Developing Macro Understanding
Fellow Monkeys,
Like several recent posts, I’m in IB but highly interested in switching into Macro HF in the future. Given my education in international relations & foreign language and my foreign policy-focused profession prior to banking, I’ve always been interested in geopolitics and the macro framework.
After digging around on the forum, I found a thread I’ve started to work from to develop my understanding (1st Year Macro HF Analyst: My Macro Framework). The articles and Twitter accounts referenced have been helpful, but I do have some questions for those more experienced and knowledgeable.
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Is there a specific path you found to be best in your journey to learn more, such as should I focus on x topic first, then y, etc? Or should I just soak up as much as possible?
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Any books, blogs, Twitter accounts, or other sources you would recommend?
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I’ve noticed some funds starting to hire individuals specifically for geopolitical analysis. Any insights into how this group fits in to the overall process? I’ve read geopolitical understanding is great but you ultimately still need the financial understanding.
I would appreciate any help or advice!
Thanks.
Am also in IB and was literally going to make the same exact post...will just follow.
Based on what I know, there really isn’t any structured path to global macro. Pre-2008 the most direct path was from prop trading to global macro. Post-08, people in global macro come from all over finance, ranging from S&T desks within FICC to macro research/investment strategy teams and even former IMF or fed reserve guys. Spots within global macro have also always been limited, which leads to its rarity in hiring. Breaking into global macro mostly depends on luck/coincidence (aka being in the right place at the right time).
being in s&t is generally how u move to macro. FICC and ect
I’ve read and heard from a lot of people that the government/sovereign debt strategist path is also another way. Would you consider that a stronger or weaker path to macro? Additionally, what would you recommend to someone who is in FICC trading/research but not trading/research a macro-related (as much as others) product?
i work for an oil company so i can't be 100%, but experience with govt and etc debt def makes you a suitable candidate. if your in a FICC related role there's definitely some sort of macro baked into it although some more than others but if youre in a bank than you have the ability to network with the other desks and learn from them and possibly move there if there's an opening.
Big bump - A field that I really desire getting into myself. Not too many other threads (other than the aforementioned) that break down the field/recruiting process, so I hope this one can!
Was a dead strategy for so many years.... all of a sudden, global macro hedge funds hit 150%+ gains in 2022 and everyone wants to do global macro now lol. A lot of global macro fund managers got rich overnight (50 mill to 500 mill+ paydays in 2022).
I doubt the fund managers themselves expected to hit a year like this. Barring another COVID like event, I don't think we'll see another outsized return year like this in global macro for another 20-30 years.
The skillset to be successful is quite different compared to PE/IB as PE/IB is more about relationship building at the partner level.
Global macro fund managers are stereotyped to be socially awkward guys. But they usually have a very strong quantitative background (PHD Economics/Stats/Comp Sci/Physics from HYPSM, etc.). Barrier to entry is quite high. Attracts more of the nerdy, 140+ IQ research types.
I didn't even know these funds hit out of the park last year/didn't previously. I just became interested because all the volatility around the world and domestically (especially this year) caught my attention and seems x100 more interesting than IB/PE. I've come to realize I couldn't care less about individual companies or their strategies or whatever. Want to do something more involved in the live markets and the day to world. Too bad it seems these spots are so limited or reserved for quant-types quite disappinting...
You have to realize also that there were 5-10 people max who made that sort of money that I quoted (50-500 million+) in 2022. There's not many global macro funds to begin with and usually they underperform compared to other hedge fund strategies.
Those funds were stagnant for years (might be possible that many those fund managers were worth sub 9 figures before 2022...), so really 2022 was the exception to the norm.
Have to be extremely passionate about the industry. All I'm trying to say is that there are more spots open relatively speaking in PE/IBD vs. global macro. The intellectual bar is higher for the industry also. It's a tougher business to be extremely succesful in.
How do macro HFs/macro AM shops view the CFA? Does it have recruiting value because of its multi-asset focus (in terms of content covered?
Would likely be a net positive but wouldn’t be a substitute for direct experience in the industry.
It doesn't hurt but far behind 1.) actual experience, 2.) quant skills, 3.) advanced fx/rates product knowledge, and 4.) macro trade idea "reps" so wouldn't prioritize
When referring to quant skills, do you mean more programming or analysis? If programming, what languages should one focus on building an understanding of (Python, Java, etc.)? If analysis, how would you recommend someone build such skills who comes from a traditional finance undergraduate program instead of math, engineering, etc.?
Will plug Maroon Macro Monetary Mechanics as a great publication (no longer updated AFAIK) from a macro HF analyst WSO user.
What are the best funds for global macro?
There are a few fund that hire out of undergrad. I know for sure that Bridgewater, BAM, Brevan Howard and some pods at MLP, P72 do. I believe that other funds like Caxton or Moore might hire every now and then but less "structured". Either way its extremely difficult to break in.
