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I'm bored: Macro Hedge Fund PM Q&A

macro bruin's picture
macro bruin - Certified Professional
Rank: King Kong | banana points 1,350

Howdy folks, this market has me bored to tears [edit: I'm truthfully also just having a harder time getting a read on conditions than at any point in my career, so that is prompting both frustration and introspection], and just for work-unrelated reasons, I have a bit more free time on my hands at present. So, as I grasp for meaning in this cold harsh world, I thought perhaps I would derive some satisfaction out of answering whatever questions this community may have.

Don't be afraid to ask a dumb question, though brace yourself for some vitriol depending on my mood. Regardless, I will try to answer stuff. Reluctant to delve too deeply into background. I have worked in HF's for my entire (brief) career. I will not comment on specific funds or individuals ('judge not lest ye be judged'). I don't specialize in any one geography or asset class, though the book has a relatively heavy tilt towards DM. Increasingly involved in vol mkt's. We sort of just do what you'd expect a macro fund to do... rates, FX, credit, some equities and real estate, and really whatever looks interesting. We have done a bit of work that looks more like PE than anything, though that is a tiny portion of activities.

I'm very much a qualitative, discretionary guy (the few, the proud, in macro today) though I wish I had better technical and quantitative ability. My approach is grounded in global history, which has been a life-long passion of mine. I can't guarantee I'll get to all questions.

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Comments (210)

Jun 5, 2017

hours per week average?

thanks macro!

Aug 20, 2018

Depends. I travel a lot (by choice). Problematically small personal/social life, so most waking hours are spent at least thinking about the market. Frankly probably in the 80-100 hour range. But a lot of that time is spent reading, which I would be doing even if unemployed.

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Jun 5, 2017

Could you speak to some stuff you enjoy reading? Maybe anything you think is unique or interesting; not just the usual suspects. Preferably different types of media, books, websites, etc.

Cheers.

Aug 20, 2018

This is something I want to wait to give a more thorough treatment of, as it is a very good question and one I would have appreciated clarity on earlier in career.

The one recommendation I will give for now though, is to develop a network of connections within the HF biz, in academe, across different countries/regions, etc. I can't emphasize enough how crucial it is to use such a filtering system for finding the best of the best reading material, because it is not remotely feasible to read everything that 'looks' good. Being selective about what you read and pay attention to is frankly more than half of the battle, IMHO.

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Jun 5, 2017

Greatly look forward to a post on selective reading + filtering noise. Would also like to know how you think about "knowledge management" - any tips for systematically retaining the main takeaways and how that plays into idea generation.

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Jun 9, 2017

Regarding HF network connections, do you have any (specific!) suggestions. I have a good network on the buy and sell-side after working for PIMCO, and a couple banks. But, I find networking opportunities where HF's are present usually just have a ton of ankle-biters like myself who are trying to make HF contacts. Maybe any paid newsletters, groups with fees, out of the box suggestions?

Jun 5, 2017

As a history student soon to be starting at a distressed HF, your comment on global history resonates with me. What is your thought on why historical context can be so important for understanding markets? Do you have an outlook for the future of discretionary global macro as well as any other popular strategies? I can probably guess your thoughts on the majority of L/S equity from some of your previous comments.

Aug 20, 2018

It's just the tried and true (and cliche!) fact that people don't tend to change their behavior: considering our relative youth the timeline of the history of the universe, we are little changed neurologically from when we were cavemen. So, 'plus ca change...'

I think I've commented before that I'm very bullish on the median returns of discretionary HF's, and very bearish on the size of the industry. While I could spend days on this topic, I basically am a big believer in the power of subconscious processing power. It's probably our only hope of beating machines.

Obviously, I can't comment decisively on the direction of the industry, but I will say with confidence that it is overgrown at present, and the 'slow burn' going on right now is overdue. Too many managers just aren't good at what they do. I just hope I can continue to perform. And if I can't, I don't deserve to stay in business, and as a capitalist, I am ok with that. Only time will tell. (and yeah, anyone who knows me or who has seen my comments knows what I think about 99% of equity funds...)

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Jun 6, 2017

I would quintiple banana this comment if I could

Aug 20, 2018

How do you learn about distressed and practice what you learned? I'm very much interested in distressed credit but I have no idea how to develop experience in the field.

Cash and cash equivalents: $7,286
Financial instruments and other inventory positions owned: $313,129

Jun 5, 2017

Thanks for the AMA! What strategies do you think will suffer the most/least from the outflows that are now going into ETFs?

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Aug 20, 2018

Hard to say. A lot of smart guys have looked into this, especially since it can really fuck a lot of the L/S equity books (low dispersion, and all that). You probably know that in the active management community there's more than enough ETF hate to go around. It's probably mostly because ETF's hurt their feelings and self-worth, lol. I'm not as skeptical as some. Though I am concerned that we just honestly don't know how ETF's will weather a significant downturn. This isn't exactly my wheelhouse. Talk to the ETF analysts or Delta One traders, they have more of an insight into the reconstitution, etc process. I will say, that there's not that much of a relationship between ETF flows and HF flows. The marginal investor in a hedge fund isn't weighing "2/20 fund, or Vanguard index?," they're usually just trying to get us to lower our fees or whatever. You'll see popular actively managed mutual funds (that can't perform net of fees) be the real casualties of ETF's (they're already getting hit pretty hard). We're closed to new money, so luckily I no longer have to concern myself with cap raises or the FoF scene

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Jun 5, 2017

What do you pull in a year, all-in? Ik many are curious but won't ask.

Aug 20, 2018

Won't comment on that, sorry. I make more than I probably deserve, though our clients seem happy to pay (we have weirdly idiosyncratic client base, and it's almost more of a multi-family office at this point. No institutional money, which is a huge advantage imo. UHNWI's for the win!). Fortunate to have lots of my own money in fund, which is bulk of 'comp.'

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Jun 5, 2017

Come on bro, everyone on this website is chasing $. Let's not be coy about it. A range would be perfectly fine if possible. On another note, will Josh Rosen be a total bust in the NFL?

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Aug 20, 2018

I'd hope not everyone is on this site just chasing money... I am nowhere close to billionaire status, but I fly private (fractional ownership), own four homes (though brother lives in one, and parents in another), and have a driver/manservant if that's the sort of info you're looking for (I feel like a dick calling him a manservant, idk what a better word would be... he was a servant of a close friend's acquaintance in India, and was being treated beyond awfully, so friend asked me to do something, and since he spoked English I brought him here, dealt with all the immigration rules BS, and he's been working for me for a while now). So... I have a contract which guarantees me a salary <USD1mm, but as a partner, the salary is negligible relative to profit share and personal $ in fund. I've worked hard and been extremely lucky. I give away a lot of money, and that genuinely feels better than receiving any size paycheck

Unfortunately I don't pay attention to sports... but, Go Bruins?

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Jun 5, 2017
macro bruin:

Unfortunately I don't pay attention to sports... but, Go Bruins?

LA or Boston?

Aug 20, 2018

LA:) Not a UCLA grad, but this is my primary place of residence (I travel so much though, that it honestly doesn't feel like a meaningful distinction)

Jun 5, 2017

..

Jun 5, 2017

if he was, why would you potentially out him instead of PM'ing him this?

Jun 5, 2017

..

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Aug 20, 2018

No that is not me. While I did not have a disadvantaged upbringing, I was not born rich by any stretch. I also did not go to UCLA... sorry to hear Ali was a jerk, I've never heard of him or his fund truthfully

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Jun 19, 2017

Interesting that you point out giving away a lot of money. My wife and I have noticed that the more we donate the more seems to come in. I know that the more you give the more you receive is an old philosophy, but it can't be stressed enough.

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Jun 5, 2017

Insulting won't get you an answer

RIP LEHMAN
RIP MONACOMONKEY
RIP THEACCOUNTING MAJOR

Aug 24, 2018
macro bruin:

Won't comment on that, sorry. I make more than I probably deserve, though our clients seem happy to pay (we have weirdly idiosyncratic client base, and it's almost more of a multi-family office at this point. No institutional money, which is a huge advantage imo. UHNWI's for the win!). Fortunate to have lots of my own money in fund, which is bulk of 'comp.'

Care to expand on why UHNWI is better than institutional?

Jun 5, 2017

Are "qualitative, discretionary guys" a dying breed and can one build a career going forward on this skill set (which I personally find more interesting). Also, what traits do you attribute to your success in the HF world coming up? What did it take to reach PM and what have you learned makes a successful PM?

"Truth is like poetry. And most people fucking hate poetry."

