The Global Macro Trader and the Use of Macroeconomics

By Vlad Geithner

As the name implies the global macro trader focuses on everything on the globe. This might be a bog statement but it is basically true. Macro traders have to look at stocks, bonds, commodities, currencies, and the G-10 nations at the very least. Most of course look at all these asset classes across twenty to forty countries. They do this so that they have more trading opportunities and can find the best risk reward situations possible.

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.

One good example of a country that is a huge part of global trade but has an economy very much different from the United States is that of Japan. In the early nineties Japan entered a long period of stagflation meaning that they didn't really grow at all for the next twenty years. Their inflation has run at under one percent the entire time and occasionally they have a deflationary quarter. And this after billions of stimulus over the years and the lowest interest rates on the globe.

Obviously if you had decided to invest in Japan without understanding the macroeconomics at play you would have lost a lot of money. In fact without understanding the economics and practicing risk management you would have made no money at all from 1982 all the way to 2009. Yeah stocks for the long run works except when it does not.

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 were tuned into the macro economy you would have noticed the BRIC nations picking up considerably and gone long. You would have bought Brazil, oil, base metals, etc. as the emerging markets expanded at a very fast pace for a while.

Many investors, especially of the value ilk stick their noses in the air when you tell them that the global economy matters. In 2008 they learned that the ways of the macro trader are very powerful and are worth following as most value funds lost at least forty percent and most lost sixty or more.

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. - 23226

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