1) Build a very solid foundation in macroeconomics. I recommend reading "Macroeconomics for Professionals" as a starting point. Then check out one of the two solid books on economic indicators to get a grasp on what data the market pays attention to and the nitty-gritty nuances about them. Finally, skim through “Central Banking 101” and other books about central banking, monetary policy, and such. Make sure you do not get sucked down the political and philosophical rabbithole. You're in this for money and not ideology.
2) You need to have a very strong understanding of STIRS. Pick up a textbook on bond math and get very familiar with concepts like convexity, duration, and the like. Supplement that with Hull (Options and futures) to balance out your product competency. Fabozzi is a good resource too.
3) Understand macro strategies. The pillars of macro are: carry, relative value, basis, trend following/momentum, policy, and "bread & butter" trades. You can express them on rates and FX or their derivatives. Each pillar has an "idea generation" work flow. Don't use chained-logic, make robust arguments instead.
4) Understand that "technicals" in macro mean positioning (in futures) and sentiment (street survey's). More and more this also means option positioning as well. Gammasplode is a term.
Carry: Country A is paying more than country B. Interest rate differentials at play. Buy A sell B.
Relative value: Country A is paying the same as Country B but is far less risky. Buy A sell B.
Basis: Future - Price.
Momentum: Country A currency is outperforming its peers on a 3m/6m basis. Buy it if you believe trend will persist.
Policy: Country A central bank is raising rates. Country B central bank is easing. Buy B sell A.
B&B: Economic activity is picking up in country A, so yield curve should steepen. Buy steepener.
These are very basic examples of trading ideas, but are a good place to start. When I hire a jr person on the team, the first thing they pick up is cross-asset strategy, which is how the major asset classes trade vs. each other. Significant moves in the rates market will correspond to moves in fx and equities as well. This is very key and will help you understand market thinking. Beyond this, practice makes perfect, so just reach out to macro people you know and strike up conversations with them.
Cheers.
Super informative, thank you.
Good discussion here about macro having it's moment so to speak, after a long period of underperforming. Thoughts as someone in the space? You see this persisting in the longer term?
I think macro has proved to be a solid diversified stream of alpha since the inception of interest rates. Managers who fixate on one asset class and region tend to do poorly. Managers who get philosophical tend to do poorly.
Macro is now “en vogue” because the two big groups that don’t generate consistent returns (g3 fx and philosophical Fed watchers) actually did okay. I see this as persisting for some time, because rates across the globe have moved higher. However, the degree of moves will be more muted (unless something breaks), which caps the level of returns on simple directional trading. Good macro managers are trading across the spectrum of ideas and not simply short bonds where nominal rate < inflation.
Much appreciative of the detailed response! For gaining a better understanding of STIRS, any books that focus on this area that you would recommend? Saw what you said about bond math books.
Good formal books to read:
Interest Rate Markets: Jha, Siddhartha: 9780470932209: Amazon.com: Books
STIR Futures: Trading Euribor and Eurodollar futures: Aikin, Stephen: 9780857192196: Amazon.com: Books
Foreign Exchange: Practical Asset Pricing and Macroeconomic Theory: 9783030935542: Economics Books @ Amazon.com
Yes you should build an excel model for each type of product and know how to price a variety of outcomes. E.g. EUR/USD 1y1y.
you are a legend for sharing your knowledge. Would you mind if i reach out to you for more insights? a recent grad trying to pick up as much as possible, thank you!
Great summary. I wonder what are the "two solid books on economic indicators" in this context? Any specific ones?
Twitter: Andy Constan, Bob Elliott, Alex Gurevich, Robin Brooks. There are a lot more and the Twitter algo will help you find them. Cheers
I would avoid twitter if my goal was to learn.
Just wanted to thank everyone for their incredibly helpful replies. For those of us looking to break in, we most certainly have a much better idea of what to focus on.
Completely agree - it’s actually really nice to see such clarity the field that has been rather opaque in recent years.
Does anyone have any must-read research analysts or publications you regularly follow on the sell-side? So far I only read anything published by Zoltan at CS but would appreciate all recommendations (FX/Commodities/Cross-Assets..)
Morgan Stanley's Global Macro Commentary daily pieces do an excellent job encompassing the events of the macro market and synthesizing them. Would also recommend J.P. Morgan's U.S. Treasury Daily and Goldman's Trader pieces.
Read. And then read some more.
Start with the greats... Schwager's Market Wizards and Drobny come to mind. Try to tease out why the folks interviewed are trying to put on the trades that they do (Drobny's stuff is a little better for this)
Intermediate level reading... Alchemy of Finance (you'll read this 10 times and wonder each time what you just read, but it's Soros, so you have no choice). Pick up Dalio's set on Economics... I'm not a huge fan of his but this is an excellent way of starting to think about the world.
Pick up a WSJ or FT sub.. read Markets and World sections.
Go read some of Matt Klein's old stuff, dive into twitter and substacks, FT Alphaville... the stuff written now is free and is of an unbelievable quality.
Over the last decade I've probably read and then reread all of these books multiple times, each time I gain an appreciation for a way of reasoning I hadn't thought of before.