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Aug 20, 2018

Dying breed in quantity, hopefully not in quality. HF's should by definition be a small, niche industry of the most talented minds in finance. In order to get back to that equilibrium, that vast majority of funds today will have to go out of business. That's the harsh reality that most managers are emotionally unwilling/unable to acknowledge.

What it took to become a PM... curiosity and honesty. Things like ambition, networking, grit, etc etc are just prerequisites, and they aren't hard to force yourself to adopt. But if you are not fundamentally introspective, innately curious, and intellectually honest, I do not think it is possible to outperform in macro on a long time horizon. Those of course are broad personal characteristics, rather than specific skills and behaviors. The skill set (your 'tools') are pretty straightforward, but the true value add comes from creative synthesis, not rote application of industry-standard knowledge.

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Jun 5, 2017
macro bruin:

HF's should by definition be a small, niche industry of the most talented minds in finance. In order to get back to that equilibrium, that vast majority of funds today will have to go out of business. That's the harsh reality that most managers are emotionally unwilling/unable to acknowledge.

Why is it the case that the HF industry should consist of only "the most talented minds in finance?" Can you elaborate?

Aug 20, 2018

Yeah, good question. First, two caveats: (1) this is just my opinion, obviously, and (2) 'hedge fund' is a totally arbitrary moniker (yeah, I'm more than aware of the various legal distinctions, but it's just a label you slap on a pool of expensively managed capital). From a purely normative standpoint, it is my belief that pools of capital that charge very high fees (i.e. HF's) should represent a small portion of the universe of actively managed dollars. The magnitude of hedge fund money in recent history has caused a very large wealth transfer from LP balance sheets into managers' pockets, and as we all know, they have been more likely to underperform than over perform net of fees. I don't know if it adds to or detracts from my legitimacy on this subjective issue that I have profited from this wealth transfer. On net, I don't think this is good for the world. I don't have a solution, but if I could engineer a perfect world from scratch, the HF industry would be significantly smaller. I take solace that net of fees, and on a risk-adj. basis, we have done well by our clients (I know everyone says that, but it's statistically true over literally any benchmark for us. 'We're the good guys,' not necessarily doing God's work, but definitely the good guys). So when I say that HF's should be "the most talented minds in finance," I mean that LP's should be more stringent about who they allocate to, but accept high fees for the best of the best, so that on net:
1. the number of Dollars being paid into PM's pockets shrinks
2. the total number of PM's shrinks
3. but the best of the best get paid more.
And if you aren't part of this select elite (and I have no idea if I would make the cut - we have never gone through the agony of a major institutional fundraising drive, fortunately), you either shouldn't manage active money, or you should, but at a substantially lower cost, and with lower risk. Guys are already doing the 'lower risk' part, by LP mandate, but still haven't nailed the 'lower cost' part (though that may be turning around...). Having spent my entire professional life in this fascinating business, this is my belief of what the industry should move towards in the future. The sooner the better.

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Aug 21, 2018
macro bruin:

1. the number of Dollars being paid into PM's pockets shrinks
2. the total number of PM's shrinks
3. but the best of the best get paid more.

That would assume infinite scalability of strategies, which IMHO is not very probably. If anything, smaller funds are making money, while bigger guys are struggling (excluding multi-manager shops like the one I work for - which is, essentially, a loose collection of smaller funds). So maybe the answer from the investor perspective should be to actually cap the max payout to the PMs/managers so the incentive would be to produce alpha rather than gather assets?

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Jun 5, 2017

Would you mind going over a successful (or not successful) trade you've had during your career and how you thought about said trade? Apologies if its too specific a question.

Best Response
Aug 20, 2018

I'll tell a super brief story about a former employee, which is kinda fucking hilarious imo. This weird-looking guy approached me in a hotel lobby in 2011 and starting talking rapid fire about a cocoa short, of all things, without even introducing himself. I'm all ears when someone starts talking markets, so we went back and forth for a really long time - the breadth of his knowledge was astonishing. Then we flew him out to our office a while later, and hired the kid on a month to month basis (he wouldn't take a more permanent contract) after my partner and I met with him for just like an hour (he was in the process of flunking out of grad school, in a weird, totally unrelated discipline). He worked with our guys for a while, mainly on the cocoa thesis. Trade worked out in spectacular fashion (only regret was relatively small position sizing) and he quit several weeks later upon receiving his bonus. Never heard from him since, phone disconnected, hasn't replied to emails. One of the strangest experiences of my life... would do anything to find out where he is now. I'm still confounded by the experience. I keep expecting to hear he's raised a record AUM fund or something, but he's probably like climbing Everest or doing blow in Bangkok. One of the smartest and certainly the strangest man I have ever met. Stranger. Than. Fiction. I'm mostly writing this in the hopes that you're somehow reading this, A, and will fucking reply to my e-mails!

That's a totally unrepresentative example. I'll get into the weeds of my decision making process in normal circumstances in a full post some time in the future. I couldn't do it justice in a brief comment: basically, I rely a lot on all the miscellaneous stuff stored up in the back of my mind, from a lifetime of voracious reading. But that's just the theme - I can describe the steps in the future.

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Jun 5, 2017

Wow. What a story. I really admire these unique characters. Thanks for sharing your story.

Jun 8, 2017

Something I am very curious about.

Why wouldnt you hire an investigator, agency, etc... to find the guy? You're willing to spend hours and money on travelling, meeting policy makers, reading, etc... but don't want to spend resources to find this fella who seemed to be one of a kind. Seems like he could be a terrific asset for the organization.

Anyway, thanks for taking the time for this thread.

Aug 20, 2018

If he wanted to work with us, he knows where to find us. I don't think tracking him down when he doesn't seem to want to be found is a productive endeavor

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Funniest
Aug 20, 2018

The comments... the story... the pay... 100% figured out his identity... This motherfucker's Bobby Axelrod.

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Jun 5, 2017

I once heard that the only two ways to reliably make money are 1. Providing liquidity and 2. Predicting the future. Are you in agreement with the statement and which of the two do you accomplish?

Aug 20, 2018

I think @Martinghoul said that. He's smart and talented at former (though this is based on his comments. I do not know him in real life... or honestly I guess there's a good chance I do and we just don't know one anothers' online personas haha). I'm dumb and occasionally lucky at latter (obviously being overly humble, but I really do usually feel more lucky than skillful...). In all seriousness, yeah I guess I agree, but statements like that are always more about definitions that the statement itself. Another good one I saw somewhere is "everything in macro is about timing and position sizing/leverage" (and position sizing and leverage are the same thing when you think about it)

Basically, we have several talented derivatives analysts with STEM backgrounds who add alpha by providing liquidity in niche markets, coupled with the conceptual views that my guys and I work on. So we do both, but I fancy myself a 'crystal ball' guy. So they're the tactical complement to my strategic ability.

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Jun 5, 2017

Yes, you're right about where I read it. I spend too much time on here.

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Jun 17, 2017
macro bruin:

Basically, we have several talented derivatives analysts with STEM backgrounds who add alpha by providing liquidity in niche markets, coupled with the conceptual views that my guys and I work on.

Care to elaborate on the bolded part of your post? I hope you aren't referring to head-faking day-traders then scalping back to the price they wanted...

Aug 20, 2018

Yeah of course not, there are specialists who actually do that well unlike us haha.

What I mean is that you can reduce the funding basis for most trades by getting cute with structuring because on a short to medium time horizon insurers, hedging desks, and other technical actors move around some of the higher order parameters (greeks etc) by virtue of sort of bumbling about in the OTC (and to lesser extent exchange derivs) space. We just keep an eye out for this when it comes to building position size, and as far as we can tell, it has actually significantly reduced our slippage taken in the broad sense (obviously primary market impact from building a position is the main matter here. this is just icing on top)

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Jun 5, 2017

Do you have a view on the VIX or options surface with respect to the longer term expiries? Confused cash equity stat arb guy and former options quant here.

Alternatively, any views on who the buyers and sellers of vol are right now?

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Aug 20, 2018

Don't have bbg up on my laptop, but was playing around with vol surfaces while bored a while ago, and getting an analyst to walk me through how to interpret the change over time. They even made me some cool visualizations of the surface over time in different asset classes, since I can't write a line of code to save my life. No conclusive view (at least, none that is general enough for me to discuss) on long end expiries. I know plenty of folks buying cheap-ish calls in PA though, and getting railed by theta. I'm probably friends with half of the bid-side of all the dealer gamma selling...

