Why I Quit Macro

George Gammon recently asked me “Why did you give up macro ?”

Because financial danger to the many has become a signal to shut off their sight, suspend their judgment and pursue an unaltered course to the brink. All this on the unstated premise that the danger will always remain unreal owing to the supposed super-sovereign power of the central banks.
Perhaps this has something to do with their cronies in financial media spooning their spider lullabies that

« they got this ».

They’re like a foghorn at the centre of the financial universe, blowing the unwary investor, not to sound a warning, but to summon the fog once more.
May they be damned and all those who seek their empty shelter…
I thought of this reading an article in today’s Financial Times. Expensive intellectual real estate given over to a professor of banking at Columbia, a certain Frederic Mishkin. He ain’t happy with the Fed. “Flaws are evident…” (link to article here).
According to him, they should be paying greater heed to the Phillips Curve and research that he co-authored at the US Monetary Policy Forum. Hmm…I thought, I remember the past differently, allow me to explain.
I think of the princely protagonist in Dostoevsky’s, The Idiot, another Myshkin, who only saw the good in everything, and I mean everything…
I remember…I was short $200m Icelandic krona at the time. Not a Yard (a billion usd) but still, 2% of the country’s 2012 GDP…I was KING COD for a while…Why !! the more logical of you might ask?
Cause I was bearish on the outlook for US house prices for the next 2 years. This was way back in 2006. Yes, I know that’s a very long time ago for many of you. Stop, you mean to say that you were worried about US house prices and you short COD and volcanoes. What gives?
Well, you need a big incentive to park institutional money in places where the lava flows. After the Nasdaq crash, rates fell to the floor: levels unprecedented outside of Japan. With the Fed at 1%, Iceland offered you 5%. I thought of the macro setup as a giant silent foghorn, a siren attracting the unwary.

Everyone was content. Fine. But what if American interest rates rose to taper a bubble in US house prices? The giant might lose its grandeur, higher rates would become more commonplace. Wait, so you’re telling me that you see a US bubble and thus you short the Land of Cod… is this your so called ‘paradoxical thinking’…’orthogonal risk taking’? Oh, how my head hurts.
I bet it does, mine did too. Back then it was a bloody nightmare. Today, you look back and conclude the world is rational. Everything was predetermined. A deviation in the trend of US house prices was detected by smart people and equilibrium was soon restored. The truth was different. I’m just gonna say Wells Fargo Bank (WFC) made an all-time price high the month that Lehman Brothers (LEH) went bust. Which is to say, having carried all this risk angst within me for 2 years as the world partied oblivious…watching the meteor get closer & closer till it streaked the night sky, well, it had an effect on me.
Myshkin’s chalice ran over with positivity. Blame dark forces, the energy lingering below the surface of our consciousness. The imperative of apocalyptic aspiration vs our earthly limitations. Everyone underestimated him; an idiot, they said. Incisive, mercenary intellect more like?
Back to reality. My version of it at least. Life imitating art via the dark lens of a distorting mirror, a community where yes is no and no is yes. The good professor put his name to a paper. ‘Financial Stability in Iceland’ a report produced by the local chamber of commerce. Let me tell you, it was positively brimming with positivity. It was also chock full with nonsense, gaining huge notoriety 3 years later when Iceland collapsed. You can read about it by clicking -> here.

We learned later, much later, that the good professor was paid $124k to co-author the document. And they give hedge fund managers a bad rap ?? Watch him squirm when quizzed on his academic acumen:

Me? What happened to me (?) cried the narcissist. I had to fold. Halfway through my risk campaign I had to jettison some risk – this Atlas Had To Shrug. Climbing the pyramid of my best ideas whilst handicapped by a need to stay afloat. It was imperative that my hedge fund hot air balloon gained some altitude. I covered my COD short. Soros, I was not destined to be…
Funny, but the story re-surfaced later, that I was the guy who wanted to break the Bank of Cod. I was on a tugboat in the port of Santos, the town where Pelé played, and my Blackberry exploded with the rage of a thousand Viking Icelanders. They saw me as the enemy. I saw it differently.
Back to the present and I still think that the prince is below par; call me vindictive. He thinks the Fed is behind the curve, that the inflationary genie has left the lamp. Me? I’m waiting till the ‘deity of the 10 year’ breaks 2% to save myself the grief of all this grandstanding.
Maybe it’s his pitch to run the Fed? Dostoevsky’s The Idiot in charge of the Fed? Hey? Wasn’t I suggesting Joe Rogan as chief of the Fed in 2020 – apologies Joe, you’re no idiot, you’re the real Prince – but, let me tell you, if that 10 Y breaks 3%… but that’s for another time…
I’m writing this listening to an excellent song by Astrocolor, but remember that,
After (after)
Laughter (your laughter)
Comes tears (there’ll be tears)
(oh, oh, oh)
Watch it below

And whilst you’re there why don’t you visit me at youtube or twitter.