Macro trading

Macro trading can be thought of as a simple trinity of considerations:

1) Your views on the economy

2) The market’s view on the economy

3) Policy makers (central banks) views on the economy

When everyone is thinking along the same lines such that 1 = 2 = 3, there is no trade to be had. Also, in many instances 2 & 3 are similarly aligned and unless you have a strong conviction that everyone has it got wrong, it can be psychologically difficult to place a trade. In the current climate, however, there is a large gap between the market’s perception of the economy (and required policy action) and the Fed’s perception. Somebody is definitely wrong. 

Following the weak non-farm payrolls print, the market is now aggressive in its pricing of Fed rate cuts. It is important to appreciate that placing a bearish trade now would be equivalent to making a statement that the market is not sufficiently bearish enough. Fed opinion seems to be quite firmly on the other side, and history suggests that saddling up to the Fed view in times of extremes could prove profitable.

PS – I don’t take macro positions these days, as much as I enjoyed my ego being stroked from calling it ‘right’.

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