Our vol trades are usually short-term and opportunistic, like a systematic return factor when we're holding lots of cash. Unless coupled with a longer term view (though for longer term, execution usually just in spot), i.e. if we have a 6-12mo long play on something, and vols in that maturity look particularly statistically cheap, we'll couple those views and hopefully kill two theses with one trade, so to speak. We don't play VIX, because the space is dominated by traders with better insight into the niche than we have. The existence of a deep market in VIX futs has definitely tightened the market, and squeezed out a lot of traders. Low vol has been smoking a lot of the stat arb and generally all quant guys. We have however had some great plays on various rate vols going into binary political events (can't comment on specific trades, I'm sure you understand), but again, other people have way more expertise here than I have. We have a small group that focuses exclusively on this and I basically just outsource to them. I'm just a dumb qualitative PM :) I've traded this stuff myself in the past, but traders in the space are so sophisticated nowadays compared to when I was starting out, that you need to be extremely attuned to the pricing of the products, and the behavior of the various players.

What I am good at, is general, big picture views. My broad view on volatility is that as long as there's a consistent CB bid floor (Fed rolling balsheet, BOJ bidding on everything in fucking sight lol, ECB lifting most sovs and credit their gaze falls upon) in the most liquid mkt's, rate vol will be suppressed, so FX and equity vol will be by extension too. What's really crazy is looking at what has happened in term structure vols: i.e. one of my guys was describing to me last night that he was reading about 5s and 10s in USTs trading at 'theoretical limit' around 98% correlation, to vols on that term spread are literally pushing zero... so there might be something there, but idk.

Hard to like long vol as a structural trade, even at these levels, just because it's so damn expensive. A young guy I met put it well a few weeks ago when he described most vols right now as 'too expensive to buy and too cheap to sell.'

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Jun 5, 2017
macro bruin:

Hard to like long vol as a structural trade, even at these levels, just because it's so damn expensive. A young guy I met put it well a few weeks ago when he described most vols right now as 'too expensive to buy and too cheap to sell.'

Thanks for the insight. I don't do this professionally-- just in my PA, but I'm starting to swap out some of my ETFs with at the money calls (where the ETFs have a liquid options market), just as insurance. And it looks like the surface stays pretty darned cheap for expiries a good several months out- I remember a lot more upward slope to it a few years ago.

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Aug 20, 2018

Wait you mean like selling spot ETF you own and buy ATM calls? That's a trade that can make sense to adjust risk profile of part of a PA. Definitely makes more sense than a delta-hedged long call position, which is what I had in mind as being the 'dumb' trade. Still bleeding theta either way, but if its just swapping out of part of long ETF position, that can make sense, as your theta is conceptually just cost of insurance. Logic makes sense. What do you do professionally? I see the 'HF' sticker next to your username

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Jun 5, 2017
macro bruin:

Wait you mean like selling spot ETF you own and buy ATM calls? That's a trade that can make sense to adjust risk profile of part of a PA. Definitely makes more sense than a delta-hedged long call position, which is what I had in mind as being the 'dumb' trade. Still bleeding theta either way, but if its just swapping out of part of long ETF position, that can make sense, as your theta is conceptually just cost of insurance. Logic makes sense. What do you do professionally? I see the 'HF' sticker next to your username

Equity systematic strategies. Just cash. The vol stuff is a hobby these days.

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Jun 5, 2017
IlliniProgrammer:
macro bruin:

Hard to like long vol as a structural trade, even at these levels, just because it's so damn expensive. A young guy I met put it well a few weeks ago when he described most vols right now as 'too expensive to buy and too cheap to sell.'

Thanks for the insight. I don't do this professionally-- just in my PA, but I'm starting to swap out some of my ETFs with at the money calls (where the ETFs have a liquid options market), just as insurance. And it looks like the surface stays pretty darned cheap for expiries a good several months out- I remember a lot more upward slope to it a few years ago.

Why didn't you just buy a put to avoid cap gains taxes on selling the etf? Knowing you, the answer is that it's in an IRA, so it doesn't matter.

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Aug 20, 2018

Dick, we've never met but I'll invest your money for free if you show me where you buried the short-sellers' bodies? And if we ever go to the gym together, I promise I won't punch you in the face

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Jun 5, 2017
macro bruin:

Dick, we've never met but I'll invest your money for tree if you show me where you buried the short-sellers' bodies? And if we ever go to the gym together, I promise I won't punch you in the face

As I'm sure someone with your research capabilities already knows, nobody punched me in the face in any gym. Also, as far as I know, that flaming bag of shit Einhorn is still breathing for reasons that I'm sure would surprise me. Although, I would guess his performance is gargling a bag of cocks at this point when he lost his ability to short and distort when Paulson left (although I may just be hoping, I have no idea).

If you figure out a way for me to efficiently short his fund, I'd be all ears.

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Aug 20, 2018

I was laughing my ass off reading this comment; woman I'm dating(ish) looked at me, annoyed, and asked if I was 'alright.' I read the comment out loud... she did not find it as funny as I did. But she also probably has no idea who Dick 'Gorilla' Fuld is.

Seriously, props to this beautiful piece of prose. And I know some guys who'd be more than happy to structure a short Einhorn product, haha. As for the efficiency of the product... they are Wall Street, Dick, you of all people should know that - only party for whom such a deal would be efficient is the house

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Jun 5, 2017
macro bruin:

I was laughing my ass off reading this comment; woman I'm dating(ish) looked at me, annoyed, and asked if I was 'alright.' I read the comment out loud... she did not find it as funny as I did. But she also probably has no idea who Dick 'Gorilla' Fuld is.

Seriously, props to this beautiful piece of prose. And I know some guys who'd be more than happy to structure a short Einhorn product, haha. As for the efficiency of the product... they are Wall Street, Dick, you of all people should know that - only party for whom such a deal would be efficient is the house

If it was easy, I wouldn't ask.

For future reference, NEVER repeat what I say or write to any female you fuck, want to fuck, or (especially) want to fuck again unless your name is Dick and her name is Sharon. Sharon has gained immunity to my repulsive behavior, but probably no PwP other than her has this trait. Just trying to help.

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Aug 20, 2018

Lmao, again. Kept my mouth shut this time.

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Jun 5, 2017
macro bruin:

Lmao, again. Kept my mouth shut this time.

Like a good macro investor, you're learning.

Let me know when you lower your fees.

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Jun 5, 2017

Won't lie, I couldn't keep a straight face on that one......

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Aug 20, 2018

For you Dick, 3&50

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Jun 5, 2017
macro bruin:

Lmao, again. Kept my mouth shut this time.

unrelated to Sharon and you getting laid tonight (too late for that anyway given what you read to her):

Tell me why this is wrong:

Long dollar: Because treasury yields are higher vs German or Japanese yields where those are shittier countries/credits compared to 'Murica; money seeking dollars drives dollar higher

Long quality: Spreads are shit for high yield; any shock will hurt high yield disproportionately and are not worth the risk (I'd rather buy stock with better upside)

US rates: Struggling with this one a bit, but if you're me with a lot of excess fuck you money, why take the risk of longer bonds? You said something about deflation....are you serious bro? My bet is that the Fed raises rates two more times this year. Won't be a parallel shift in rates, but I could easily see the ten year at 2.5% or more. I have a much higher degree of confidence that the one year will be at 1.5% or higher than the ten year will be below 2.25%.

SB for your thoughts.

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Jun 6, 2017

only one I'll debate is long dollar. when you look at the yield net of FX hedging costs, we're nearly at the point where it doesn't make as much sense for money to be flocking to the US. as far as I've heard, most of the foreign institutional investors hedge out the currency risk, and since (per a FI manager at a big long only shop) hedging costs can run 1.5-2% depending on the country, at some point it doesn't become worth it. take a german 10y at 25bps versus the UST at 2.14. not a huge delta there anymore. the tell will be if we raise rates faster than abroad.

completely agree on high yield

on rates, not really a debate, but look at aggregated forwards curve data over every hiking cycle as well as every easing cycle. the market is perpetually wrong/early: when rates are falling, investors think it'll turn around. when rates are rising, investors think it'll be slower than it actually is. my brain says this fed is too dovish to do more than 3 hikes within the next 12 months, but the contrarian in me says expect the unexpected, and the short end will get hurt more by rate hikes than intermediate. unfortunately I think floating rate is a crowded trade, so there's not a whole lot of places to hide.