Macro isn't a subject you can master, but it is fascinating. Listen to podcasts - there's plenty out there - and develop your own framework for thinking.
If you do all of this and you really love it, then its worth making the plunge. Barring connections, working in macro trading at a bank is probably your best bet.
Good luck!
Also here are some other primers that I've found to be useful for getting up the learning curve in the arcane world of galaxy brain macro.
Rates:
Interest Rates Bible: https://www.macrodesiac.com/the-only-guide-to-interest-rates-you-need/
The Ultimate Guide to Bonds Trading: https://www.macrodesiac.com/the-ultimate-guide-to-bond-trading/
FX:
The Deutsche Bank Guide to Exchange-Rate Determination: https://t.co/yBG3aVqiS8
JPM FX Guide: https://www.dropbox.com/s/vx7ukzvk0r666ud/JPM%20FX%20guide.pdf?dl=0
Something else I would note is that it is one thing to understand the the tradecraft and jargon used in FX and rates but another to understand the drivers of these markets. This is a whole post in itself but I can point to towards some resources that I found to be useful. To start I would read, then reread the Piper Sandler's "Interns Guide To Macro." You can find that here. That gives you a great overview of the business and liquidity cycle and how they impact asset classes. I would also recommend that you check out Variant Perceptions blog and YouTube channel which lets you inside the mind (albeit backwards looking) of a top down investor and how they think about the business and liquidity cycle.
I too am a dumb equity guy trying to get up the learning curve so it would be great if the real macro monkeys could throw some of their best resources into the ring.
From my post on: https://www.wallstreetoasis.com/forum/hedge-fund/macro-rates-and-fx#com…
You are actually GOATED for this. Thank you so much! Will be sure to check out all these resources. Do you know if there's another place to find the Macrodesiac Interest Rates bible (link seems to be old) or if they changed the name?
https://www.macrodesiac.com/content/files/2022/08/Interest-Rates-Bible…
Also check out Henderson's FI Strategy book. Really good practical explainer of rates and how a practitioner trades them etc. You can get for free on libgen.
https://www.amazon.com/Fixed-Income-Strategy-Practitioners-Riding/dp/04…
My recommendation is to understand key economic releases and variables. So for example when the Fed has an FOMC or if you are US then unemployment claims etc. After see what it means for certain asset classes so it could be MBS, EM, HY credit etc. If you don’t know the product you can search for primers… PIMCO has pretty good ones.
I also recommend reading global macro or strategist prices as they often highlight their analysis based on xyz economic event and you start to understand it more.
In terms of breaking in… I know many people from Harvard Kennedy, LSE and other big policy/econ schools. For purely quant then yeah totally a PhD. PIMCO had a great team and some policy people, MBAs, PhD.
Follow
Oh yeah, one more goated paper which you can find online is "Lessons from cycles, crises, clients and colleagues" by John Normand. This along with Piper Sandlers Interns guide to macro are the goated intro papers for learning about the liquidity & business cycle. Which drive returns for all asset classes and sectors.
Great posts! I highly recommend that interested analysts start to play around with Bloomberg / Eikon / Factset using data to measure and observe relationships to market prices to reenforce learning. I remember when I first stumbled across a terminal at my college library -- I couldn't sleep for days and would sneak in to use and learn it.
Also:
John Normand, Mark Cabana, Zach Pandl, and Mike Nocerino are fantastic.
Gonna be that guy but couple of things.
1. your logic here is wrong, if it is the case that you want to be one of the top tier macro hf guys. You got to have a interest in the world/macro etc. alone, the career may or may not come but not hat shouldn’t be the reason for why you want to develop this skill set. Otherwise you will just become mediocre within your field. You need to have a genuine interest and an obsession. How? Start by trying to figure out things you have noticed but couldn’t explain. Like why can BB banks do so many financing deals in Latam but not in Saudi? Or I dunno explain turkeys monetary policy, read the government website, read the policy papers, translate them back to English and hen try to figure out what the he’ll they are doing.
2. don’t read whatever research banks are sending out, mostly bs and they are chartist. The one you could read is like BNP ABS research, they actually gave real trade alpha.
3. Follow first principles and if you can’t explain something in detail then you haven’t understood the connection with the wider event. You need to figure out what you are missing. Like inflation, why has the inflation increased during the last 12 months but not last month?
4. Throw all of the BS macro numbers aside and try to figure out whether they make sense and will have the effect that people suggest. In most cases the answer is “No” btw. Like now, there is this notion about recession and inflation is somehow a cause to this (which it can’t unless you are like turkey - they have taken in their inflation as credit risk)
or that credit spreads are widening and there will be no growth, slowing credit cycle etc. which is all bs cuz if anything credit spread widening and equity sell or is a sign of our system working (I’ll let you figure out why, but I’ll give you some hint: Margining/De-leveraging and Private Markets).
5. also you don’t need any fancy books or any coding. All derivatives are priced in the same way - have an intuition for this only. Understand the drivers. That’s it
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