The Feedback Approach in Global Macro

I was doing some reading about how managers approach finding ideas in the global macro space and I came up on a book (Asymmetric Returns by Alexander Ineichen) which briefly discussed some of the approaches mangers use to finding trade ideas. One of them was the feedback approach which is to play the downward trend as a bubble deflates and the snap-back during a recovery. There's been a lot of this going on lately (what with the credit crunch and equity rally, and oncoming bond crash) and I was wondering if this approach was still common at large global macro players today. I found an interview of guy who seems to use just this strategy (http://www.eurekahedge.com/news/11_july_Interview…) which is quite interesting.

Anyhow, I was wondering if any of you guys knew what I was talking about and if you had anymore real-life examples of people doing this, as well as how viable of a strategy you think this is.

 
Best Response
macro:
Great article. I remember PTJ mentioning in an interview that he likes to play the tops and bottoms, rather than the bulk of the movement in the middle. I'm interested in hearing Bondarb's views on this.

I would be interested to see this interview because I think that most of the great macro traders take the exact opposite approach. Picking tops and bottoms is a very dangerous game because you will often find yourself on the wrong side of big, thematic trades. Think of how many people got crushed trying to pick the bottom in the banks in 2008-2009.

In general I think the article is somewhat interesting but not that substantive...yes, traders try to sell into bubble and buy once prices have started to come back but that is pretty obvious. Of course, knowing when a bubble has popped and when its done popping is pretty tricky business. I also have never heard the term "feedback approach".

The part about using models for currency valuation is also obvious...most traders know the fundamental valuations of the ccy's they trade based on widely used models and use that as part of their investment process. This info is widely available in the same way a stock's PE ratio is well known.

I also find the author's conclusions pretty dubious...since he wrote this article the exact opposite of almost everything he predicted has come to pass!

 

I think that was in market wizards Bondarb.

And macro, if I remember correctly I think PTJ said he usually missed the movement in the middle, hence his preference for tops and bottoms. This was of course, decades ago. Haha.

People like Coldplay and voted for the Nazis, you can't trust people Jeremy
 

This sheds some light on the turns vs. the middle approach for PTJ: http://www.investingdaily.com/id/17995/paul-tudor-jones-best-momentum-b…

"Fade range-bound markets and follow trending markets."

As far as calling inflection points, the long-dated otm option approach of the guys I linked to in my first post seems more realistic. You can only follow the trend once you see it (when you options start killing it).

 

Placeat asperiores minima sint. Quam facilis fuga culpa at culpa beatae maiores. Esse eos excepturi explicabo omnis iste error. Consequuntur nam repellendus cumque nesciunt repellendus perspiciatis. Qui excepturi blanditiis ullam velit est non. Est animi et aut.

Ullam harum consequatur qui modi iste. Ut delectus vel est laborum. Est eum et consequatur officia id. Est impedit aut aliquid officia modi quo velit consequatur.

Career Advancement Opportunities

March 2024 Hedge Fund

  • Point72 98.9%
  • D.E. Shaw 97.9%
  • Magnetar Capital 96.8%
  • Citadel Investment Group 95.8%
  • AQR Capital Management 94.7%

Overall Employee Satisfaction

March 2024 Hedge Fund

  • Magnetar Capital 98.9%
  • D.E. Shaw 97.8%
  • Blackstone Group 96.8%
  • Two Sigma Investments 95.7%
  • Citadel Investment Group 94.6%

Professional Growth Opportunities

March 2024 Hedge Fund

  • AQR Capital Management 99.0%
  • Point72 97.9%
  • D.E. Shaw 96.9%
  • Citadel Investment Group 95.8%
  • Magnetar Capital 94.8%

Total Avg Compensation

March 2024 Hedge Fund

  • Portfolio Manager (9) $1,648
  • Vice President (23) $474
  • Director/MD (12) $423
  • NA (6) $322
  • 3rd+ Year Associate (24) $287
  • Manager (4) $282
  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
dosk17's picture
dosk17
98.9
6
CompBanker's picture
CompBanker
98.9
7
kanon's picture
kanon
98.9
8
GameTheory's picture
GameTheory
98.9
9
DrApeman's picture
DrApeman
98.9
10
Jamoldo's picture
Jamoldo
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”