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Jun 5, 2017
thebrofessor:

only one I'll debate is long dollar. when you look at the yield net of FX hedging costs, we're nearly at the point where it doesn't make as much sense for money to be flocking to the US. as far as I've heard, most of the foreign institutional investors hedge out the currency risk, and since (per a FI manager at a big long only shop) hedging costs can run 1.5-2% depending on the country, at some point it doesn't become worth it. take a german 10y at 25bps versus the UST at 2.14. not a huge delta there anymore. the tell will be if we raise rates faster than abroad.

Of course it will be about equal with hedges given interest rate parity and all.

That being said the spread between US treasuries and German ten years is fucking YUGE. One would expect that the borderline third world country of Italy would have an interest rate massively higher than the US, yet it is similar. Perplexing, no?

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Jun 8, 2017
DickFuld:
macro bruin:

Lmao, again. Kept my mouth shut this time.

unrelated to Sharon and you getting laid tonight (too late for that anyway given what you read to her):

Tell me why this is wrong:

Long dollar: Because treasury yields are higher vs German or Japanese yields where those are shittier countries/credits compared to 'Murica; money seeking dollars drives dollar higher

Long quality: Spreads are shit for high yield; any shock will hurt high yield disproportionately and are not worth the risk (I'd rather buy stock with better upside)

US rates: Struggling with this one a bit, but if you're me with a lot of excess fuck you money, why take the risk of longer bonds? You said something about deflation....are you serious bro? My bet is that the Fed raises rates two more times this year. Won't be a parallel shift in rates, but I could easily see the ten year at 2.5% or more. I have a much higher degree of confidence that the one year will be at 1.5% or higher than the ten year will be below 2.25%.

SB for your thoughts.

if you overlay a daily chart of JPY/USD (inverse of USD/JPY) vs TY (10yr Note futures), you will see they mostly move together. So you can just talk about one thing, and that is Trump. Treasuries sold off hard after the Trump election, stock indices rallied, USD strengthened, and these moves have not reversed (tho, the move in Rates looks like it has a shot in a flight to safety short squeeze).

So both USD and Rates are a play on the Trump administration.

There are 3-4 big items in play
Tax reform
Healthcare
Entitlement spending
Military

US Debt is a function of all the above.

So, from a macro perspective, US Treasuries sold off after the election because the market decided that Trump would be a big spender (good for stocks), and not raise the revenue to fund it all, requiring the US to expand the debt (increased borrowing should raise rates to accommodate the additional debt supply).

With the recent news regarding Trump and possible impeachment, that reduces the chance for Trump to get his legislative agenda wishlist, and that is why Treasuries have been rallying for the last 3 months (among other things). While i agree that the Fed will raise rates 2 times for a total of 50bps...i think that will just further twist the yield curve, and possibly invert it as the bond market is calling "policy error". There are now approx 100mm adults in the US who are not in the labor force (shadowstats). This is catastrophic. The lost millennial generation. The bond market looks forward to the next stock market crash...when all those unemployed people stop buying stuff on credit cards, and default on all that subprime debt (cc, autos, student loans, and yes, subprime housing)....that will cause corp earnings to drop....and poof....stock mkt cash.

There are a number of things that could trigger this. Debt avalanche from China, civil unrest, the EU disintegrating, war....take your pick. I don't know which will happen (might be something not on the list) but we know with certainty that something bad will eventually happen.

Bond traders/investors have this in the back of their minds. But forget all that...just look at price action.

10yr has been in a 2.14 --> 2.60 range since the Trump election. Enough time has passed for shorts to accumulate around recent levels (playing the recent range...but we just made a triple bottom in 10yr yields...thats not good for the range....its getting time to break). A risk-off event will cause a good size short squeeze (at a minimum 10yr to 2.04%)

Todays 7billon EUR AT&T deal drove TY down 8 ticks...without that, we are just a few ticks from the post Trump low yields going into Thursday's packed schedule. Shorts are not in control (30% of recent JPM survey)...and we have not seen a squeeze yet. Going into last weeks NFP, a majority of survey respondents said they wanted to buy a dip in US Treasuries...but we have not seen one yet...they are still waiting to buy.

You can set a Stop Buy order above the local high (ZNU7 @ 126-29 with an 8 tick stop) to participate in a short squeeze (if i'm right...plenty of room to run, and if i'm wrong...no harm no foul).

You will know the short squeeze when it happens...price will move up fast, and volumes will spike. We have not seen that yet.

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Jun 7, 2017

Did you just use Shadowstats to suggest that nearly 1/3 of the total US population is unemployed?

Good lord...

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Jun 8, 2017

whats the shadowstats unemployment rate now? something like 22% ?

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Jun 8, 2017

regardless...forget all the economic backdrop....10yr yields just made a localized triple bottom
(April 18, May 17, June 6)....there is a decent sized short base, and they are ripe to get squeezed in a flight to safety trade.

Jun 7, 2017

time to stop reading zerohedge

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Jun 5, 2017
DickFuld:
IlliniProgrammer:
macro bruin:

Hard to like long vol as a structural trade, even at these levels, just because it's so damn expensive. A young guy I met put it well a few weeks ago when he described most vols right now as 'too expensive to buy and too cheap to sell.'

Thanks for the insight. I don't do this professionally-- just in my PA, but I'm starting to swap out some of my ETFs with at the money calls (where the ETFs have a liquid options market), just as insurance. And it looks like the surface stays pretty darned cheap for expiries a good several months out- I remember a lot more upward slope to it a few years ago.

Why didn't you just buy a put to avoid cap gains taxes on selling the etf? Knowing you, the answer is that it's in an IRA, so it doesn't matter.

IRA ftw.

Given there's no taxes, my concern is about counterparty risk. No clearinghouse has ever gone bust in the US, but in a crash I feel a little safer with FDIC insured cash and a worthless call option than worthless stock and an insurance policy issued by the cboe.

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Jun 5, 2017
IlliniProgrammer:
DickFuld:
IlliniProgrammer:
macro bruin:

Hard to like long vol as a structural trade, even at these levels, just because it's so damn expensive. A young guy I met put it well a few weeks ago when he described most vols right now as 'too expensive to buy and too cheap to sell.'

Thanks for the insight. I don't do this professionally-- just in my PA, but I'm starting to swap out some of my ETFs with at the money calls (where the ETFs have a liquid options market), just as insurance. And it looks like the surface stays pretty darned cheap for expiries a good several months out- I remember a lot more upward slope to it a few years ago.

Why didn't you just buy a put to avoid cap gains taxes on selling the etf? Knowing you, the answer is that it's in an IRA, so it doesn't matter.

IRA ftw.

Given there's no taxes, my concern is about counterparty risk. No clearinghouse has ever gone bust in the US, but in a crash I feel a little safer with FDIC insured cash and a worthless call option than worthless stock and an insurance policy issued by the cboe.

of course, it was in an IRA. SHOCKING

Even more shocking is that FDIC insures baller cash levels like yours. I thought they only covered $250K.

Play on playa.

And, of course, I'm expecting you to have some waterfall of FDIC coverage across numerous accounts all within one account, because that's what you do. Ever heard of t-bills, by the way?

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Aug 20, 2018

I told myself no markets for a while, but I'm fucking tempted to jump in here.

Only thought I'll add for now is that we agree with the consensus that HY is expensive as fuck. We've had this view for a while, but gotten burned being early in the past, so it's taking all we can do to not put on the trade right here and now. Working with some talented fundamental credit analysts to figure out optimal names to pick off, rather than brute force through index.

And briefly, @thebrofessor, your characterization of long only investors' (pensions, vanilla AMs, etc) FX hedging practice is no longer entirely accurate. It was until fairly recently, but there have been some troubling changes by upper mgt at some SWFs, pensions, AMs, etc. No huge de-hedgings yet, but all signals start as noise. This info is less than clean, because it's not really supposed to get out (these are not conversations I have been a part of), but I've picked up on some rumblings from friends and sell side contacts. Could see some not insignificant fx vol on horizon imo, though this has been my belief for several mos, and you know how that has played out...

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Jun 6, 2017

interesting, I wonder what's driving them to take off of being fully/nearly fully hedged. if that's the case, then the carry trade DF was talking about still works. thanks for sharing

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Jun 5, 2017

I'm very intrigued with the current state of the Middle East (defining it as the Gulf Coast + the Levant) and have spent years reading about the region's history, the current geopolitical and economic situation. When I heard about the news in Qatar this morning, I couldn't help sharing my long term thoughts with anyone that would listen in my office.

Basically, my dream situation would be to cover the ME region across asset classes...or maybe just on a macro perspective. I understand the capital markets there are fairly small, but in what capacity/role in finance should I be looking at to do the above? Sovereign credit?

