balance of payments
desempleo y nonfarm payrolls
informe de petroleo
fomc statement y minutes
napm chicago barometer
empire state survey
Philly fed survey
consumer sentiment (necesita registro)
How do you approach trading currencies in a global macro context?
To me, foreign exchange is not a true macro strategy. It’s the tail of the distribution.
There is only one true macro trade and that’s the price of
money. Everything else is a function of the price of money.
Central banks control the price of money and drive everything with
their central bank rate. They use monetary policy to get supply and demand
moving in the economy by encouraging people to move out along
the risk curve.The risk curve, in essence, is the credit curve.
Of course fiscal policy is controlled by government, so we also keep
that variable in mind when looking at the current and future prices of the
assets we trade.
Meanwhile, monetary policy has high correlation among the G10, with
the exception of Japan, because they’re all driven by the same thing.There
is really only one central bank and that’s the U.S. Federal Reserve.The Fed
sets the price of money.
In actual practice, the price of money is not the Fed’s overnight rate but
the interest rate that corporations use to evaluate investment opportunities.
I would argue that’s the 18-month to two-year interest rate. From
there, you move out along the risk curve to government bonds, corporate
bonds, and then equities. At the tail end, you have foreign exchange (FX)
Foreign exchange is like the fan at the end of the credit curve. It’s a
function of how people are looking at those credits along the curve. For
example, if the market decides that Brazil is a great credit, then other
things being equal I’d expect the Brazilian real to rally because people have
to go in and buy it if they want exposure to Brazil.
So, currencies are essentially beta on interest rate sentiment?
Yes.They are beta on interest rate and credit sentiment, or beta on beta.
Foreign exchange is sentiment driven because it’s a relative price between
two countries. It reflects the relative sentiment of investors, reality and the
perception of a bunch of different factors between two economies.
In managing my portfolio, I spend most of my time concentrating on the
Fed because it is responsible for encouraging people to invest and move out
the risk curve. It doesn’t want everybody so scared that all they do is deposit
their money in short rates. Economies don’t expand in that scenario.
Consequently, we are very directional. At most, there are only three or
four macro trades in the world at any one time. If there is only one, then
we’ll only have one trade on.Those three or four macro trades, apart from
the cost of capital, are what the bond markets are doing, what the equity
markets are doing, and what the dollar is doing.
The dollar in a broader sense only trades against three blocs—Europe,
Asia, and Latin America—and rates/prices within those blocs correlate. It
would be unusual to see the Chilean peso and Brazilian real moving in
completely opposite directions, for example. The difficulty with foreign
exchange is that there’s no real anchor to FX policy.Who actually controls
foreign exchange policy?
Foreign exchange is a very difficult tool to run policy with. The only
large country that has used a foreign exchange policy in the last decade
(who allegedly has a floating rate, i.e., not pegged) is Japan, which is why
they don’t correlate with the rest of the G10. Japan’s monetary policy and
fiscal policy are maxed out, so it’s the only policy tool they have left to create
any change in supply and demand conditions. Likewise, true global
macro funds should make more money out of fixed income than foreign
exchange, because fixed income is policy driven and foreign exchange is
the anchorless tail thing.
Has the Fed gotten better at its job, thus reducing volatility as well as
opportunities for global macro funds?
There aren’t more or less opportunities because we still have those few
macro calls to make.That won’t change.
The Fed has created a new problem that it finds much harder to control,
and that is the global business cycle. The global business cycle has
created a new dynamic which has caused increased global correlations
across asset classes. Arguably, it is now more difficult for the Fed to manage
the economy. It has become more like driving an oil tanker than a
small dinghy, but it is still at the wheel. That’s why I focus on the global
price setter and the driver of global demand—the Fed—to make my few
Where else do you get your information to make those few calls?
There’s not that much information to get.The most important variables in
global macro are the economic conditions and how central banks respond
to those economic conditions.
To get that information, I read the paper, look at the data, watch
what officials say, and try to read between the lines. From an actual trade
point of view, it’s price action that determines when and where to put
on a trade.
Otherwise, there’s a huge amount of noise in the world. Other people’s
opinions are irrelevant. I can’t bear talking to salespeople because all they
want to do is sell you something new, and things don’t change enough to
warrant that. I don’t pick up the phone if I can avoid it.