With Christmas only hours away we thought it appropriate to give Santa something to mull over as he flies around the world giving all the good kids presents.  Here is our Christmas list and to hoping that we were good enough this year to get any of them.

-European leaders to realize that this is more than a liquidity problem.  Alternatively for European leaders to lead instead of the ridiculous statements that have been coming out of that continent for over  year now.

-Democrats and Republicans to find some competence.  Currently they seem to be trying to make stupid seem smart.  We realize that this is a tall order for Santa but if we got this present we would be content for years.

-Correlations to drop.  This past year everything has been trading with a correlation of either 1 or -1, neither of which is conducive to directional trading.  We like buying good industry groups, shorting bad ones, buying certain commodities, and selling others.  This past year has had us either buying “risk” assets or buying USD and Treasuries.  Santa please fix it as this is getting old.

-For the hyper inflationistas to STFU.  Yeah we said it.  I am completely sick of people like Peter Schiff coming on my TV and radio to tell me that hyper inflation is hiding right around the corner.  You have been yelling for four years and so far we have had mild inflation at best.  Please Santa if you would like to shut these people up it would be a great Christmas and New Year.

-Teach financial writers how to write headlines.  ”Market is down .01% on housing numbers.”  If the market barely moved then why do you have to apply a reason for it?  Just say that the market is up x% today and then list off what happened that day.  We don’t need a made up reason that only annoys us.

-An Energy Policy.  We realize that this present is as hard to deliver.  After all since WW2 every single president has said that we will be energy independent in X amount of years and yet after they are in office they do nothing, absolutely nothing.  Even though we realize that this present can’t fit under the tree it would be amazing to finally get it.

That’s it.  We already have our Red Ryder BB gun, our Radio Flyer wagon, a snuggy, etc.  This Christmas we would love for some of these problems to at least be addressed if not solved.  World Peace would also be awesome but we would be more than happy to settle for any and/or all of the above.

Happy Trading,

Dave@TheMacroTrader.com

http://TheMacroTrader.com

Take a $1 trial of The Macro Trader to receive unbiased actionable research.

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We saw this headline-

August is another cruel month for hedge funds-(Reuters) – Most hedge funds lost money again in August as hundreds of managers, including some of the industry’s best-known names, stumbled when stock markets swooned anew.

-and then we laughed.

Hedge Funds are no more an asset class than mutual funds are.  There are several “general” classes of funds investing in anything from stocks to bonds to art.  Long, short, long and short, arbitrage, levered, etc.  There are a gazillion different strategies that are employed so headlines like the above are not helpful for much more then a useless sound bite.  But onto the part that we actually liked.

One line mentioned how Global Macro was up 2.16% for the month of August which would indicate something less then cruelty for hedge funds, including some of the industry’s best-known names, but hey that’s just us.  Anyways how is Global Macro actually doing?  Well depending upon which macro index you use the numbers will be a bit different but for the most part this specific corner of the market is flat give or take a percent or so.  While we, we being our newsletter The Macro Trader, do not try and hug our benchmark it would appear as though this year we have.  In the table and chart below we show how our newsletter had done against the HFRXM and SP500 indexes.  The table has the raw numbers and the chart has the performance of $1,000 year to date. (Click on charts and tables to enlarge)

Performance

$1,000 Invested Year To Date

How do we explain our relatively high correlation to the HFRXM Macro Index?  Well we think that the next chart probably does a good job of answering this question.  But in case the chart is not clear enough the answer is risk management.  Global macro as an asset class has long held up well in any market with a penchant for bad markets.  In other words we tend to outperform in bad markets and do decent in good markets.  In the chart below you can see how our drawdowns compare to the SP500. (Click on chart to enlarge)

Drawdowns Year To Date

A few other observations that may or may not have anything at all to do with the initial subject of this post-

-We have seen few opportunities this year that have warranted an oversize allocation

-The SP500 is way to risky for the returns that it generates

-If markets are efficient how was the SP500 above 1250 for almost a year and then at 1100 a few weeks later

