“Look at it this way. In 100 years, who’s gonna care ?”
- Nancy, waitress, in ‘The Terminator’ (screenplay by James Cameron and Gale Ann Hurd).
Imagine that a cyborg from 10 years into the future paid you a visit back in 2007. Here is what is going to happen, he says, in a thick Austrian accent, his body looking like a condom stuffed with walnuts. After deregulation and a gaudy credit boom, Wall Street will face an extinction level event. So will the City of London. As a result, interest rates will be driven down to zero and kept there for a decade as a “temporary” emergency measure. The UK will vote to leave the European Union. Donald Trump will be elected US President. On the basis of these facts alone, what do you think would happen to global stock markets ? Would they be higher, or lower – and perhaps much lower ?
Since we know the answer, it’s hardly a fair question, and there can in any case be no counter-factual. But this thought experiment does reveal the vulnerability of ‘global macro’ investing in a world in which central banks are almost exclusively calling the shots. Which might explain why an increasing number of ‘global macro’ managers are quietly folding up their tents.
The first requirement to harvest superior long-term returns from the markets is to have some kind of edge. If you do not know what your edge is, you do not have one. It is difficult to see how many (or any) ‘global macro’ managers can possess any form of edge when the financial markets are largely at the mercy of the arbitrary behaviour of monetary central planners, either adding or withdrawing liquidity as they see fit. Which is just one of the reasons why we don’t invest in ‘global macro’ funds.
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