Aug 20, 2018

Did you write anything on it? If so, please DM me.

Jun 5, 2017

Haven't written anything yet, could definitely do that for you.

Aug 20, 2018

If you're experienced in the region, would love to read. Haven't been impressed by anything sell-side has told me (but what's new, lol) and stuff from journos has been subpar imo

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Jun 12, 2017

read Peter Zeihan - he has a new book out "the absent superpower: world without america"

i've been in commodities whole career (Citadel/Renaissance/DE) and his brief synopsis geopolitically was superb

this is great too: http://zeihan.com/know-your-world/

Jun 5, 2017

Same, would love your thoughts.
btw, I think your ideal route is CIA Analyst to HF Research Analyst

Jun 7, 2017

I'm interested as well. For what it's worth, this was one of the more enlightening things I've read on the topic of late: https://mcalvanyweeklycommentary.com/may-3-2017-sa...

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Jun 16, 2017

GB, thanks for posting that. I just finished going through it and it went into a great amount of detail in the region and how the major players are positioned at the point. Great read!

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Jun 5, 2017

Thoughts on Cryptocurrencies?

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Aug 20, 2018

I may be literally the only person in the industry who is agnostic! So I guess that implies that I'm not bullish on prospects... if I were, I would be concerned about our FX strategies. ''Tis is more a product if ignorance than anything else... BTC has been an annoying headline more than anything else for me. I should probably read more. Please post good resources if you have

Jun 8, 2017

BTC (Bitcoin) can only process max of 7 transactions per second (theoretically)...in practice its really 3 transactions per second.
ETH (Etherium) can process 25 transactions per second (theortically)...in practice its closer to 15
XRP (Ripple) will have no such limit, and is supported by most major banks...and is currently planned to be used for blockchain reporting for transactions in the future (some number of years away)
(imagine how checks clear today...it can take over a week to find that a check was fraudulent...with Ripple, that goes away)

BTC has first mover advantage...larger population of users...used as a store of value to avoid hyper inflation in places like Venezuela where there are few alternatives. Other than the limit of supply caused by the math...nothing else special about it...but BTC was "first" and it has an easy to understand name.

ETH - designed to be the currency used to pay for distributed computing....but can also be used just like Bitcoin as a store of value, and easily transferred from person to person...so technology wise, its a little "better" than Bitcoin.

XRP - designed to be used by banks...same basic crypto, but can be used to process more than just "cash" transactions...can also hash contracts, medical records, really anything identified by data. Also, designed to have no limit on number of transactions that can clear per second...so this will most likely become the crypto that is used by the masses...but it not used yet.

(who would use a credit card to pay at a restaurant if you had to wait hours or days for a purchase to clear?...that's what it can be like to use Bitcoin these days on heavy transaction processing days...ETH clears in about 30min...Ripple would clear instantly...just like a credit card does now)

Last time i checked, using current prices and amount of currency that has been "mined" for each ccy, total value of the cryptos are:
BTC - 40 billion USD
ETH - 20 billion USD
XRP - 10 billion USD

however, since prices are volatile, these numbers change as price changes

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Jun 5, 2017

Thanks for doing this!

As a Qualitative Discretionary guy who excels at the "Big Picture" where does it all start for you. Obviously context is key, but how/where do you start thinking about the world and how do you look at markets relative to this view(s)?

Jun 5, 2017

Thanks for doing this!

As a Qualitative Discretionary guy who excels at the "Big Picture" where does it all start for you. Obviously context is key, but how/where do you start thinking about the world and how do you look at markets relative to this view(s)?

Jun 5, 2017

???

Aug 20, 2018

By definition, I consider an unconstrained mandate to effectively mean that there's no start/end point: it's a continual process of revising (a) beliefs about the nature of reality and (b) beliefs about my past chains of argumentation, which have been expressed in the form of trades.

With that said, I pay attention to:

  • Market beliefs: what are different markets saying they believe is occurring? Different markets will tell you different things, reflecting the characteristics of participants (equities vs credit markets being the obvious example)
  • Historical analogues: what archetypal market conditions are we approximating right now, and where have things typically gone from here?
  • Pricing: What are the implied probabilities of different events, and what risks is the market pricing incorrectly? Sometimes it's easy (i.e. there's an explicit P(x # of fed hikes) at any given time, but the market's assessment of the likelihood of recession in Indonesia or something like that is more of an artfully-derived variable

The intersection of these three things, with an emphasis on how #1 and #3 fit into #2, is I guess how I approach the world conceptually

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Jun 5, 2017

I studied/study NLP in college and have noticed that a lot of hedge funds are using NLP techniques fairly extensively. How much are you using Information Retrieval in your own strategies? You mentioned you read a lot / get your information from misc sources, so it seems that these sorts of techniques could actually be beneficial.

Jun 5, 2017

Thanks for the AMA!

What do you do during the weekends?

Do you think that someone can become a successful investor just from READING and researching the shit out of illiquid securities in unfamiliar regions of the world (without the help of fancy algorithms)?

Aug 20, 2018

Really no such thing as a typical weekend, anymore than there's such thing as a typical weekday. I travel a lot, especially on weekends. I find that the 10x or 100x ideas always come from stranger, more spontaneous places than one will find in research, bbg screens, or any kind of reading. Traveling to meetings, conferences, spontaneous trips to meet with LPs, team building stuff, etc. Gotta take time to recharge too: beaches, skiing, fun trips, relaxing at home. But I'm probably too much of a workaholic, I do at least 10-20 hrs of work-related stuff on weekends...

On latter question, algorithms are just automated decision making processes. Nothing fancy. And yeah, reading and researching the shit out of securities (across liq spectrum) is literally what an investor does all day... If you have money to invest, and you can successfully/accurately value illiquid securities and buy them at attractive prices, you'll make money. That's what investing is! Tot that I would know - I'm a speculator!

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Jun 5, 2017

Any reading materials you would like to recommend?
What's your view on the 10 year?

Aug 20, 2018

Having an extremely extremely difficult time playing UST duration. Horizon is just cloudy for me, and keep flip flopping belief (therefore no significant explicit risk exposure to US rate levels, though we do have some tactical curve trades on which are performing ok). Primary driver of mkt narrative since reflation fade seems to be Fed rolloff prognosis, but I feel like that's more just a product of low conviction on the really important fundamental factors, rather than legitimate belief that a bit of fed selling (or really, just less bidding!) will increase supply tangibly (i.e. the way they're planning the caps, supply impact really just won't be that extreme, if they follow even a comparatively aggressive path of normalization in the long end). If I had to take a swing in one direction, I would be a net bullish on rates based solely on a deflation conviction. But, like I said - extremely low conviction, as I have concerns about the calculation of price indices and how index miscalculation interacts with market interpretation (i.e. what 'actually' drives duration? What the market thinks is happening with consumer prices, or what is actually happening with consumer prices? and if a gap develops between the two? And if that gap were then to close? etc etc). And one more frustrating aspect is interaction between safe haven status and geopolitical developments. I've been reading interesting stuff on ED$ flows, and that's making me increasingly comfortable with owning duration. (Like in the future, if crazy shit starts to actually happen geopolitically, instead of just everyone talking about crazy shit potentially happening on the horizon, what will be the new safe haven? Would it still be the USD if fulcrum of geopolitical risk were in the U.S.? Would it be Japan, with global B/S's assuming neg yielding assets just to shelter their money (in a curr that isn't even that sound structurally imo)? Would it be in the EUR, where there's redenom, etc risk?) These are all questions that I'm considering, but where history, which has never failed me so far, is simply failing to provide a roadmap... I should probably just look harder.

Argh, really sorry for the muddied thinking and stream of consciousness rambling- it's just a long way of saying I have zero conviction on 10s. Part of why I'm going through borderline existential crisis lol

Re reading materials, I don't know how experienced you are. That would make a big difference in recommendation.

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Jun 5, 2017

Not OP but if you're familiar, "Bailouts or Bail-ins?" by Roubini level? I guess a recommendation that you found most helpful, disregarding experience of the reader.

Jun 7, 2017

You're not alone...

IMHO, this sense of puzzlement (and actual wrongheadedness) arnd USD rates and/or USD the ccy is behind the rather underwhelming performance of the macro community YTD.

Jun 8, 2017

...

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Jun 5, 2017

Huh, glad to see it's not just me that's confused. What do you think inflation then?

