The Origin of Global Macro Trading
Macro D Guest Article
Just as not everyone is born with the talent of Michael Jordan, in the same way, not everyone is born with the talent of Bruce Kovner. Well, we are here as passionate lovers of the game that Bruce Kovner plays. The game is trading. In this first part of our work, the task we propose is to go to the source, that is, to go where the principle from which the best global macro hedge fund managers in history draw inspiration is located; for this reason, we cannot avoid dealing primarily with the meaning of the term "Origin".
Origin: A Philosophical and Economic Analysis
The origin is a profound and multifaceted concept that can be analyzed from countless angles. From a philosophical point of view, the origin represents the beginning of everything, the foundation on which reality is built. From an economic point of view, the origin is intimately linked to the genesis of financial systems, theories, and practices at the head of the modern world.
Origin in Philosophy
From a philosophical point of view, the origin is a focal theme that has occupied the best thinkers in history since antiquity. Here, I will reference those who, based on my modest experience and reasoning ability, are the most talented philosophers in history. For Plato and Aristotle, the origin was not just a temporal point but a causal principle. What do I mean? Plato argued that the world of ideas originates from material realities, an immutable and defect-free place from which everything else descends. On the other hand, Aristotle introduces the concept of first cause, an unmoved motor that sets the universe in motion without being moved.
For Kant, the origin of our knowledge lies in the a priori structures of the human mind; for this reason, he postulates that time and space are not external realities but pure forms of our sensibility, that is, the mental structures through which we human beings perceive the world.
Martin Heidegger addresses the concept of origin face-to-face existentially. In his extraordinary treatise "Being and Time", Heidegger explores the origin of the human being in the world, not only as a temporal event but as a continuous experience of 'being thrown' into a social context that pre-exists humanity. The origin is understood in this case as a laborious relationship between being and the world, an essential starting point that existence is concerned with constantly bringing to new life.
Origin in Economics
From an economic perspective, the origin can be examined in various ways: we can recognize the origin of money, markets, financial institutions, and even economic theories. Classical economists such as Adam Smith explored the origin of markets and economic institutions. Smith, in his famous work "The Wealth of Nations", attributes the origin of the market to the human propensity to barter and exchange. According to Smith, this natural propensity drives the division of labor and specialization, giving rise to economic growth.
In the 20th century, Keynesian economics decisively led to a new understanding of the origin of economic crises and the state's role in the economy. Keynes, responding in his way to the Great Depression, theorized that the origin of financial crises lies in insufficient aggregate demand. For Keynes, state intervention is crucial to stimulate demand and support the economy during periods of recession.
Interconnections between Philosophy and Economics
Exploring the origin from a philosophical and economic point of view shows deep interconnections. Both philosophy and economics seek to understand the foundations and principles that govern reality, although from different perspectives. Philosophy explores the origin of thought and knowledge, while economics investigates the origin of systems and structures that regulate the production and distribution of resources.
Can philosophy offer a conceptual framework for understanding economic theories? I think so. For example, the concept of cause and effect is basic in philosophy but also essential in economics to understand how certain actions and policies influence economic results. Again, if we consider the notions of justice and equity intimately rooted in philosophy, we recognize that they are also essential to evaluating the ethical implications of economic policies.
Conclusion
Therefore, origin, both in the philosophical and economic fields, is a crucial concept for understanding reality and the dynamics that govern it. From an intellectual point of view, origin explores the fundamental principles of being, knowledge, and existence. From an economic point of view, origin studies the formation of financial systems, theories, and institutions that shape the modern world.
To conclude, while philosophy provides a conceptual framework for analyzing economic theories, economics offers concrete examples for testing and applying philosophical concepts.
Now that we have framed the origin from both a philosophical and an economic point of view, can we finally ask ourselves about the origin of a global macro portfolio manager? I think so.
I believe that at the origin of a successful global macro trader, there is the indomitable spirit of a person who does not need to show herself for what she is not, does not need to put on display everything that concerns him, does not need the world to recognize the kind of talent that he recognizes in himself, does not need the world to confirm from an experimental point of view what he feels from an animal point of view.
