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Global Macro Trading and Macroeconomics


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In case you couldn't tell from the title, macro traders use economics a lot in their search for the best opportunities across the globe. The macro trader trades stocks, bonds, commodities, and currencies. Not only do they trade all four major asset classes but they trade them across the globe. That means that they need to follow at least the G-20 nations. This obviously multiplies the number of markets that they must have a solid grasp of.

Now that you understand that the macro trader covers everything everywhere it should make sense as to why they must understand economics. The macro trader must have a solid grasp of global macroeconomics as well as country specific economics.

Possibly the best example of a country where you need to understand the economic situation is that of Japan. Their stock market is essentially flat from 1982 all the way to 2009. During that time it has gone up ten times and then fallen back and then climbed and fallen again and again. This was not a random occurrence and if you understood the economic dynamics at play it would have made sense to you. Essentially once their bubble burst in the early nineties they entered a period of stagflation and occasionally deflation and they have not had asset growth for thirty years.

If you had bought that great value stock you would be back where you started. Unless of course you had taken the time to understand the macro economic picture before and during the investment. Stocks for the long run works except when it fails disastrously.

Another trade where you could have made a lot of money was in commodities, commodity currencies, and commodity stocks from 2002 to mid 2008. Not only were we coming out of the dot com bust but were also amazingly underinvested in our global natural resources.

If you had been following the global economic environment you would have been able to spot this trend and would have been able to get on board for one of the best trades in the last twenty years. You likely would have bought countries like Brazil and other emerging markets.

Value investors and supposed pure stock pickers are notorious for claiming to not need economics. We only buy stocks they say. Well the truth is that all stocks are part of and are affected by the economy. You can lose fifty percent of your money when a supposed surprise economic disaster happens or look at the signs, see it coming, and profit.

Global macro trading and macroeconomics are very much intertwined and are excellent disciplines for all investors to learn. Don't be close minded and instead broaden your horizon and you will find a lot of money out there.
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