As for my level, just about to graduate with a short internship at a rates desk. Appreciate anything you think will help someone starting their career

Jun 8, 2017

Spend time outside the internship (so, right now) learning the ins and outs of excel...VBA...interest rate math (bond price --> yield yield-->price), the option greeks (price a list of treasury call and put options...understand vol skew, theta bleed, delta hedging).

Then learn all the basic technical analysis and candlestick chart patterns, so that you can speak intelligently on what the market is doing at any given time. Murphy wrote the bible for technical analysis...read it and apply it every day.

Jun 5, 2017

Thank you for doing this AMA.

  1. What are your favorite book/resources about investing that have helped you the most in your career?
  2. Would you mind giving a range of the size of your fund in AUM?
  3. It seems like your fund is pretty flexible with what it invests in, which sounds incredibly fun, do you guys have a global mandate where you can try to glean value anywhere in the world? I guess a better way to phrase this is, is there anything that your firm would not consider investing in?
  4. Would you mind responding to my PM from a week ago? If it delves too much into background and things like that don't worry.
Jun 7, 2017

Have you ever seen someone with a physical commodity background do well as a PM? I think Galtere's Haugerud started at Cargill but it doesn't seem like any of the commodity focused funds I've heard of have managed to do well for extended periods of time.

Jun 5, 2017

How many years of analyst experience did it take before you became a PM? before Partner?

Jun 5, 2017

Did you attend a "target school?" What'dya study? How'd you get your current role (promotion from analyst, headhunted via another HF, sell-side, etc)?

Aug 20, 2018

Yeah I think it would be considered a target-ish. I was not exactly what you would call a good student though. I wasn't dumb or lazy, just not great with authority or non-work responsibilities (lots and lots of missed classes and late papers). It's kind of crazy, but I have literally never been employed anywhere other than at a hedge fund. Landed first job during fall of freshman year, and haven't looked back since. I studied history and economics (sort of, lol)

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Jun 6, 2017

Could you talk more about your undergrad? How you were able to get your first job at an HF? Did you go to a top LAC by any chance?

Aug 20, 2018

I had been trading and researching since high school, and I met my first employer (an alumn) via a chance encounter. Things kind of took off from there - I've never done any 'networking' or 'interview prep' or anything like that, which probably has feed my conviction that all that matters is value creation... after getting my foot in the door sort of by accident, I never had trouble finding fulfilling work again, because I worked hard and was fairly good at what I did.

Undergrad felt like being a FT employee and PT student. Sometimes I wonder if I should have been more academically focused, but honestly if I had everything to do over again, I don't think there's much I would change (which is a tremendously liberating feeling). It all comes down to filling your days with as much of your #1 choice of activity as possible... all my life that has been learning and macro, and I've managed to build a life where that's what I do all day. So that's my advice for undergrads: life is short, don't waste it doing shit you don't enjoy or with people you don't love (very original, I know).

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Aug 25, 2018

As someone who has also been doing trading and reading a lot about markets since early high school, would you recommend any specific approach to getting your foot in the door these days? I will be starting my undergrad at a target this September (I am 18,5 yrs old) and have kind of abandoned the idea of getting into the hedge fund industry because I have no coding skills whatsoever. I don't want to sound idiotic but my approach to markets is very much judgment based; I suppose because I like researching various securities and trying to find out as much about them as possible. The investment classics which I've read (Alchemy of Finance, Security Analysis among others) might have had a lot of influence on me, though.

Aug 25, 2018

go learn how to code...you are young enough...its pretty easy...you just have to not be lazy and try. There are good and free video courses on youtube. Just pick a language (i suggest python).

just google it...you're welcome

Jun 5, 2017

If your investing strategy is qualitative and based on global history, this must be a busy and exciting time for you I presume? As someone from Korea, I think Korea is a very interesting place at this point in investors point of view. I think you should definitely have a look at investment opportunities here. Any thoughts?

Aug 20, 2018

It's definitely busy, but I would characterize it as more hair-pulling and miserable than exciting. The disconnect now between 'real world' and 'financial markets' (in DM, at least) is stretching our analytic capacity. Maybe we should just hire Jim Cramer, to get more comfortable buying equities at these levels. All the cool kids are doing it, or so I hear.

My partner was actually in Korea recently. Interesting place. Good friend of mine is Korean-American

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Jun 5, 2017

I think you need at your team someone who understands and think like Trump. Also someone who isn't biased about Trump.

Most importantly, you need someone who can understand current Trump's presidency and current shenanigan as a spiritual war between pro-Jew group vs Anti-Jew group. If you don't see this big-picture, I think you won't have a very good chance predicting the market.

Anyways, interesting that you have a friend who is Korean-American. I am sure you've heard a lot about political scandals in South Korea this year! I hear a lot of Americans are hoping similar thing to happen here?

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Jun 7, 2017

a spiritual war between pro-Jew group vs Anti-Jew group.

This isn't Stormfront, bro. Watch yourself

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Aug 20, 2018

You didn't need Jim Cramer. If you accept that the 10 year is 3-4% max long term....and start to believe tre US will never have another recession then it's fairly easy to buy equities as the risks premium is huge.

FWIW Australia hasn't had a recession in 30 years and there's some macro policy developments that can get rid of the recession.

Array
Jun 5, 2017

Who do you look up to in the industry? Who are your heroes (industry or otherwise)?

"Not me. Im in my prime"

Aug 20, 2018

My partner (fmr boss) would be the number one guy. He changed my life. Other than that, the usual suspects and a handful of equally/more successful guys you've never heard of (because they spend a lot of money to keep it that way). I will say that I respect PTJ less than most, and like SAC more than most.

Historically, I'll admit to a soft spot for Jesse Livermore. Gave me inspiration and courage when I was a kid working with and trading against guys many years older than I.

As a history geek, there are many many many others historically, but naming a bunch =/= value add, imo...

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Jun 5, 2017

Awesome. Thanks for sharing and starting the AMA.

Side note: For whatever reason when you mentioned historical figures I immediately thought of Teddy Roosevelt...The Edmund Morris biography series on his life is amazing.

"Not me. Im in my prime"

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Aug 20, 2018

I will have to check those out! I have been reading 1-2 books per week all my life, but still have a library full of books I have been meaning to get to for ages... what's a few more on the shelf? :)

Biographies specifically, have been a huge source of inspiration and guidance to me for as long as I can remember. The provide a template for how to live life to the fullest.

    • 1
Jun 5, 2017

You might like the Macro White biography, Devil in the Kitchen. I've always thought that the work ethnic necessary to be a top chef is comparable to the passion required to be successful in HF land. Plus this guy in particular was pretty eccentric with some demons as well. I think you'd like it.

Aug 20, 2018

Thanks for the rec! I saw a crazy stat, something like that there are fewer Michelin star-rated (any #, 1-3) chefs than there are billionaires in the world. I could be misremembering but I believe it's the case. In any event, I like their food, so will have to add this book to my chronically, ridiculously overcapacity list...

Jun 12, 2017

Red Notice by Bill Browder

Jun 5, 2017

What do you think of Latin America, specifically Brazil and Argentina? My view is that the Argentinian Macri administration is great for the country and for the economy bouncing back, although for a population that has been used to socialist type benefits and having things given to them for years, they would have to be put through some hurting and reduced public fundings in order to get the country back on track. I just don't think that Macri's approval rating will stand and get him re elected. View on rates in Brazil?

View on hedge funds like Bracebridge Capital and others essentially raping the Argentinian public by buying Argentina's junk bonds and "forcing" the country to pay them back, essentially leading to cuts in education, public works, healthcare etc..

View on Goldman Sachs buying Venezuelan bonds last week?

I see the two previous examples as perfectly legal, and the capitalist in you saying its allowed, but pretty scummy and not the way I would conduct business.

What is you view on PIMCO latest secular outlook essay and basically saying that the Global Economy, except USA, is essentially "driving without a spare tire".

thats all for now, thanks for doing this.

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Jun 7, 2017

Very nice, mb...

Jun 6, 2017

I would LOVE to hear your favored resources that you use to keep up to date on the macroeconomic environment and relevant academic research. Also any book recommendations assuming the reader is knowledgeable in econ, stats, etc. Thank you so much!

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Jun 6, 2017

In the past 10 years, what was your fund's worst return %?

Aug 20, 2018

I don't think in those terms, and fortunately our LPs don't either. I could show you scary numbers, like that we lost more than a fifth of the fund on paper in a month once, but that's kind of meaningless, because our biggest losses have always been from catching falling knives or betting on crashes too early (i.e. our bets have gotten marked down by terrifying amounts, but more than made up for ultimately at closure. We never lever to point of getting stopped out in these situations, because that would good and right fuck us). Timing really is the hardest thing.