-There is no reason that you need to do what everyone else is doing

-Bill Gross is smart but he too can be wrong

-Warren B is also smart and can also be wrong

-95% of news is noise but we read it all in hopes of recognizing the 5%

-Anyone with the nickname Helicopter Ben is just looking for reasons to drop money from the sky

-If you aren’t at least semi-comfortable in Excel there is a high likelihood that you do not even know what due diligence is

-It is clean looking but so far Google+ is not Facebook

-More Money Than God is a great book

-The New Market Wizard interview of Stanley Druckenmiller is read by this author at least once every month or two

-Major bottoms and tops take more then a few days to form

-Yellowstone is awesome and everyone in America should go at least once every five years

Have a great Labor Day Weekend!!!!!!!!!!!!!!

Happy Trading,

Dave@TheMacroTrader.com

http://TheMacroTrader.com

Disclaimer-We are long Friday both the day and the excellent song by Rebecca Black .

Take a $1 trial of The Macro Trader to receive unbiased actionable research.

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This past week gave us the most bearish reading that we have seen since last October. We dropped from a reading of 36.11% all the way down to 11.11%. Remember that higher readings point to a better outlook for equities.

Right now the only thing that is saying buy equities is that we are very oversold and are likely due for a bounce. Valuations are starting to tick up a bit as SP500 earnings have been dismal at best making the markets P/E ratio to climb a bit. Market internals are in horrible shape with the NYSE and NASDAQ A/D lines going off a cliff the past few weeks. Finally world leaders are simply not leading. In the US Obama, Geithner, and congress have up to now dropped the ball in a big way and have only inspired more selling instead of any confidence at all that they have a clue as to what they are doing. Abroad we have awesome policy makers like Jean Claude “Van Damme” Trichet who is only now coming around to the fact that financial conditions in Europe are horrible. In fact as readers of our weekly letter know we are very bearish on the entire EU as we think there is a good chance that the Euro doesn’t even exist in a few years. If you think that the banking system in the US is on the ledge then take a look at countries like Austria where they are heavily exposed to Eastern Europe.

We are not doom and gloomers but until our supposed leaders start leading we think that the market will have a hard time having a sustained move up. That being said if market internals can consistently improve and we find some leading groups in the market we could have a sustained rally. But for now we are trading small and are really just sitting on a few positions and a large pile of cash looking for rewards that justify the risks.

Happy Trading,
The Macro Trader
Dave@TheMacroTrader.com

P.S.If you are interested in learning more about Macro Trading sign up for our FREE Macro Trading 101 course in the box below.

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The new year has gotten off to a good start so far.  Stocks are up across the board and everything in the corporate bond arena is up strong as investors start leaving Treasuries to find fill their risk appetites.

Our equity risk index is up due to this strength as stocks have been leading the overall bond market the last few weeks.  Another factor that is likely helping this market out is yearly rebalancing of institutional and retail funds.

While this is probably just a bear market rally it likely has a ways to run.  Most bear market rallies stall after they have moved about 20% but we are far more oversold than normal and with it being a new year a lot of the sidelined cash is likely to be put to work.  Of course as always you should be using strict risk management rules on every trade and on your portfolio.

HappyTrading,

The Macro Trader
Editor@TheMacroTrader.com

P.S.-If you want to receive our FREE Macro Trading 101 course just fill out the box below.

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When someone wants to see what we do we usually just e-mail them the last few issues.  We are now offering a 1-month free trial.  If you would like to receive The Macro Trader for one month simply e-mail Editor@TheMacroTrader.com

Happy Trading,

The Macro Trader

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This week our proprietary risk index remained at the same level as last week with a reading of 31.25%. We have been short term bullish and long term bearish for the last few weeks and we expect to be that way into year end.

One thing that we are finding more and more bullish (and extremely hard to quantify) is that the market continues to hold up in spite of more and more bad news. As we know market bottoms rarely occur on good news but actually start in spite of bad news. If this is “A” bottom or “THE” bottom we do not know, and frankly do not care. But we do know that the market is advancing and many indicators that we look at are at least close to becoming bullish. As always use stops and position sizing to help manage your risk.

