Simplicity, Aaron Brown, & GE

Tyler here with this week’s Macro Musings.


Our Recent Articles —

Lessons From A Trading Great: Ed Thorp – The latest installment in our super popular Trading Greats series. Throp was the original quant and advantage gambler who destroyed market averages year after year. His wisdom is priceless.

A Bullish Big Picture With Growing Near-Term Headwinds – Our recent “Marcus Trifecta” look at the markets.


Article I’m Reading —

I’m a big fan of Euan Sinclair. He’s written a ton of theory on how to think about options and volatility from a practitioner’s perspective. This is no easy task. Most derivate literature out there is bogged down with fancy academic speak and leaves little for the practitioner.

His latest blog post, Well You Did Ask…, has some great down to earth advice for all aspiring traders.

Here are my favorite excerpts from the post:

And always use the simplest method possible. Trading is a business. Problems are to be solved, not treated as sources of amusement or intellectual challenges. Brute force is often a perfectly acceptable technique.

Since the brilliant work of Sharpe, Markowitz, Treynor and Lintner (apologies for missing out anyone) investors have come to understand the benefits of diversification. Traders need to think differently. From a knowledge perspective, it is very unlikely that anyone will be good at more than one thing. So a trader should try to maximize the value from his one idea.


Video I’m Watching —

It’s very likely Bitcoin is in a huge bubble as we outlined in our latest Bitcoin piece. But there’s a lot of value in listening to the other side of the crypto argument to stress test the bear thesis. Mike Novogratz, former macro trader, now crypto trader has a lot of interesting things to say on the subject.

Bloomberg did an interview with him that you can watch by clicking here.

Novogratz got his start in crypto by buying $500,000 worth of Ethereum when it was trading for less than a dollar.

Over the course of 2016 and into 2017, as ether surged to almost $400 and bitcoin topped $2,500, Novogratz sold enough to make about $250 million, the biggest haul of any single trade in his career. He said he paid tax on the profits, bought a Gulfstream G550 jet and donated an equal amount to a philanthropic project for criminal justice reform.

Must be nice…


Podcast I’m Listening To —

The recent Chat With Traders episode with Aaron Brown was pure gold. It’s a two part episode so make sure to listen to both. Part 1 here and Part 2 here.

Aaron was the former risk manager for AQR — one of the largest quant funds on Wall Street. Before that he made gobs of money trading options on the floor. He also made quite a bit of money playing poker and betting on sports (My kind of guy!)

Inside the episode Aaron discusses how to think about risk — both from a mathematical perspective and an emotional perspective.

If you want even more Aaron head on over to his website at eraider.com. There’s some fantastic stuff on there.

He also wrote a bunch of books that you can pick up on Amazon. My favorite one of his is The Poker Face of Wall Street.

For more podcast recommendations, check out our list of the best trading podcasts here. And don’t forget about our comprehensive reading list for global macro traders and investors either.


Chart(s) I’m looking At —

The latest BofA fund manager survey shows that expectations for a “goldilocks” environment (above-trend growth and below-trend inflation) is at a record high.

What that tells me is this bull trend still has some bullish momentum behind it. But if any incoming data comes in negative it will drastically disrupt this narrative and catalyze a sharp pullback.

I’ll be intensely watching the next growth and inflation data points for an upset.


Trade(s) I’m Looking At —

GE stock has gotten killed lately on news that they are cutting their dividend by 50%. Fundamentally speaking, things aren’t looking too great for GE. But I think investors are starting to overreact to the downside.

The implied volatility in the GE puts has spiked really high making them an attractive sale. I love “fade the fear” trades as they have been the most profitable over the course of my trading career.

I’m currently waiting for a basing pattern to develop before jumping in. It’s a higher probability setup vs trying to catch the falling knife right here.

A short put or short put spread seems like the right trade expression here.


Quote I’m pondering —

“When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.” ~ Paul Tudor Jones

This happened recently in the Nikkei stock index. The candles were slowly trending up for weeks and then out of nowhere a large reversal candle printed.

These volatility signals aren’t the holy grail — but they can help you identify a potential trend change. So listen to PTJ and keep an eye out for them!

That’s it for this week’s Macro Musings.

If you’re not already, be sure to follow us on Twitter: @MacroOps. Alex posts his mindless drivel there daily.

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

Have a great weekend.

Your Macro Operator,

Tyler

 

 

Simplicity, Aaron Brown, & GE

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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.