The Changing Macro

Part Two

After reviewing the world and its woes in the first edition, I will now attempt to delve into that forest so dear to us, the one we devote our days to with the dedication typical of those who love to chart “their own vision of the world.“ How has the macro environment changed over the years? Let’s take an example. George Soros was once skiing in St. Moritz, and while riding the chairlift, he read the Financial Times and discovered that the British government was bailing out none other than Rolls-Royce. Given that Soros’s competitive advantage has constantly been processing information and predicting future developments faster than his competitors, what did he do? As soon as he reached the top of the mountain, Soros ordered his broker to short-sell Gilts, British government bonds. Why? If we look at Soros’s reaction through the eyes of a 2025 macro trader, we will undoubtedly be perplexed, at the very least doubtful about the success of the operation. But why did Soros act this way? He worked this way because he believed that a corporate bailout of that magnitude would cause an increase in the UK’s public deficit and would also require the issuance of additional Gilts to finance it. Therefore, the consequence would be that Gilt yields would have to rise to attract new buyers, and their price would fall; at which point Soros would repurchase them at a lower price than the one at which he had sold them short. This was 1971; another era. But for that time, Soros’s reasoning was flawless: linear, refined, a truly valuable trade, tailored enough to tailor a commercial intention to his vision that ran like clockwork. But back then, what allowed this kind of courageous trade to thrive? This “Soros-brand” trade could yield abundant rewards because it was part of a macroeconomic context whose boundaries were clearly defined, whose players were limited, whose weapons were known and equally limited, and whose scope was limited. There was no risk of incurring the disproportionate intervention of a national government, because at the time, financial markets were not yet considered dangerous enough to require national government intervention. A man like Soros, with his astute intelligence and sharp reasoning, could only thrive in such an environment.

Now, I ask myself, “But what if what happened in 1971 were to happen today?” How would a macro manager react to a British government bailing out Rolls-Royce or any other company in the country? Would today’s macro manager be faced with a situation similar to the one Soros faced? Would today’s macro manager have to muster up courage and take a reckless macro move, one that was still set within a game where the variables are minimal? My answer is “No.” Today’s macro manager could not act as Soros did, for the simple fact that Soros (I repeat) worked in a context in which the number of actors was limited and the cruising speed at which those actors were going was that of a fifty-horsepower dinghy and nothing more. If this scenario were to unfold today, the modern macro manager would find himself in a context in which the number of players is unlimited, their firepower equally unlimited, and their cruising speed absolutely incalculable.

The moral of the story? To each his own. Just as it would be foolish to compare Johan Cruyff to Leo Messi or Michael Jordan to Stephen Curry, it’s equally indecent to compare George Soros to the most profitable macro trader of modern times, Chris Rokos. Let’s try to imagine today’s macro manager faced with the vision of a Rolls-Royce in serious trouble and Her Majesty’s Government trying to dig into its pockets to save it. I’m guessing. Would Chris Rokos sell gilts like George Soros did? I don’t think so, as Chris Rokos would know full well that it would make no sense to sell something that the BoE is likely purchasing in large quantities to keep prices high and interest rates low. And there you have it, the first difference: Soros, in outlining his vision, should have been concerned only with giving free rein to his imagination and asking himself, “What is the consequence of this event?” Soros’s was a macro bet that wasn’t threatened by other variables. The bet that Chris Rokos should consider (in this specific, hypothetical case of Rolls-Royce) would be a bet crammed with additional secondary variables and therefore much more complicated than Soros’s, as Rokos wouldn’t be satisfied with thinking “If this event happens, then this other event will also happen.” I assume that Rokos is tempted to make a bet regarding this Rolls-Royce crisis. I continue to reason. Rokos has just realised that his country is experiencing furious and relentless monetisation and that interest rates are low because someone wants them to stay there. He might think the pound is destined to weaken and therefore decide to sell it and buy the Swiss franc. But are we sure he will do that? I don’t think so. Rokos wasn’t born yesterday; He wouldn’t do it because he would be perfectly aware that the SNB is the most macro central bank on the planet, that is, the one that when it believes its currency is powerful, doesn’t waste time sending signals to the market to direct them, but begins to sell its own currency “without ifs and buts.” As we have just seen, what differentiates the time of George Soros from that of Chris Rokos is that the time of George Soros was the time of “either this or that” and “if this event happens, then the direct consequence of this event is that other event.” The time of Chris Rokos, on the other hand, is the time of “either this or a thousand other possibilities” and “if this event happens, then the direct consequence of this event can be one of these ten thousand other events.” Soros’s greatness lay in rapidly assessing a situation. However, as we have seen, it was still a question of determining “a one-dimensional environment without epileptic speed” and not a three-dimensional environment like the one Chris Rokos (and all of us) faces. This isn’t to undermine Soros’s ability to frame a macroeconomic context perfectly; I mean to emphasise that “it’s one thing to paint the perfect portrait of a sleeping woman, but quite another to paint the flawless portrait of a woman wildly writhing at a rave party.” Soros had to imagine the economic and financial scope of a particular sector (or currency or government bond) based on a straightforward question: “How high could this sector (or currency or government bond) go if this event occurs, compared to its current price level?” Soros could imagine the future event (regardless of whether it actually occurred) because he knew the actors (a limited number) who could trigger that event. He also knew the firepower of that limited number of actors. Today, the situation is no longer so straightforward and is terribly more complicated, since the number of actors participating in the game and their firepower are incalculable.

