Druckenmiller Speaks! MMT and Wisdom from Bruce Lee

Alex here with this week’s Macro Musings.

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

Special Announcement —

Tyler will be hosting a live special event on our DOTM option strategy next Thursday, October 4th at 9PM EST,  He’ll be covering exactly how we used our DOTM option strategy to identify and purchase a call option on AMD that went up 2000% since mid-July. He’ll also be covering one of the most difficult parts of trading — when to take profits on a massive winner. Sign up for this event at the link below and make sure to attend live. There will be no recordings!

Click here to sign up for the DOTM Special Event!

Recent Articles/Videos —

Gerschenkron Growth Model Explained — We explain the Gerschenkron Growth Model and how it spells trouble for China.

Convergent/Divergent — Tyler discusses the difference between convergent and divergent trading and how this idea has helped him structure his portfolio.  

Occam’s Razor — Learn why it’s absolutely critical to simplify your trading process.

Articles I’m reading —

The talented Morgan Housel put out a fun read this week titled “Different Kinds of Smart” on the various kinds of intelligence and the benefits/shortcomings of each. Here’s a clip from the piece and the link.

Being an expert in economics would help you understand the world if the world were governed purely by economics. But it’s not. It’s governed by economics, psychology, sociology, biology, physics, politics, physiology, ecology, and on and on.

Patrick O’Shaughnessy wrote an email to his book club years ago:

“Consistent with my growing belief that it is more productive to read around one’s field than in one’s field, there are no investing books on this list.”

There is so much smarts in that sentence. Someone with B+ intelligence in several fields likely has a better grasp of how the world works than someone with A+ intelligence in one field but an ignorance of that field just being one piece of a complicated puzzle.

The WSJ published a great piece of investigative journalism on the strong arm tactics China uses to acquire valuable IP from Western companies. This has been going on for decades and it’s a significant reason why there’s an escalating trade war today.

The article is worth reading in full. Here’s the link and an excerpt.

DuPont Co. suspected its one time partner in China was getting hold of its prized chemical technology, and spent more than a year fighting in arbitration trying to make it stop.

Then, 20 investigators from China’s antitrust authority showed up.

For four days this past December, they fanned out through DuPont’s Shanghai offices, demanding passwords to the company’s world-wide research network, say people briefed on the raid. Investigators printed documents, seized computers and intimidated employees, accompanying some to the bathroom.

Beijing leans on an array of levers to pry technology from American companies—sometimes coercively so, say businesses and the U.S. government.

Lately, I’ve been reading up on an emerging popular economic school of thought called Modern Money Theory (MMT). Here’s a blurb from a post by The Roosevelt Institute which lays out what MMT is all about (emphasis mine).

There is an alternative view propounded by economists following what has been called “Modern Money Theory”, which emphasizes the difference between a currency-issuing sovereign government and currency users (households, firms, and nonsovereign governments) (See here and here). They insist that the notion of “fiscal sustainability” or “solvency” is not applicable to a sovereign government  — which cannot be forced into involuntary default on debts denominated in its own currency. Such a government spends by crediting bank accounts or issuing paper currency. It can never run out of the “keystrokes” it uses to credit bank accounts, and so long as it can find paper and ink, it can issue paper currency. These, we believe, are simple statements that should be completely noncontroversial. And this is not a policy proposal — it is an accurate description of the spending process used by all currency-issuing sovereign governments.

MMT’ers argue that governments should be less concerned with running fiscal deficits, because currency issuing governments can’t default on their debt since its denominated in its own currency which they can always just print more of.

This is factually true and if governments were to spend wisely (ie, invest in high return projects like public infrastructure and education), especially in a counter-cyclical fashion when there’s an increasing amount of slack in the system, then it would likely make sense to run structurally higher deficits.

It’s also not difficult to see how MMT could be taken to the extreme and abused by government profligacy. But whatever your thoughts, it’s important to pay attention to because the idea is gaining traction amongst policy makers — economist Stephanie Kelton, a torch bearer for MMT, is the economic adviser to Bernie Sanders. I suspect we’ll see some MMT influence on policy following the next economic downturn; which will certainly make for some interesting markets for us macro players.

Anyways, here’s a link to the above article and here’s another good write-up on MMT via Bloomberg. It’s worth reading up on and getting familiar with.

Chart I’m looking at —

The economic slowdown in China continues. We’ve been covering this development since the beginning of the year and expect Chinese growth to continue to decelerate significantly going into next year. This is when things should really start getting interesting for emerging markets (chart via Bloomberg).

Video I’m watching —

Kiril Sokoloff interviewed Stanley Druckenmiller for a 90 min chat on Real Vision. I haven’t watched this yet but will be doing so this weekend. Druck is the GOAT and I’m pretty excited to watch this. I’ll take extensive notes and share these with the group.

Book I’m reading —

This week I revisited a book that I read a number of years ago and enjoyed, which is The Warrior Within: The Philosophies of Bruce Lee by John Little.

I’m a big Bruce Lee fan and this book covers his life, his philosophy, and his daily habits and practices. Lee was a deep thinker and achieved an incredible amount considering his short life and the many adversities he faced. There’s tons of practical wisdom in these pages and it’s well worth picking up. Here’s an excerpt:

You must accept the fact that there is no help but self-help. For the same reason, I cannot tell you how to “gain” self-knowledge. While I can tell you what not to do, I cannot tell you what you should do, since that would be confining you to a particular approach. Formulas can only inhibit freedom, externally dictated prescriptions only squelch creativity and assure mediocrity. Bear in mind that the freedom that accrues from self-knowledge cannot be acquired through strict adherence to a formula; we do not suddenly “become” free, we simply “are” free.

Trade I’m considering —

I pitched the bull case for Blackberry (BB) in last month’s MIR. The company came out with earnings today and beat on both revenues and earnings. As of this writing, the stock is up 16+%. The weekly chart below shows a nice breakout of a 9-month bull flag after a long multi-year basing pattern. The fundamentals and technicals suggest this stock is going much higher. I think it takes out its 2013 highs in the not too distant future.

Quote I’m pondering —

Be soft, yet not yielding.
Be firm, yet not hard.

~ Bruce Lee

Be water my friends…

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.

Here’s a link to our latest global macro research. And here’s another to our updated macro trading strategy and education.

 

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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.