Happy Trading,
The Macro Trader
Editor@TheMacroTrader.com

P.S. If you would like a free 1-Month trial subscription to our weekly newsletter simply e-mail us at Editor@TheMacroTrader.com with trial in the subject line and you will receive your first issue this weekend.

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Macro Trading has several advantages to regular trading or investing.  Most people either are long only or they trade one asset class.  Instead of focusing on one area of the financial markets, Global Macro Traders focus on the best risk to reward opportunities they can find regardless of asset class or whether it is long or short.  By not tying ourselves to one source of returns we can better balance our risk profile with our return objectives.  Global Macro allows one the flexibility to not be dependent on any one thing or be held hostage by the downside of a particular asset.

Here we are comparing the returns of the Barclays Global Macro Index against the SP500.  As you can see the Macro Index has performed significantly better than the SP500 from 1997 through the end of October 2008.

While the Global Macro Index is currently in a drawdown it is far smaller than that of the SP500. The SP500 is down -37.47% while the Global Macro Index is only down -7.14%.

Anyone that is still tied to the notion that all you need to do is buy and hold has lost money over the last 10 years. While we hope that investors are finally coming around to the idea of absolute returns and risk management, we also realize that investors by nature are irrational and that they will continue to repeat the same mistakes.

We here at The Macro Trader try to generate absolute returns because a relative loss is still a loss. If you are interested in learning more please send us an e-mail.

Happy Trading,
The Macro Trader

If you would like to receive our new FREE course “Macro Trading 101″ put your e-mail in the box below.

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Our stock market risk index did not change this week and remains at 25%. In simple terms the lower the reading the more bearish we are and the higher the reading the more bullish we are. As you can see in the chart we have been fairly bearish for most of the year.

Most of the economic indicators we follow are very bearish, the trend is down, breadth is poor, and money flows are negative.  On the bullish side sentiment is at extreme lows and valuations continue to improve.  We expect a rally here in the next few days but long term are still fairly bearish.

Happy Trading,

The Macro Trader

P.S. If you want to ensure that you receive every update make sure and subscribe by RSS or E-mail by clicking on the RSS button on the right hand side of the page.

P.S.S. This is usually posted by Monday of each week but due to travel delays it was late this week.

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Our stock market risk index did not change this week and remains at 25%. In simple terms the lower the reading the more bearish we are and the higher the reading the more bullish we are. As you can see in the chart we have been fairly bearish for most of the year.

If you have read our previous posts you know our active beta approach to managing some of the model portfolio.  The risk index is one of the primary inputs as to how much to invest.  Our complete model is a bit different but essentially you would invest X% of your account depending upon how bullish or bearish the model is.  Using this risk index you would only have 25% of your money at risk right now.  Since it dynamically changes depending upon what it expects out of the market it is not only a useful timing gauge but also helps measure the proper position size and asset allocation.

Hopefully this short explanation helps some of the answers that we have received lately regarding the risk index.  If you have more questions feel free to e-mail us.

Happy Trading,

The Macro Trader

P.S. If you want to ensure that you receive every update make sure and subscribe by RSS or E-mail by clicking on the RSS button on the right hand side of the page.

P.S.S. This is usually posted by Monday of each week but due to travel delays it was late this week.

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Our Equity Risk Meter essentially measures how bullish or bearish we are towards the US Markets.   The higher the reading the less risk there is in the market and the lower it goes the more risk there is.

Right now for instance the meter is reading 12.5%, which is very bearish.  As you can see we have been bearish for some time now and very bearish since mid June, enabling us to avoid almost all of the downturn in the stock market.  When the meter starts to climb we become more and more bullish and look towards the longside.  For now we are essentially on the sidelines sitting in cash.

We will be posting our risk meter for US equities each week.  If you would like to follow it you can either come to the site each week or simply subscribe to our RSS feed.  Using RSS you will be able to either receive our posts as an e-mail or in your RSS reader.

Happy Trading,

The Macro Trader

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