Macro Is Dead, Long Live Macro

If you read the popular financial press you may be led to believe that because a few macro funds have closed down this year, a few legendary traders have closed their funds over the past few years, and because global macro as a category has done poorly post-crisis that macro is dead.  If we have learned anything post-DotCOM bubble it is that when a strategy has died it is really just coming back to life.

Let’s address the above reasons for macro’s supposed death. The first is that a few prominent funds have closed this year. Everest, COMAC, and Fortress have or are closing their doors. They all got hit hard when the Swiss National Bank blew their EUR/CHF peg earlier this year. Everest basically blew up, COMAC decided to turn into a family office, and Fortress kept fighting the fight in public until announcing a few weeks ago that it is closing up its macro business. Here is the thing though, of the three only one lost “all” their money. COMAC was down something like -8% and decided to turn into a family office while Fortress appears to have been down around -17% before shutting its doors.  Have you EVER heard of a long only equity guy closing up shop after a -8 or -17% drawdown? Have you ever heard anyone say that “the SP500 should be shut down because in the 2000’s it has been down over -50% not once but TWICE? It is kind of ridiculous to extrapolate that an entire category of trading is dead because a few guys were down a bit and decided that instead of dealing with the press they would rather just deal with their personal account.

This segways nicely into our next point regarding “a few legendary traders have closed their funds over the past few years.” To think that macro is dead because Soros and Druckenmiller both returned outside money is ridiculous. Forbes has Soros net worth at like $25 billion and Druckenmiller at $4.5 billion. Now I have no idea if their true net worth is half the Forbes number or double the Forbes number but either way they both have billions, have both been working for a long time, and both can still trade, or not trade, while enjoying whatever they feel like enjoying.  And for those that want to say “but Druck was down -5% when he shut down his fund” my response is you’re an idiot. He returned 30%+ forever, all his investors had net gains, and for all you know by the time the year was closed out he was up double digits. Again being down -5% is not really a big deal. In fact the SP500 was down double digits just a few weeks ago…..and I didn’t hear anyone saying “this is proof that market capitalization weighted indexes have lost their touch.” Oh and in case you are wondering by all accounts Druckenmiller made a bunch of money in 2014 and so far in 2015 so I am pretty sure his “loss of touch” was more his “I am sick of shuffling papers I just want to hang out with my family, trade my own money, and watch the Steeler’s play football.

Investing is different from most other professions in that if you are at the top of your game going private gives you a better chance of outperforming than if you are in the public eye. If you are an athlete, musician, artist, doctor, engineer, etc. you need to see people and do things with people in order to know if you are any good or not. Trading is different in that at the end of the day you can see your returns and you don’t have to care if anyone else does.

The last point, at least for today, is concerning the idea that because global macro has done less than awesome post-crisis it is useless and must be dead. Remember 1998, 99, and 2000? Julian Robertson closed his shop, Warren Buffett was down -51%, and value investing was dead. Yeah I wonder how that turned out. Remember around that same time how commodities had done nothing for what some might refer to as “forever”? Over the next 10 years both value and commodities did awesome. By the way what do both Julian and Warren B have in common? They are both called “value” investors but they have also both traded commodities, derivatives, currencies, and anything else that represented “value” to them. At the same time we have someone like Joel Greenblatt who has always been a stock/bond value guy and a Bill Miller who runs equity only mutual funds.  All of these guys would be lumped into the same value bucket and yet they all invest wildly different and have very different business structures.

Some funds, macro and otherwise, have investors who want very low volatility and decent returns. If you are a pension fund that “needs” 7% a year over time then a 20% year is great but a -10% year is the end of the world. The pension funds goals are steady and consistent returns but they have no need for shoot the lights out performance. Other investors on the other hand give a manager a portion of their money and they expect high returns and understand that usually that entails the potential for more risk. There are many other classes of investors but these two will do in order to make this point. Most hedge funds these days, macro or otherwise, are not playing to the sound of the SP500. They are not in the business of playing to some benchmark that someone from the media picked for them. Instead they are trying to play to the benchmark that they have set with their investors. Some of the investors have no economic incentive to beat the SP500 but instead to match their liabilities…..and this is why, or at least a huge part of why, “hedge funds have under-performed” post-crisis.

With all the different strategies and business models inside of strategy categories it is stupid to lump them all together. One of these days I will write a larger post on why the media gets hedge funds wrong but this is one of the key reasons.

All this is a long way of saying, and I am not sure how well I said it, that global macro is not dead and can’t really die. As long as their are trends, and there always are, there will always be some people on the right side and others on the wrong side of them.

By the way we have seen reports of a lot of managers being up double digits even while other funds are struggling. In the case of our newsletter, and of course I have to tout it, we are up around 14% for the year. We are directional macro looking to take 5-15 positions long and short across stocks, bonds, commodities, and currencies at any one time. If this type of thing sounds interesting to you then please take a trial of our service.

Happy Trading,

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