Developing Macro Understanding
Fellow Monkeys,
Like several recent posts, I’m in IB but highly interested in switching into Macro HF in the future. Given my education in international relations & foreign language and my foreign policy-focused profession prior to banking, I’ve always been interested in geopolitics and the macro framework.
After digging around on the forum, I found a thread I’ve started to work from to develop my understanding (1st Year Macro HF Analyst: My Macro Framework). The articles and Twitter accounts referenced have been helpful, but I do have some questions for those more experienced and knowledgeable.
1. Is there a specific path you found to be best in your journey to learn more, such as should I focus on x topic first, then y, etc? Or should I just soak up as much as possible?
2. Any books, blogs, Twitter accounts, or other sources you would recommend?
3. I’ve noticed some funds starting to hire individuals specifically for geopolitical analysis. Any insights into how this group fits in to the overall process? I’ve read geopolitical understanding is great but you ultimately still need the financial understanding.
I would appreciate any help or advice!
Thanks.
Was a dead strategy for so many years.... all of a sudden, global macro hedge funds hit 150%+ gains in 2022 and everyone wants to do global macro now lol. A lot of global macro fund managers got rich overnight (50 mill to 500 mill+ paydays in 2022).
I doubt the fund managers themselves expected to hit a year like this. Barring another COVID like event, I don't think we'll see another outsized return year like this in global macro for another 20-30 years.
The skillset to be successful is quite different compared to PE/IB as PE/IB is more about relationship building at the partner level.
Global macro fund managers are stereotyped to be socially awkward guys. But they usually have a very strong quantitative background (PHD Economics/Stats/Comp Sci/Physics from HYPSM, etc.). Barrier to entry is quite high. Attracts more of the nerdy, 140+ IQ research types.
I personally know more than 5+ who made that. There's def a lot more...
Not sure if it was you who MS'ed, but really I was thinking more towards the higher end of that range that I mentioned (haidar, berger, odey, brevan howard, etc)
Point i'm trying to make is that its a harder industry, fewer spots, etc. and only recently has the strategy outperformed.
Haidar's fund was sub 200 mill just a couple of years back
Agreed. I left the industry during the tough years. You have a generation of macro pawns that entered the industry between 2009-2019 and just got burned. And a hell of a lot more "legendary" risk-takers from the prior era that walked away/ got pushed out/ blew up. Nobody really killed it that decade (at least not the young guys). It was brutal and depressing.
But the last few years made up for that. Guys who stuck around/ survived killed it.
I folded. Maybe I'll grow the balls to re-enter that arena someday -- if I'm afforded the opportunity. Or it's a pipe dream. But I'm not 100% certain that the MMT era is behind us.
If anyone is interested in macro just read a rates book like Burghardt and/ or FX vol book. Read all of bondarb's posts on WSO. Learn Python -- mainly just Pandas and some plotting library. Trade a PA strategically (even paper if you're a broke). And start coming up with trade ideas and pass them around to PMs and sellside desk heads for feedback. Eventually someone will open the door needed. That's what I did and that playbook still likely works.
1) Build a very solid foundation in macroeconomics. I recommend reading "Macroeconomics for Professionals" as a starting point. Then check out one of the two solid books on economic indicators to get a grasp on what data the market pays attention to and the nitty-gritty nuances about them. Finally, skim through “Central Banking 101” and other books about central banking, monetary policy, and such. Make sure you do not get sucked down the political and philosophical rabbithole. You're in this for money and not ideology.
2) You need to have a very strong understanding of STIRS. Pick up a textbook on bond math and get very familiar with concepts like convexity, duration, and the like. Supplement that with Hull (Options and futures) to balance out your product competency. Fabozzi is a good resource too.
3) Understand macro strategies. The pillars of macro are: carry, relative value, basis, trend following/momentum, policy, and "bread & butter" trades. You can express them on rates and FX or their derivatives. Each pillar has an "idea generation" work flow. Don't use chained-logic, make robust arguments instead.
4) Understand that "technicals" in macro mean positioning (in futures) and sentiment (street survey's). More and more this also means option positioning as well. Gammasplode is a term.
Carry: Country A is paying more than country B. Interest rate differentials at play. Buy A sell B.
Relative value: Country A is paying the same as Country B but is far less risky. Buy A sell B.
Basis: Future - Price.
Momentum: Country A currency is outperforming its peers on a 3m/6m basis. Buy it if you believe trend will persist.
Policy: Country A central bank is raising rates. Country B central bank is easing. Buy B sell A.
B&B: Economic activity is picking up in country A, so yield curve should steepen. Buy steepener.
These are very basic examples of trading ideas, but are a good place to start. When I hire a jr person on the team, the first thing they pick up is cross-asset strategy, which is how the major asset classes trade vs. each other. Significant moves in the rates market will correspond to moves in fx and equities as well. This is very key and will help you understand market thinking. Beyond this, practice makes perfect, so just reach out to macro people you know and strike up conversations with them.
Cheers.
Good formal books to read:
Interest Rate Markets: Jha, Siddhartha: 9780470932209: Amazon.com: Books
STIR Futures: Trading Euribor and Eurodollar futures: Aikin, Stephen: 9780857192196: Amazon.com: Books
Foreign Exchange: Practical Asset Pricing and Macroeconomic Theory: 9783030935542: Economics Books @ Amazon.com
Yes you should build an excel model for each type of product and know how to price a variety of outcomes. E.g. EUR/USD 1y1y.
Also here are some other primers that I've found to be useful for getting up the learning curve in the arcane world of galaxy brain macro.
Rates:
Interest Rates Bible: https://www.macrodesiac.com/the-only-guide-to-interest-rates-you-need/
The Ultimate Guide to Bonds Trading: https://www.macrodesiac.com/the-ultimate-guide-to-bond-trading/
FX:
The Deutsche Bank Guide to Exchange-Rate Determination: https://t.co/yBG3aVqiS8
JPM FX Guide: https://www.dropbox.com/s/vx7ukzvk0r666ud/JPM%20FX%20guide.pdf?dl=0
Something else I would note is that it is one thing to understand the the tradecraft and jargon used in FX and rates but another to understand the drivers of these markets. This is a whole post in itself but I can point to towards some resources that I found to be useful. To start I would read, then reread the Piper Sandler's "Interns Guide To Macro." You can find that here. That gives you a great overview of the business and liquidity cycle and how they impact asset classes. I would also recommend that you check out Variant Perceptions blog and YouTube channel which lets you inside the mind (albeit backwards looking) of a top down investor and how they think about the business and liquidity cycle.
I too am a dumb equity guy trying to get up the learning curve so it would be great if the real macro monkeys could throw some of their best resources into the ring.
From my post on: https://www.wallstreetoasis.com/forum/hedge-fund/macro-rates-and-fx#com…