had literally every reason in the world to rally and it can’t. Inflation expectations have been moving higher, the dollar has been caught in a bear trend, Trump has been doing all sorts of shenanigans in the White House, and gold still can’t hold a breakout.

So if gold won’t go up when it has everything going for it, what’s it going to do when those drivers turn against it?

The latest breakout in the dollar index this week suggests that the drivers for gold are starting to turn bearish. We think this will lead to washout down below the $1200 level.

Quote I’m pondering —

People focus on role models; it is more effective to find antimodels — people you don’t want to resemble when you grow up. ~ Nassim Taleb

I think what Taleb suggests here would be a good mental exercise. We all read Market Wizards. We all study the Trading Greats. But few of us ever think about antimodels — at least I haven’t. Perhaps take a weekend to think about who you wouldn’t want to emulate as a trader.

That’s it for this week’s Macro Musings.  

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



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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.


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.