Musings: How To Spot A Fraud, O’Shea’s Market Models, And Words From PTJ And Gang

Alex here with your latest Friday Macro Musings…

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

Special Announcement  —

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And now for the musings…

Latest Articles/Podcasts/Videos —

Your Monday Dirty Dozen [CHART PACK] — I look at price targets following new record highs, check out rising global markets, dissect fund flows to see where capital is headed, look at world equity valuations, and see what’s going on in Putin’s Russia, plus more…

It’s The Downside That Matters — Brandon lays out why it’s so important to focus on your downside first when analyzing an investment citing famed investors such as Klarman, Greenblatt, and Bury to make his point.

Why The Traditional Financial Advisory Model Will Fail — Brandon discusses the secular changes in financial advisory and what players are going to have to do to stay alive and thrive.

Articles I’m reading —

Somebody on the twitters (apologies, I can’t remember who) shared this great report on famed short-seller Jim Chanos. It covers everything from Jim’s start in the business, early lessons learned, what factors make for a good short along with what characteristics make for a successful short-seller. There’s also a number of case-studies of some of his bigger trades. Here’s the link and a section on “How To Spot A Fraud”.

Here’s something cool. Apparently, Hedge Fund Market Wizard Colm O’Shea has a blog (h/t Chris M.). It’s titled Applied Macro, here’s the link. Colm was profiled in Shwager’s last Market Wizards book, my friend Kean Chan wrote up a summary of that chapter here.

He covers a number of things on the blog from politics to psychology, how he approaches hiring and managing people, and then, of course, trading. There’s a bunch of good stuff on there including posts where he shares his framework for various asset classes; like how he looks at FX markets as well as fixed income. It’s definitely worth taking some time digging through.

Charts I’m looking at—

I tweeted this about the bearish setup in bonds the other week which looks to have triggered. I get the sense that we’re seeing the start of a BIG unwind in consensus trades at the moment; trades, which according to BofAML, are highly correlated to the UST 10-year yield. This. Could. Get. Interesting…  (h/t @macrocharts for the chart).

Podcast I’m listening to —

Mark Dow (@mark_dow) was on the Stansberry Investor Hour podcast the other week. I’ve never listened to this podcast before as I’m not a huge fan of Stansberry, personally. But, Mark is one of my favorite follows on the twitters, so I figured I’d give it a listen and was glad I did. Mark covers a wide range of subjects from the big misconceptions over the repo rate hysteria, to the drivers behind negative interest rates, along with his views on gold amongst a few other things. It’s an hour well spent. Here’s the link.

Video I’m watching —

Must watch: Ray Dalio and PTJ sat down and talked shop recently at the Greenwich Economic Forum. They discuss politics, policy, and markets. It’s great.

My one big takeaway though is that man… does PTJ have a poor grasp on macro. That’s not even a knock against him really, just an observation. I mean, he’s still PTJ and I’m just some dude typing away in a van down by the river and all that… And, really, it’s a testament to his trading prowess and how macro is overrated in comparison to cold hard trading skills. Druck is the same way too.

Anyways, it’s a fun watch. Here’s the link.

Book I’m reading —

This week I started reading Trading Price Action Trends by Al Brooks. A number of members of our Collective have been diving into his training lately. I had read one of his earlier books, I think it was Reading Price Charts Bar by Bar a number of years ago, but I thought I’d revisit his work. I’m only a quarter of the way through the book. It’s dense and tends to read more like a textbook than a thriller. But the content inside is excellent.

Brooks is a Trader’s trader. He’s the consummate professional, someone who has spent decades refining his price action-based approach to markets. Brooks does a great job of explaining the reasoning behind various price setups. His work is detailed, thoughtful, and backtested. Most importantly, his emphasis is on the process (ie, how to manage trades) versus focusing primarily on setups.

The book is the first in a three-part series. I’m planning on cracking open the next one as soon as I’m finished with this. Here’s a section from the first chapter.

“If you think about it, trading is a zero-sum game and it is impossible to have a zero-sum game where rules consistently work. If they worked, everyone would use them and then there would be no one on the other side of the trade. Therefore, the trade could not exist. Guidelines are very helpful but reliable rules cannot exist, and this is usually very troubling to a trader starting out who wants to believe that trading is a game that can be very profitable if only you can come up with just the right set of rules. All rules work some of the time, and usually just often enough to fool you into believing that you just need to tweak them a little to get them to work all of the time. You are trying to create a trading god who will protect you, but you are fooling yourself and looking for an easy solution to a game where only hard solutions work. You are competing against the smartest people in the world, and if you are smart enough to come up with a foolproof ruleset, so are they, and then everyone is faced with the zero-sum game dilemma. You cannot make money trading unless you are flexible, because you need to go where the market is going, and the market is extremely flexible. It can bend in every direction and for much longer than most would ever imagine. It can also reverse repeatedly every few bars for a long, long time. Finally, it can and will do everything in between. Never get upset by this, and just accept it as reality and admire it as part of the beauty of the game.”

That should be read and then re-read and then re-read again. Don’t go creating “a trading god”…

Trade I’m considering —

I’ve shared this one a number of times lately because I’m watching it close and I’m about to pull the trigger on it. The stock is Geopark (GPRK), it’s a Chilean E&P with assets located around Latin America. The chart below is a weekly and it’s looking ripe for a run…

The company reported strong earnings yesterday. Here’s a snapshot from the report. The stock is trading on the CHEAP. Its got strong FCF and a solid balance sheet.

Plus, oil itself is starting to look like an attractive long to me, though I’m waiting on further confirmation from the tape. The curve is in backwardation, open interest and long hedge fund positioning has collapsed and inventory growth is starting to come down. Also, not sure if you’ve seen the latest Economist cover but it’s some rendition of the “Death of Oil” narrative that’s now back in vogue.

Keep a close eye on this one.

Quote I’m pondering —

You can’t build in a feedback or reactive model, because you don’t know what to model. And if you do know — by the time you know — the odds are the market has changed. That is the whole point of what makes a trader successful — he can see things in ways most others do not, anticipate in ways others cannot, and then change his behavior when he starts to see others catching on. ~ Richard Bookstaber

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

If you’re not already, be sure to follow me on Twitter: @MacroOps. I post my mindless drivel there daily.

Have a great weekend.

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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.