By Andrew Barber
I first suspected that a macro bubble was forming several years ago when, as a research analyst, I visited one of the most famous hedge funds on earth to pitch my wares. The person I met with at the fund’s Connecticut headquarters was a freshly minted macro strategist with a charming personality. In the course of making introductions, he proceeded to tell me that the reason that he liked macro was because it was easy. He immediately thought better of the comment and tried to rephrase his statement, but I’d heard him right.
Is macro really easy? Speaking about macroeconomic data allows a person to talk a lot and sound smart without actually saying much. For an ambitious money manager, wrapping an off-the-shelf trend-following system inside a macroeconomic narrative might be enough to raise money these days. Sell-side animals can make controversial but vague calls and then wait for lightning to strike.
Everyone in the business now claims to be making macro decisions. Hedge fund portfolio managers, mutual fund managers, wealth managers and retail investors have climbed onto the macro bandwagon. A Google trends search for macro-related phrases shows a spike after 2007 that is only now subsiding.
Is our entire industry simply rushing to the latest trendy catchphrase? According to this magazine’s database, the number of managers who stylistically identify as macro has declined since 2006, though assets at those firms are up. The data suggests that although the number of people capable of doing macro investing with real money has stayed about the same, the number of people talking about macro has increased dramatically.
Macro is not an asset bubble (at least not directly, although some gold bears might strongly disagree) but a fashion bubble permeating every part of our industry.
The media has clamored on board. The roller-coaster price of copper, for instance, provides daily headlines about how industrial demand in China is either heating up or cooling down. Gold is now a denominator in financial equations, as in “The Dow Jones is now trading at XYZ ounces of gold,” the way Borat might measure his wealth in sheep. Before their daily coverage of global stats, some reporters doubtless thought the Baltic Dry was a deodorant.
I began to look for confirmation of this trend among my Wall Street friends. The pros I knew in my twenties appear to have switched jobs, with investment bank derivatives traders now at macro commodity funds, venture capitalists tossing off tech to win Central Asian natural gas drilling concessions for their macro private asset firms, and research analysts chucking channel checking in favor of finding “Brazil plays” in women’s footwear.
Investors didn’t arrive here without help. An army of analysts, consultants, strategists and pundits are constantly prognosticating about what the latest economic data means for the markets. The advice dispensed by these experts ranges from sublime pontifications about the projected growth of palm oil consumption to tinfoil-hat-wearing newsletter publishers repeating, “Gold good! Government bad!”
The financial services industry is not just about ideas, of course. There is now a dizzying array of complex products to feed the macro beast. There are ETFs for mom-and-pop investors that wager on leveraged commodity and currency exposures, and funds for institutions that harness geopolitical trends to produce alpha by leasing attack helicopters to states that have recently achieved most-favored-nation status.
I realized that the top must be near six months ago, when a particularly effective salesman who called on me in years past with hot tips on stocks gleaned from dubious industry expert networks suddenly reappeared in my life at a new firm, bragging of the connections he had in China’s government agencies.
So I think that it may be a good time to call a top on this bubble and take profits. As such, I want to take this opportunity to announce that my firm has a number of excellent and valuable URLs and trademarks that include the word “macro” that we will be auctioning off to the highest bidder in the coming weeks. I already have a small classified ad set to appear on gold sites: “Don’t delay! Bid now! These highly valuable assets can only increase in value as the dollar declines due to massive monetary base expansion and inflation reverberates through the global economy.”
As for me, I anticipate huge new opportunities in the bubble detection bubble, which is only now really beginning to pick up steam. AR
Andrew Barber is the director of strategic investments at Waverly Advisors, a market research and asset management company in Corning, N.Y.