At the origin of the portfolio manager who beats the markets, there is a human being who takes on the world because he is not afraid of the world since the intimate certainty that he has towards his creative/decision-making process is the natural fruit of a life span in which he has sincerely declared himself willing to make mistakes regularly. The booming global macro risk taker expresses the best version of himself even when the best version makes him make a mistake. Still, he knows today's mistake is the sowing of tomorrow's accuracy.
Here is where the resilience of the versed investor who beats the markets comes from. It is not just about putting a trade on the market that other trades do not put on the market; it is also about putting it into circulation at the right time and in the correct size. For this reason, the booming trader is an old-school craftsman; he is the tailor who sews the suit of the trade, but he is first and foremost the stonemason who smooths the edges of the trade, and before being the tailor and the stonemason he is the mad alchemist who has the reckless audacity to imagine configurations of the world that are different from the mainstream configurations. But is this enough? I don't think so. The booming macro manager is called upon to remain rational and disciplined regardless of the reckless pressure that he is forced to endure; after all, if you do not have (or cannot have) the strength to withstand the pressure, perhaps the path to take is not the one that makes you become a portfolio manager but a greengrocer.
And now, let's ask ourselves about a characteristic usually punctually associated with those considered the best traders in history. In the eyes of the lay audience, those who earn the most would be the most intelligent people, while those who earn the least would be the least intelligent. Simply put, billionaire traders would all be geniuses. I allow myself to think differently. I believe intelligence has nothing to do with the picture of the end-of-year profit/loss statement. Instead, furiously profitable traders are not extraordinarily intelligent[1] but powerful individuals gifted with independent thought outside the norm and an equally fabulous ability to think contrary to the majority. An extraordinary macro brain is someone who, instead of going through the wide door from which you can glimpse a bright corridor, goes through the narrow, creaking door with an intimidating darkness behind it. In passing through this terrifying door, the trader relies on an immaculate discipline that accompanies him through the mesh of risk without ever losing his calm or his self-confidence since the basis of the first step that led him towards the entrance of that door is the awareness that the choice of that path is the result of a consideration rooted in the deepest of human reasoning.
But the inspiration that leads the risk seeker towards that door may need to be more, even if the choice of that door (of that trade) turns out to be correct). In following the path (in managing the trade), the trader is called upon not to be conquered by the infernal flattery of greed (which is always lurking) that could induce him to postpone the exit in the name of a more significant gain. However, the delay in the exit will evaporate. Inspiration may be enough for a singer-songwriter, but it is not enough for a trader. A trader must choose the correct position size, even better if perfect. A global macro portfolio manager who has his finger on the pulse not only of the world but also of his own profit/loss account is a trader who places trades sized to the capabilities of the account he manages. Everyone wants to hit a home run, but you can't hit a home run if you can't hit a ball with a bat but with a gutter pipe.
Therefore, to the vision of today's world (what is happening from an economic, political, and social point of view) and of what will be tomorrow (what will happen from an economic, political, and social point of view), the macro enthusiast must necessarily add an unbeatable sense of discipline even under maximum pressure. After all, it is one thing to score a penalty on the beach when the goal is made up of two slippers placed one on the right and the other on the left; it is another matter to score the decisive penalty when the score of the match is zero to zero, during the last minute of injury time in the final of the soccer World Cup in front of one hundred thousand spectators crowded in the stands of the stadium and billions of spectators crowded in front of the screens of TVs around the world.
Now, that is PRESSURE.
The spectrum of emotions to which the macro trader is called to respond is innumerable. These emotions include excitement over promising opportunities, confidence over successful trades, frustration during market volatility, anxiety in managing capital, anticipation of market-moving events, elation over profitable results, disappointment after losses, patience during market cycles, the resilience and determination to overcome challenges, the satisfaction in executing strategies, the calmness in the midst of turbulence, and curiosity that drives ongoing research. Additionally, global macro pm-s face fears related to market volatility, geopolitical events, economic data releases, policy changes, liquidity risk, black swan events, underperformance, risk management failures, client expectations, and career risk. These fears reflect the high stakes and responsibilities associated with their roles in global macro investing.
In summary, the formidable global macro portfolio manager, whose origins we have recognized, is equipped with the ability to:
Understand the global macroeconomic, geopolitical, social, and cultural scenario.
Has a profound concept of discipline, which translates into a rigorous use of stop-losses and the use of trade sizes that perfectly align with his real possibilities and not with his illusions.
