Curse of the Macro Tourists
...Every now and again, a phrase catches my ear that perfectly sums up some phenomena. Recently, that phrase has been “Macro Tourist.” I do not recall exactly when I first heard it (nor who can lay claim to inventing it) but I suspect I first noticed it in this Mark Dow post from last summer. Dow was looking at why so many large and well known hedge funds were stinking the joint up. The obvious answer was their leaving a core competency (Value, Activist, Arbitrage, etc.) and jumping into the global Macro style of investing, despite a lack of experience and expertise in that arena. (You will find a short list of Macro Tourists at the end of this post).We've also been down this road:
What is the relationship between the Macro Tourists and last night’s dinner? As the conversation turned to all things Fed, Global, and economic, I found myself wanting to liquidate all of our equities and hide in a cave....
...Why ruinous? Experience teaches that the Macro approach to investing can be very problematic for many people. The first problem is the narrative form, discussed above. But the bigger issue lay with price. How much of the Macro story is truly a Variant Perception? What was discussed at dinner that was not well known, or at least understood by key players? Most importantly, how much of this has already been acted on in the market?...MUCH MORE
From our 2009 post "Paul Tudor Jones Interview at Institutional Investor":
...The advantage and disadvantage of global macro is It Is Not Easy. You have to pay attention and you have to understand the interrelationships of many markets and politics and weather and psychology and be facile in both words and numbers and in an ego-driven business be humble enough to learn the lessons the market will teach you.
It really helps to not take yourself too seriously, both to avoid the temptation to impose your will upon the market and to maintain enough perspective to spot opportunities ahead of the crowd.
Because global macro isn't easy the rewards can be tremendous.In addition to Jones here's another investor who got it but whom one may not want to emulate:
August 3, 2012
Friedrich Engels: Global Macro With an Emphasis on Commodities
Sunday will be the 117th anniversary of Engels' death. Here's some stuff he thought about, in addition to co-writing The Communist Manifesto:
...The minor panic in the money market appears to be over, consols and railway shares are again rising merrily, money is easier, speculation is still pretty evenly distributed over corn, cotton, steam boats, mining operations, etc., etc.
But cotton has already become a very risky proposition; despite what is so far a very promising crop, prices are rising continuously, merely as a result of high consumption and the possibility of a brief cotton shortage before fresh imports can arrive. Anyway I don't believe that the crisis will this time be preceded by a regular rage for speculation; if circumstances are favourable in other respects, a few mails bringing bad news from India, a panic in New York, etc., will very soon prove that many a virtuous citizen has been up to all kinds of sharp practice on the quiet.
And these crucial ill-tidings from overstocked markets must surely come soon. Massive shipments continue to leave for China and India, and yet the advices are nothing out of the ordinary; indeed, Calcutta is decidedly overstocked, and here and there native dealers are going bankrupt. I don't believe that prosperity will continue beyond October or November — even Peter Ermen is becoming worried....
-letter to Marx, 24 August 1852
Here are the bits that precede and follow his market report:
...There seems little doubt about the advent of the crisis, even if the recent bankruptcies were no more than precursors. Unfortunately the harvests in north-cast Germany, Poland and Russia show signs of being passable, and in places even good. Here the recent good weather has likewise borne fruit. But France is still in the soup, and that’s enough to be going on with....The old boy is looking for a famine to get the revolution going:
...At all events, whether a revolution is immediately produced — immediately, i.e. in 6-8 months — very largely depends on the intensity of the crisis. The poor harvest in France makes it look as though something is going to happen there; but if the crisis becomes chronic and the harvest turns out after all a little better than expected, we might even have to wait until 1854.Dude was a straight-up sociopath, know what I'm sayin'?