Last but not least, there’s another difference, far from negligible. Soros’s trading style completely disregarded rigid and precise risk management (the kind most of us grew up with), as it didn’t have to respond to a logic of “if you lose 5% this month, next month your capital will be reduced and you’ll have to reduce your position.” Quite the opposite: if Soros’s position was losing, he increased it, because the only logic he had to respond to was his macro view, a close relative of that of the Oracle of Delphi. For this reason, he could ignore the short term and confidently claim that he didn’t care if a company he’d just bought didn’t make money next quarter, as he was guided by that “oracular macro view that dominated any short-term issues.”

Now, I ask myself: can we still try to anticipate changes in economic trends? Can we do it before everyone else, and therefore before these changes are reflected in prices? Nowadays, while a macro manager is intimately called to make money by thinking about the future, he is also intimately called not to lose money in the present. If we are all under the control of the present today, it is because we absolutely cannot help but listen to the present. While we, as macro traders, are all fascinated by the future, we are also aware that it is with the present that we must primarily deal, because if we don’t emerge unscathed from the “room where we challenge the present” we can also forget about having the opportunity to enter that room where we have the chance to spend a few chips to challenge the future. We all know that the present time is already reflected in the price, but we can’t lose sight of that price, because it’s in the short term in which that price moves that we must earn the money that allows us to play the game that excites us most: the game of the future. In short, as macro traders of 2025, we can’t afford to lose money for eleven consecutive months, all in the name of and on behalf of an incredible gain expected to arrive in the twelfth month. It doesn’t work that way anymore. We may even have the ability to glimpse where the price of a stock will be in two years. Still, two years from now, we can’t afford to incur repeated losses because, before we enjoy the incredible rise in that stock (or currency, or government bond, or commodity) I just mentioned, we will have already lost our jobs. I believe that what today’s macro trader lacks is the ability to rely on “a certain poetics of the macro context” precisely the kind that allowed participants of the past (of which Soros is the most striking example) to place their bets without having to worry about the human/temporal/financial variables that today sprout like mushrooms.

Sir Isaac Newton said, “I do not know what I may appear to the world, but to myself I seem to have been only like a child playing by the sea, amusing myself in finding now and then a smoother pebble or a prettier shell than usual, while the great ocean of truth lay all undiscovered before me.” Even I, who am not worth a toenail of Sir Isaac Newton’s, feel like I’m on the seashore. Occasionally, I find a smoother pebble. Still, when I gaze at the distant sun poking its head into the ocean’s pockets, I can’t help but realise that all around me is an incessant swarm of risks, drafts, gossip, threats, and insinuations that weren’t there at all in the early days of macro trading. I’m not the one to say that “it used to be easier.” I look toward the horizon and recognise that “everything changes.” Likely, none of us will ever be able to bring down the Bank of England again, but it’s equally likely that “someone among us” will find a way to pull off the perfect macro trade, the one never before pulled off. It’s just a matter of imagining it based on today’s satellite coordinates for the macro environment, not a glorious past that will never return.