Dollar Strength, Trade Wars and The Macro Ops Collective

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.

Macro Ops Collective Now Open For A Limited Time!

Thanks to everyone who came out to the special event last night. I’m glad these post-mortem trade reviews are as helpful for you guys as they are for our own trading.

For anyone that wasn’t able to attend, I want to let you know that as of last night, we have opened up the Macro Ops Collective for enrollment. The Collective is our premium offering where you get a front-row seat to all of our macro research, education, and trading — in real time. This enrollment period will end on Sunday night, July 1st at midnight. After that we’ll shut it down again until the fall enrollment. So if you want access to our trades in real time hit the link below.

Follow this link to learn more about the Macro Ops Collective!

If it turns out the Collective isn’t for you — that’s okay. We realize not everyone is as passionate about macro as we are. That’s why we have a 60-day money-back guarantee on all Collective subscriptions. You have two full months to test out everything before committing. It’s a zero risk trade!

Now for the Macro Musings….

Recent Articles/Videos —

Semiconductors — A review of the semi sector and the plays we’re looking at.

Dalio’s Principles — Dalio reviews the principles he used to build his investment strategy.

The Business Of Trading — AK and Tyler chop it up about the realities of being a professional trader.

Articles I’m reading —

There’s a lot of tension between the US and China right now. The “impending” trade war has been the mainstream media’s excuse for weak equities. Chinese stocks have now entered into a bear market, and US stocks have been experiencing steady selling over the last 3-weeks.

But I think this softness has less to do with trade wars and more to do with what’s going on in the dollar. In recent years, Chinese companies have turned to borrowing in USD because of crackdowns on shadow financing. Here’s some more color from Bloomberg (full article here):  

Chinese builders, faced with bond payments of $77.4 billion in the domestic and overseas markets through 2019, have been reeling from tightened liquidity at home induced by a clampdown on shadow financing. That’s prompted them to sell debt in the offshore market, with dollar bond sales reaching a record $27.5 billion this year.

But now, with the greenback rallying, these Chinese companies are having a tough time paying back this debt. The Chinese government has taken notice of the problem and in response has started to slow approvals for offshore bonds. But that just creates another problem — it reduces financing options for these over indebted cash strapped Chinese companies. So they’re really just trading one problem for another.

This will be the important macro narrative to track going forward. Not trade wars. If you want even more on this story I suggest checking out this Zerohedge article.  

Video(s) I’m watching —

John Oliver’s Last Week Tonight Episode about Xi Jinping caught my attention. First, because China is the single greatest driver of our current macro situation, but more so because the Chinese government retaliated by blocking HBO’s website in mainland China.

It’s actually a pretty good history lesson on Xi Jinping and how he has been running the country over the last 5-years. Worth a watch.

Chart I’m looking at —

The rising dollar has been wreaking havoc on EMs. But those negative effects haven’t materialized in the US. Despite higher interest rates in the US, liquidity conditions have remained loose. The US economy is strong enough to counteract the recent tightening from the Fed. That’s why we’ve seen US equities outperform the rest of the world by so much this year.

If the dollar continues it’s rally, a likely scenario in our view, then it will pay to focus on US equities over anything else in the world. We’re already positioned that way, and we’ve even been toying with the idea of offsetting some of our US long exposure with shorts in foreign stocks.

Trade I’m looking at —

I originally saw this idea from @pat_hennessy on Twitter. If you’re into vol definitely give him a follow.

The Bloomy chart below has one month IV plotted in white and 20-day HV plotted in orange. IV is the market’s prediction of future volatility over the next month. And HV is what actually played out in the SPX last month. The sub chart plots the spread between the two.

You can see at the beginning of the year IV rallied and SPX followed close behind resulting in a deep negative value for the spread. In that case higher option prices were justified.

But now we see IV rallying without the SPX following through. The spread has drifted positive. This tells me traders are overly worried about the trade war and paying too much to hedge.

It’s possible to take advantage of this fear by selling vol (in a risk defined way) on the SPX. I’m taking a look at shorting the 2600/2460 put spread expiring in August.

Quote I’m pondering —

War, battles, and conflicts of all kinds (including poker) set in motion forces that quickly become unpredictable. Small defects or problems that are present at the beginning can quickly spiral out of control. And if small problems can do this, think what starting out with large problems means.  ~ Zen and The Art of Poker

The first loss is always the best loss. Never forget that!

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. I post my 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.