Preface xiii
Part One: An Overview Of Global Macro
Chapter 1 Surveying the Global Macro Landscape 3
Types of Global Macro Strategies 3
Return Profile and Allocations 6
Hedge Funds and Global Macro 7
Summary 10
Chapter 2 Trading Process, Sizing Trades, and Monitoring Performance 11
Maintaining a Stringent Process 12
Objectivity and Bias 12
Taking Losses 15
Position Sizing 16
Unit Size 17
Volatility Adjusting Position Size 17
Risk/Reward 18
Correlation 19
Gap Risk 20
Position Sizing Sheet 21
Thematic Trade 21
Sharpe Ratio 22
Sortino Ratio 23
Drawdowns 23
Value at Risk (VaR) 23
Risk Utilization 24
Stress-Testing 26
Monitoring Performance 27
Trend Analysis 29
Bloomberg Shortcuts 31
Summary 31
Chapter 3 Back-Tests, Queries, and Analogs 33
Simple Back-Tests and Queries 33
An Example of Building a Query 34
Historical Correlations and Analogs 40
Summary 43
Chapter 4 The Building Blocks of Global Macro Trading:The Importance of Equities, Fixed Income, Foreign Exchange, and Commodities in Global Macro 45
The Four Product Groups 45
Assessing the Relationships between Assets 50
Summary 53
Chapter 5 Technical Analysis 55
Strengths and Weaknesses of Technical Analysis 55
Types of Charts 56
Volume and Open Interest 63
CFTC Positioning 64
Trend 66
Moving Averages 66
Bollinger Bands 67
Reversal Patterns 67
Head and Shoulders 68
Trend Lines 69
Triple Tops and Bottoms 69
Continuation Patterns 70
Triangles 70
Oscillators 71
Elliott Wave Theory 74
Parabolics 80
Seasonals 82
Cycles 83
Crowd Psychology and Contrarian Views 84
Chartered Market Technician (CMT) 87
Bloomberg Shortcuts 88
Summary 89
Contents ix
Chapter 6 Systematic Trading 91
A Brief Definition of Systematic Trading 91
Framework for Constructing a Systematic Model 92
Assets or Product Groups 92
Strategies 93
Factors 97
Risk Factors 98
Risk Premia 99
Risk Parity 100
Summary 103
Part Two: Global Macro Trading Foundation
Chapter 7 Foreign Exchange in Global Macro 107
The Role of the U.S. Dollar 107
Trading Currencies 109
Currency Regimes 111
Valuation Techniques for Foreign Exchange 120
Bloomberg Shortcuts 134
Summary 135
Chapter 8 Equities 137
Equity Indices Overview 137
Equity Derivatives 140
Valuation Techniques for Equities 149
Bloomberg Shortcuts 159
Summary 161
Chapter 9 Fixed Income 163
Funding/Money Markets 163
London Interbank Offered Rate (LIBOR) 170
Interest Rate Swaps 172
Federal (Fed) Funds 172
Overnight Indexed Swaps (OIS) 173
Forward Rate Agreements (FRAs) 176
U.S. Fixed Income Futures 177
Sovereign Credit 180
Sovereign Curve 181
Curve Inversion 181
Credit Default Swaps (CDS) 182
Exchange Traded Funds (ETFs) 187
Bloomberg Shortcuts 188
Summary 194
Chapter 10 Commodities 195
Supply Drivers 196
Demand Drivers 197
Ending Stock 198
Contango and Backwardation 198
CRB Index 200
Return and Volatility 200
Energy 201
Natural Gas 219
Precious Metals 223
Industrial Metals 231
Agriculture 237
Bloomberg Shortcuts 264
Summary 267
Chapter 11 The Role of Central Banks in Global Macro 269
Monetary Policy Goals 269
Tools Used by Central Banks 271
The Impossible Trinity 275
Monetary Base 276
Money Supply 276
Reserves 277
Zero Lower Bound and the Liquidity Trap 279
Quantitative Easing 279
Interpreting Central Bank Communication 282
Central Banks 286
Bloomberg Shortcuts 310
Summary 311
Appendix: Fed Programs during the Financial Crisis 311
Chapter 12 Economic Data Releases and Demographics 315
Measuring Growth 315
Inflation 316
Employment and Population 317
Balance of Payments 320
Government Indicators 323
Consumption Indicators 325
Industry and Services Indicators 326
Demographics 329
Bloomberg Shortcuts 333
Summary 334