In terms of realized losses, this year has not been great, because we have been uncharacteristically low conviction in our major themes, so pussied out of a few trades that maybe we should still have on. Down ~4% YTD, realized. Paper losses minimal, mainly because we don't have enough open spec positions to have moved much - we've been trigger happy on closing trades out at the slightest provocation. My actions this year are me at my worst, so maybe none of you should listen to me. Maybe I've lost the touch, or I'm just not built for these mkt's anymore.

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Jun 6, 2017

Is the money worth sacrificing so much of your time? Time is the most valuable/precious commodity there is, we all only have a small allocated amount of time, and its getting shorter and shorter as each second/hour passes. Do you feel that when you're in your later years in life you may regret having spent so much of your time (80-100 hours) in the office?

I know this question might seem depressing, though sometimes it's good to remind ourselves when we get lost in the moment that life is very short.

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Jun 6, 2017

haha this is your first comment

Jun 6, 2017

Yep. Work/life balance in the financial industry seems to be non-existent in the early-mid years for finance professionals. Curious if the salary compensates the sacrifice.

Aug 20, 2018

You win. Best question so far, and the one nearest and dearest to my heart. I've always been what you would call 'precocious,' so this is a question that has actually weighed heavily on me since early in high school.

Especially relative to my position/experience/success, I am fairly young (or maybe I'm just lying to myself because I feel old these days). But basically, this question for me isn't the deep hole of despair which it is for guys in their 60s or 70s, who are still working without deriving any joy from it.

One clarification I should make is that I don't spend 80-100 p/wk in the office. I travel a lot, I meet with policymakers, colleagues at other funds, politics people, academics, clients (as I have alluded to, we are fortunate in having a small number of clients, all with a lot of money in the fund, and all of whom have tremendous insight into markets, politics, and business), etc. I also spend a lot of time reading by myself. The point here being that if I spent 80-100 hours chained to a desk staring at charts and playing with spreadsheets, I would have quit ages ago.

But I love what I do. I have never met a consistently successful manager who does not love the work for what it is. I've always loved this game, and my conviction increases with every passing day, despite the challenges and stress that come with the territory, and these shitty mkt's

So, yes, time > money, 100%. But the best feeling is for money to no longer be something you think about. If I could remake the world, I would live exactly the way I do now, but add some excitement and logic into these fuckin markets. Maybe roll back Volck rule too... I miss my prop buddies and their shenanigans

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Jun 5, 2017

wow what an answer, should b best response

Jun 6, 2017

I congratulate you on your success and you're very fortunate to be in a position where money is not something that dictates your life choices or causes you considerable stress. Many people forgo their dreams being caught up in the daily grind. One thing i can attest to having the best feeling is having the love of a good woman, for that i find myself truly fortunate too!

Take care Macro Bruin!

Jun 6, 2017

Thank you so much for doing this thread, I've learned/laughed quite a bit.
I'm an undergrad going to a non-target school. I want to get a CFA shortly after graduating and get into HF, end goal is to be PM of course. Any advice you can give me based on past experiences or people you have interviewed?
Also, what are some must read books in your opinion?

Jun 5, 2017

cue the "use the search bar!!!!!!"

anyways for must read books, this post basically answers that Q:

https://www.wallstreetoasis.com/forums/best-books-...

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Jun 6, 2017

dont see many people say howdy on the internet, you an aggie?

Jun 16, 2017

@wallstreetoasis Patrick, I didn't get a chance to write up my comments in the site improvements thread so I'm just going to mention it here. It's posts like these that keep me coming back to WSO. Specifically to read an exchange like the one between @macro bruin and @DickFuld . Some of the best stuff I've read on WSO in a while.

Thanks MB for making this thread. There are some great responses here.

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Jun 5, 2017
Grayson:

@wallstreetoasis Patrick, I didn't get a chance to write up my comments in the site improvements thread so I'm just going to mention it here. It's posts like these that keep me coming back to WSO. Specifically to read an exchange like the one between @macro bruin and @DickFuld . Some of the best stuff I've read on WSO in a while.

Thanks MB for making this thread. There are some great responses here.

If you think that was juicy, you should have read the exchanges we had on personal messages. Yowza!!!

@macro bruin my permission to share the exchange, if you feel so inclined. Being the gentleman I am, I already deleted it. Of course, Sharon might have a copy.

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Aug 20, 2018

Go for it Dick
Edit: I spat out my drink when I read you calling yourself a gentleman. You're a truly hilarious guy

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Jun 5, 2017
macro bruin:

Go for it Dick

I'll check with Sharon tomorrow. Like I said, I'm a gentleman and I deleted all of those nasty, nasty comments. Filthy really.

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Jun 16, 2017

I am gripped with anticipation!

Jun 7, 2017

Hey OP, not sure if you're still answering questions but I've got a quick one if you don't mind. Thanks for doing the q/a by the way;

1) What are some skill-sets you look for prospective analysts to have? since its a macro strategy do you care about equity or credit backgrounds (if not whats a good background for an analyst)? how about certain coding skill-sets like SQL, python or vba?

2) do you find most new macro funds (anything on the AUM spectrum) are systematic or discretionary? is it still / (was it ever?) a strategy for geopolitical junkies or has it evolved into more of a quant/systematic field for computer science engineers?

3) what is the usual way of breaking into a discretionary macro shop? I know the cookie-cutter method is the 2-3 stint at BB IB... do you have a thought or two on ways to stand out?

Jun 7, 2017

Thanks for taking the time to do this (and this is relatively gunna be a pretty long post so I understand if you ignore it or tell me to fuck off), as your type of position is the direction I've found myself increasingly veering towards. Reluctantly too, as I know how unoriginal wanting to work at a hedge fund is, even if I know my reasoning is, for lack of a better word, "pure", since it's the type of work I'm drawn towards and not the money itself (although that part seems to be pretty damn sweet).

Anyway, I've been fortunate in my few years out of undergrad, have done some behavioral analytics work for some of the largest companies in the world, and currently do strategy for a portfolio company (well-known within the industry, ~$1B Mkt Cap), where I advise Senior Management on developing market dynamics, new market entry assessments, etc. Like you, I fancy myself a "big picture" thinker and have been fortunate that others have noticed my ability for this type of stuff, even before I have, and have given me plenty of responsibility/ownership because of it.

I also read non-stop, largely economics and history (I'm sure you've already read it but if you haven't, Will Durant's Lessons of History is the shit) and stumbled onto Raoul Pal a short time ago. From there really started getting into Macro Trading and for the first time felt that this could really be my "thing" as trying to figure out how the whole world works is what I'm most passionate about, and yeah I know that sounds geeky as fuck. Anyway, I finally felt "ready enough" to start trading last month and have already profited more than what my annual bonus was, even made friends and family some sizable money with recommendations. Under no illusions that a month of trading makes me a Big Swinging Dick, but again, I keep trying to find reasons as to why this wouldn't work for me but the universe seems to be telling me to just go with it for now.

At this point, I'm confident that your type of role, or something close to it, is what I should AT LEAST aim for as I frankly believe I have the intellectual/precocious ability you mention as being primary, as well as the ancillary stuff like having a good network (although currently limited HF-wise), etc. Thing is, I know there have been others in the same situation that haven't been able to "make it" for one reason another, so if this is what I aim to do, what do you think could be the factors that can potentially get in my way? Any other tips you think would be useful for me in trying to navigate this path would be extremely appreciated. Thanks again!

Jun 8, 2017

What are your thoughts on trading US Treasuries (10yr notes) for 6-8 ticks intraday with some amount (3x-5x) of leverage?

Jun 7, 2017

Hi OP thanks for all the info so far
What do you/your peers think of Ackman, Paulson, and other big stars who are posting abysmal returns. In the past did you think they were skilled investors? Do industry people seem to think they are one shot wonder?

Aug 20, 2018

I said in initial posting that I will not comment on individual managers. I can, however, comment on the generic grouping of 'household name' managers.

