Narrative Economics, Binaural Beats, and Fed Surveys

Here’s your latest Friday Macro Musings…

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

Latest Articles/Videos —

Making Better Decisions — Chris explains his morning routine which primes him to make the highest quality decisions during the trading day.

The Fed Is Against You: AK explains how the Fed turned against markets and what that means for equity prices.

Articles I’m reading —

Check out this interview the CFA Institute did with Robert Shiller — I especially liked Shiller’s discussion around narrative economics, Traditional economic theory completely overlooks the impact of humanity’s thoughts, mood, ideas, and values on asset prices. And that’s a large reason why economists and the Fed are notoriously horrible at predicting financial market movements. Robert Shiller explains below how he thinks narratives shape economic decision making.

The theme of my book is that there are new ways of thinking that are encouraged by stories that people tell. We communicate through stories that are salient or that appeal to us in our thinking. Typically they have a human interest component and often a political component. They often affect our thinking and our moral judgment. The one thing I don’t hear from economists very often is that people feel that their expenditure patterns or their investment patterns are related to a sense of proper or moral behavior. A lot of curtailments of spending have nuances of boycott in them: “I’m going to boycott these companies.” It’s part of the emotional tenor that companies may face in bad times.

Even though I’ve been studying narratives and changes in human thinking, it’s still relatively new. I believe that economics and finance research will need to be more real‑world oriented and more willing to use information — digitized texts, for example — about how people are thinking and how their thinking changes. We’re not all there yet.

The full working paper on the topic can be found at this link. Here’s the abstract (emphasis mine):

This address considers the epidemiology of narratives relevant to economic fluctuations. The human brain has always been highly tuned towards narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives “go viral” and spread far, even worldwide, with economic impact. The 1920-21 Depression, the Great Depression of the 1930s, the so-called “Great Recession” of 2007-9 and the contentious political-economic situation of today, are considered as the results of the popular narratives of their respective times. Though these narratives are deeply human phenomena that are difficult to study in a scientific manner, quantitative analysis may help us gain a better understanding of these epidemics in the future.

Understanding and dissecting the macro narrative is how Macro Ops generates an investing edge. Because as Shiller says in his abstract above “these narratives are deeply human phenomena that are difficult to study in a scientific manner.” By focusing on interpreting the macro narrative we can play a game that the machines can’t.

Charts —

The chart below shows a collection of US Regional Fed surveys graphed along side the widely watched ISM number. It’s suggesting that the ISM number has further to fall in February’s release.

What does that mean for equity markets? We could be in for a few more months of sideways chop and vol a la’ 2016. It’s time to exercise patience.

Music I’m listening to —

If you need help focusing at work I recommend giving this a try. It’s a 2-hour long youtube video that plays binaural beats and other soothing sounds. While listening I felt a deep sense of relaxation that allowed me to reach a flow state during some deep work sessions this past week. Our new team member Chris D’s a big fan of binaural beats as well. (Check out his newest post here on the subject.)

It’s not for everyone, but I recommend giving it a try the next time you need to crush through some mentally taxing work.

Podcast I’m listening to —

Dr. Peter Attia and Tim Ferriss had an interesting chat about mental health that I found enjoyable. (Link here) They dive into the world of psychedelic drugs and how these compounds have been shown in the newest research, spearheaded by the John Hopkins Psychedelic Research Unit, to dramatically alleviate depression and anxiety. Ferriss has pledged over a $1,000,000 dollars towards this effort.  

Both Tim and Dr. Attia have used psychedelics for therapeutic purposes, and they go through why they think these experiences have helped them immensely in the show. This type of stuff isn’t normally talked about by high profile people. Their candidness was refreshing.

If you want more advice on health and longevity techniques I, recommend checking out Dr. Peter’s website here.

Trade I’m looking at —

The short vol trade has popped back up on my radar. VIX dropped from a high of 36 on Christmas Eve all the way down to 20. And realized vol in the S&P has started to contract as well. This trend change has me stalking the volatility products for a setup.

I noticed that VVIX — or vol of vol has been trading in the bottom of its range which is unusual. When VIX rips and SPX tanks usually options on the VIX derivatives become more expensive. But that didn’t happen in this latest sell off.

This makes buying optionality on the volatility complex attractive. My ideal entry would be on a retrace of the current leg down in VXXB. (VXX is getting delisted at the end of the month and VXXB will take its place.)

If price shot back up to those levels I would look at the buying the June 41 puts in VXXB. Going long VXXB puts allows us to short volatility in a risk defined way. And if the market stays propped up from here until summer, vol will contract nicely and these puts will show a hefty gain.

Quote I’m pondering —

Bulls make more money than bears, so if anything being an optimist about life and about things in general is a great attribute to have as an investor. You just can’t be starry eyed and naive. ~ Stanley Druckenmiller

I thought this was a pretty strong statement coming from someone who’s made a lot of money in bear markets. It’s okay to get bearish from time to time, just don’t stay that way for too long. Economies, nature, and mankind are naturally wired to grow, don’t fight that trend.

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

Have a great weekend.



Subscribe To Our Newsletter

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.