What is global macro? Before we look at how we trade its important to answer the question What is Global Macro? The best answer weve heard is that its simply looking for the best risk- to-reward opportunities in the world. That means that if the Singapore equities look cheap and we can see why they would go up significantly and they present us with a low risk entry, we buy them. If US Treasuries look grossly overvalued and present us with a low risk shorting opportunity, we short them. If US Investment Grade Bonds have the highest yield spread in 30 years and strong balance sheets, we look for a low risk entry and buy them. If the Euro/US Dollar looks relatively cheap and the interest rate differential is favorable, we look for a low risk entry to buy it. Hopefully you see the basic thought process: We are simply going wherever the best opportunities are.

Too many traders across the world only look at their local markets but the truth is that there are great opportunities across the globe. In fact many times they are better then the ones at home. Don’t focus all of your attention on your stock market. Instead focus it on the best opportunities.

Who needs all these asset classes? The financial press talks a lot about the benefits of diversification, but what most people don’t tell you is that most diversification is almost a waste of time. For instance, if you have a portfolio made up of 25% US small cap, 25% US mid cap, 25% US large cap, and 25% US fixed income, you are barely diversified at all. Yes you have your money spread throughout the US economy, but 75% of your money is in US equities. Even worse, is when the press tells you to just buy and hold an index fund. That means that you are trying to do almost as well as the index and that you are always fully invested.

Of course if you believe the school of Chicago thought that the markets can’t be beat then you probably think that being in a US stock index fund such as the SP500 is a good bet and you will sit there. Of course while you may eventually make money doing this you also need a long holding period. What the indexers fail to tell you is that the markets have gone nowhere for 20 years at a time more then once. That means you may have to wait for year sot make any money at all.

Lets look at some of the problems with the by and hold approach. If you buy hold stocks the truth is that you would have suffered negative returns from 1962-1982 and from 1997 to 2008 so far. That doesn’t include the depression or inflation which makes it even worse. So unless you are immortal you will need to find a better solution to reach any financial goals.

Buy and holding an index may be even worse then doing nothing. If you had bought the SP500 10 years ago you would be sitting with a zero percent return right now. If that sits well with you then good luck. You would have made more in a savings account with far less volatility and tax consequences. Buy and holding index funds doesn’t work in the real world.

What you don’t like sitting on losses for 10 years straight? Ok then you will need a new approach. Global macro trading allows you to go where there is opportunity and not sit hoping it knocks on your door. We are out hunting for returns wherever they may be and not where they are not. Look into Global Macro Investing as a strategy and as a way of life.

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