Fed Day Trades, The Art of Breath, And Uncomfortable Reality

Chris D here with your latest Friday Macro Musings…

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


Articles I’m reading —

Experiments in Art of Breath written by Brian MacKenzie, Jason Donaldson and Rachael Colacino.

There are side effects as well: less heavy breathing, calmer beings, better sleep. Overall we are becoming less sympathetic dominant creatures. The transition has been awe-inspiring in that we can see how if you overuse any of your body’s systems, you become inefficient and less likely to recover.

The Avoidable War A collection of speeches by Hon. Kevin Rudd

The year 2018 represented a fundamental turning point in U.S.-China relations. While the trade war between the world’s two largest economies drew much of the headlines, a deeper rift was brewing. After 40 years of strategic engagement, during which the United States welcomed China into the international order and supported its economic development, the Trump administration called for a new era of “strategic competition.” Simultaneously, much of the Chinese political establishment was adopting the view that the United States sought to contain China’s rise.

And finally, this very interesting research on China’s ownership of the US Film Industry which might be better illustrated in the Tweet Storm by Lux Capital’s Josh Wolfe. Puts things into perspective, doesn’t it?


Charts I’m Looking At—

This one comes from Quantifiable Edges Blog. It displays the results of a backtest of buying the SPX on Fed Days since 1979 when Paul Volcker was chairman of the Fed.

This is interesting that up until this last Fed announcement, when we had a big rally, it was 0/7 with ol’ Jerry Powell.

Side note: Tyler has a Fed Day strategy that he has thoroughly tested, which is what I used here; not just something I found on the interwebz.

Nearly $3 Billion has flowed into Vanguard’s Total International Bond ETF in 2019 already, bringing total assets to near $16BN. Approximately ⅓ of the fund’s assets are in Japanese and German debt. I interpret that as a short USD bet, and suddenly everyone in and out of macro seems to have an opinion on the direction of the dollar. Two points of interest here: first, according to Morgan Stanley’s FX Matrix, the USD position remains the most crowded currency position and BofAML fund manager survey mentions the 3 most crowded trades in their survey:

  • 1 Long Emerging Markets
  • 2 Long USD
  • 3 Long FAANG+BAT


Book I’m Reading —

After reading about CItadels Billionaire Founder, Ken Griffin’s recent purchase of a $238 Million Dollar NYC Penthouse, the most expensive ever, I was reminded of one of my favorite books.

The Quants, you can it here: Amazon and Audible,

The book goes into the backgrounds of some of the most well known and successful quants like Ed Thorp, Peter Muller, James Simons, Clifford Asness, Aaron Brown and Boaz Weinstein…and their card playing habits.

My key takeaway is about how crowded and thus dangerous successful strategies in the markets can be, and serving as a great reminder of the importance of position sizing/risk management.

Give it a read and let me know what you think!


Podcast I’m listening to —

As host of the Macro Ops Podcast, you might have guessed that I spend a significant amount of time listening to other podcasts while wandering the Montana backcountry. This is where my best thinking happens. Usually, I have a podcast from Tim Ferriss, Joe Rogan or Shane Parrish jammed into my ear holes, as they are some of the best in the business, and always thought provoking.

For this week’s episode of Marco Musings, however, I would like to go back in podcast time to encourage you to have a listen to perhaps one of the greatest stories told. Not the story itself, but the legendary story teller Dan Carlin. For those that don’t know, Dan is the voice of Hardcore History, one of the most successful podcasts ever released. He brings deep insight into what it would have been like to live through some of the most important times in history.

Currently, I am re-listening to the 5 part Blueprint for Armageddon about World War I. Even if you you aren’t a fan of history, I highly recommend this series. A word of warning: don’t start these when you have other things going on; these are highly addictive and last about 5 hours per episode.


Trade(s) I’m Considering —

To be clear, I run a quant strategy, swing trading currencies mostly. My trades are mean reversion trades, not longer term mega moves, though they occasionally end up catching one of the major macro moves. Most of the time they last a few days, up to a few weeks. A big edge in my system is utilizing buy stops to enter on longs and sell stops to enter on shorts. This way the asset has to move in my direction before I even enter the trade and it keeps me out of trades that will never work out.

An even bigger edge is position sizing. I only risk about 1% of my account (as measured by stop loss) on any given trade. With these two factors, I am not, and don’t need to be right all the time.When right, however,  I have plenty of dry powder to increase my exposure as a swing trade turns into a big macro trade.

EUR/USD Long is on my radar and I have a buy stop at 1.13100 on EURUSD with a daily close below 1.12490 as a stop loss. (It must close the days trading below that level to exit, not intraday). If EURUSD doesn’t see 1.13100 before it sees the stop level, I will cancel the trade.


Quote I’m pondering —

I think one should recognize reality even when one doesn’t like it, indeed, especially when one doesn’t like it.

~ Charlie Munger – Poor Charlie’s Almanack

Do you catch yourself yelling at the TV, Twitter or a chart because the market isn’t doing what you think it should be doing? At this point, you must consider that you don’t have all the information or you don’t have the right information.

That’s it for this week’s macro musings.

If you’re not already, be sure to follow me on Twitter:@chrisdmacro or on Instagram @chrisdmacro

Have a great weekend.

 

 

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Brandon Beylo

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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.

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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

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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.