Has an inner self-confidence and a great sense of independence.
A perfect global macro portfolio manager excels in managing diversified portfolios based on an in-depth analysis of global economic and political trends. The fundamental attributes include a deep understanding of macroeconomics, expertise in the analysis of economic indicators and political implications, and the ability to forecast global economic trends. He has extensive market expertise across asset classes, geographic regions, and sectors, reinforced by analytical and quantitative skills for data analysis, risk management, and financial modeling. He can count on strategic thinking that guides him in the investment strategies that he combines with an indisputable decision-making process and prudent risk management that conforms to the real state of health of his profit/loss account.
Let's delve further into the dark and uncontaminated forest that is the origin of our global macro portfolio manager's reasoning.
We have already discussed the vision, but what did this vision see, and above all, how was it formed?
The global macro portfolio manager has not only a vision in his quiver that is good for all seasons but at least one vision for every season. The macro risk taker is like a phoenix that rises from its ashes every time a trade exhales its swan song, and a new trade is about to come into the world.
• Macro point of view: understanding general economic indicators such as inflation, interest rates, and political changes.
• Top-down approach: starting from global or regional economic trends, then honing the focus on specific sectors or asset classes ready to benefit from them.
• Event-driven: This strategy is not just about reacting to significant events such as central bank decisions, elections, and economic data releases. It's about anticipating these events and being prepared to act when they occur.
He is flexible and can adapt to that of that human being who, after a shipwreck, finds himself alone and abandoned on a desert island and manages to resist there for years until he is found. The macro investor is precisely like that castaway; he knows he is alone and that no one will come to save him. He knows he must make it on his own, and he knows he must survive by relying only on himself (his ability to adapt to the trade and the island) and on what the sea (for the castaway) and the markets (for the trader) will want to offer him. He is an indomitable worker and can endure torment and fatigue that is similar to that of the reserved millionaire who lives with a poverty-stricken lifestyle.
The hard worker has no time to rest on his laurels because he has a vision and is sincerely willing to go to the limits of his possibilities to honor the gift of life and the profession that he is lucky enough to carry out with a job that is impeccable and decidedly out of the ordinary. His exceptional emotional resilience allows him to handle heavy psychological pressures and to remain calm during market fluctuations, even the most furious ones, demonstrating his strength and determination.
He does not go with the flow; he exclusively follows his trading strategy, which he has structured with defined entry and exit rules.
Hard work and perseverance are not the exceptions to which one tries to patch up a negative quarter; they are the norms that force oneself to do something extraordinary every day of the week.
Concentration and discipline are the foundations of an authentic life that permeate the global macro punter from dawn to dusk. It's not about being robotic, but about being disciplined in every aspect of the profession, ensuring that even the slightest distraction doesn't sway from the programmed trading strategy.
The job is undoubtedly a profession that throws the professional who takes on this task into a stormy sea; there is no point in beating around the bush: the waves are very high, thunder and lightning reign supreme in the black skies, the horizon is invisible, and there are countless moments in which everything may seem lost. These are the markets; this is reality. The global macro portfolio manager's fishing does not take place on the shore of a fairy-tale lake:
There is no sun here.
There is no lunch to eat.
There is no rural landscape to admire.
There is none of this.
Here is the trader: the market (the ocean) and his fight (the trade). Yes, we are all Santiago[2], and like the old fisherman, we too go out to sea to hunt for the enormous marlin in the hope that the fight that will see us as protagonists decides to reward us, delivering us to tomorrow even more confident, committed, disciplined, and victorious.
[1] By intelligence, we mean that complex psychic and mental faculties allow us to think, understand or explain facts or actions, elaborate abstract models of reality, understand and be understood by others, judge, and adapt to the environment.( Treccani)
[2] Santiago (the protagonist of THE OLD MAN AND THE SEA: Ernst Hemingway) is an old fisherman who has not caught a fish for 84 days. During the first 40 days, he was helped by a boy named Manolin until his parents decided that the older man was too unlucky and ordered their son not to fish with him anymore. One day, Santiago, going to sea alone, catches a giant marlin, which drags his boat for two days and three nights until the older man manages to kill it. On the way back to the port, the prey is devoured by sharks, and Santiago returns home disheartened by this adventure. Manolin runs to his aid and promises the old sailor that he will return to fish with him.