  1. As unsatisfying as this answer may be, 'it depends.' Some of them, you meet or work with and conclude 'this is a god among men.' If you haven't had this experience, it is difficult to describe: it's as if they are operating and existing on their own plane, above that of us mere mortals (or maybe I'm just a sucker who drank their kool-aid). Others, you come away thinking 'how the fuck did this guy even get a job in the first place!'
  2. Success is path-dependent. When you trade so successfully that people write books about you, you will inevitably be psychologically impacted. PM's are not accustomed to this lavishing of attention, or prepared for it (in contrast to NBA players, or whoever, where success and celebrity are nearly synonymous). So, in a nutshell, what I have observed is that, if you're so successful that you get a bunch of attention, you get both distracted and arrogant, and you become a target for others (which is a big risk factor for guys who play in illiquid/distressed situations, or who do activist stuff). The biggest issue is just the arrogance - you think you're hot shit, and want to make big ballsy calls, which almost always turn out wrong
  3. You would be surprised by the number of managers who stay below the radar, specifically because they anticipate the risks associated with attention. These managers' long-run risk-adjusted returns are often superior to the big dog household names.
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Jun 11, 2017

Who are the Gods?

Jun 5, 2017

not OP, but tepper unquestionably.

Jun 7, 2017

Anything energy-related interesting to you and your team at this point?

Aug 20, 2018

yes

Jun 8, 2017

also, OP, how long have you been trading your own book?

Aug 20, 2018

To say would make me feel old...

Jun 7, 2017

What, in your opinion, is the best way to get a feel for the macro space or at least the ability to develop some thoughts and ideas in the realm of macro investing? As a complete novice, I find blogs to be a bit too disjointed and 'short'. I enjoy reading and delving deeply into subjects so the more material/depth there is the better.

Unlike a lot of people on here, I don't know if I want to work at an HF or not (i'm not even sure i could at this point), but since what the work life is like sounds appealing to me, I'd like to get at least some feel for the subject matter just to know if it's a goal i should pursue.

Aug 20, 2018
  1. Read sell-side research. Do not rely on it, and never accept their 'projections,' but I still think it is the number one way to get familiar with the thought processes of traders and PM's. You'll get a feel for the more sophisticated side of markets. I don't read it at all anymore, except occasionally to gauge consensus (if I were a trader, I would need the daily mkt color, but fortunately I'm a medium to long term guy), but it was instrumental when I was in high school and college learning the ins and outs of market flow
  2. Read all the classic books, and textbooks. There have been many good lists published.
  3. Trade your own money, after sufficient study. (Or at least work through the process of generating trade ideas)

This will get you up to speed knowing all the consensus/establishment stuff, then those become your tools in doing original and creative analysis. Or, you'll learn all this stuff and decide the business isn't for you.

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Jun 5, 2017

What used to be (or still is) your favourite sellside research? I'm a big fan of Citi but find it a little too clunky and goldmans not too shabby either

Aug 20, 2018

I've never really played favorites. Used to like Soly, but the good guys left long ago.

Honestly not a huge Citi fan. CS and DB both solid imo. I really just don't differentiate much between them, and I spend little time reading them these days. My partner is very connected at Goldman, so we get more access to actually conversations with their strategists than at any of the other banks... Goldman is Goldman.

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Jun 8, 2017

I feel your frustration with getting a read on things lately. Just look at natural gas over the past 30 trading days

Jun 8, 2017

Do you have any recommendations for 3rd year Accountants looking to break into front office finance?

Jun 8, 2017

i know some senior accountants (8-10+ years at the big 4 public firms) that do hedge fund accounting...they have offers to move over to certain types of funds (where asset accounting and valuation has value, such as distressed/vulture investing)...but for more junior people, (as i've been told myself) you need to be able to answer the question "if you look at it from the perspective of the PM...where do you add value?? Why should they choose "you" over the other 20 kids looking for the same spot.

2nd-3rd year Investment Banking analysts have learned to grind thru company info to create comparable (comp) analysis, M&A idea generation, capital efficiency analysis, etc.., which you need to do for long/short equity and vulture/distressed investing, and also private equity...there is a partial accounting aspect to that...but lots of that stuff is not generally what junior public accountants learn to do. Why not try to lateral into IB for 1-2 years? (you would learn the specific skills that those hedge/private equity funds are looking for....and there is a natural recruiting pipeline...and you get paid pretty well to learn..probably more than you make as an accountant)

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Aug 20, 2018

"front office finance" is so vague as to be almost meaningless. Not sure what you're looking for, and advice will vary widely depending on that. If you're good at accounting, and you're also smart, there are opportunities for you across IBD, PE, LS equity, distressed, SSG, etc... but hopefully you already know that.

There are really just two components to moving into a different job function: get yourself considered, and get yourself hired. That sounds tautological, but it's useful to think in these terms: focus on networking/grinding/etc for the former, and actually learning how to add value on the latter...

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Jun 8, 2017

Thanks for doing this.

Two questions: one on your views, and one piece of advice solicitation.

Say central banks get hot on issuing digital currency. Still fungible for users, more able to implement negative rates in monetary policy, easier to track money (anti money laundering implications, sanctions enforcement). Could you see a trade coming out of this? What would you go long/short? An outright FX play, a rates play, or would you think conventional transaction banking goes belly up and short some safe bank credits or stocks?

I'm a history buff (perhaps not so relevant as I primarily engage with pre-WWI Western European monarchies), language nerd, I enjoy macroeconomics more than finance, and in finance I've done both top-down and bottom-up, derivatives and vanilla lending.

How should I position myself with discretionary macro funds - or should I forget about it?

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Aug 20, 2018

Thx for the good question. The issue of a cashless society is an interesting one, which I have been meaning to think about more.

Apart from practicality reasons (which are uncontroversial), the reason CB's get such a hard on for all-digital currencies (in their control, of course - we aren't talking BTC), is that it makes their monetary policy implementation tighter, and allows them to try to suppress economic cyclicality even more (i.e. 'no inflation? set fed funds to -150bps!')... I don't know what the right psychological characterization would be, but probably something like 'control freaks.' It makes monetary policymakers endlessly uncomfortable that there are 'inefficiencies' and 'slippages,' in the system which make their control <100%.

Expansionary monetary policy, whether conventional or otherwise, is basically about pulling spending forward. There are a zillion ways to think about the mechanism, but time value of money has always been the most straightforward way for me. If real rates are positive, that provides a marginal incentive to wait to spend your paycheck. If real rates are negative, that provides a marginal incentive to spend savings or borrow money (same thing, really). In this framework, the whole 'pushing on a string' problem of monetary policy now, is that there's only so much future spending to pull forward, no matter how negative rates go. So even with the ZLB/ELB out of the way as an issue, breaking through that bound by going cashless only gets you so far. These are just super rough, off top of my head, thoughts, I haven't given this adequate thought

I can't verbalize straightforward trades, since cashless-ness would represent regime change of sorts, which is never just one or two trades. I might actually look into this as a project - always best to stay ahead of the curve. If we do produce anything interesting, I'll DM it to you, as a courtesy for reminding me of the importance of the topic.

You sound like a smart guy (glad to see a fellow language buff, I am fluent in 3). Definitely don't abandon HF's. Though your advice request was a bit vague, so not sure how to respond...

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Jun 8, 2017

Thanks macrobruin. I do look forward to seeing such a thought piece, if you end up producing it. Indeed it would represent a paradigm shift, so instead of zero-ing in on one trade/asset class, it might be more fruitful to imagine how the new regime would operate first. Pricing it might require more 2nd/3rd order asset-specific thinking than is usually possible in a cross-asset setting, but I suppose you can't build a house from the roof.

The issue with control-freakism (for the lack of a better word) is that over time it's doomed to fail. They (CBers) can get frustrated with the experience in recent years, in which the transmission mechanism for monetary policy has been clogged, but it's probably wiser to reach the conclusion Bernanke reached - monetary policy can only go so far; the fiscal side has to get its act together. Perfecting the control mechanism isn't the long-term answer. At the risk of choosing a decidedly prosaic and non-Cartesian metaphor (but one I think works perfectly), it's like jealousy and a romantic partner - it's going to backfire/go to rot eventually. I could go on about my views re: central technocratic planning, but it's likely an unsolicited tangent at this stage.

Regarding macro HF's, my current spot on the sell-side is definitely a few steps too removed to be on their radar, and the bridges back to the old spot weren't burnt - they just got shut down/roadblocked.

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Jun 8, 2017

US senate just passed a bill making ownership/possession of crypto currency (or 10k of cash) without reporting it to the US govt a crime under the money laundering umbrella...carries a 10 year prison sentence. Also grants govt and financial institutions ability to perform surveillance activities if they have suspicion that you might possess greater than 10k of cash or crypto currency.

You would be forgiven if you thought this was a law recently passed in Venezuela (and they have a similar law)...but now the US is joining the bandwagon. Yay freedom!!

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Jun 8, 2017

Not surprising considering FATCA and FBAR. The US has been retarded about reporting small amounts of money abroad for a long time.

Jun 8, 2017