Global Macro Trading Profiting in a New World Economy

GREG GLINER most recently worked at AQR Capital Management on the Global Asset Allocation team and as an analyst at Tudor Investment Corporation, a global macro hedge fund focusing on discretionary macro in equities, commodities, foreign exchange, and fixed income. Prior to this, he was with Thracian Capital (a hedge fund seeded by Man Group PLC/GLG), where he was a Portfolio Manager. Gliner also worked at BNP Paribas in their equity derivatives business and was also with Citigroup's Financial Institution Group in investment banking where he was involved in various M&A, equity, and debt transactions. He holds MBAs from Columbia Business School and London Business School, and has a BS and BA from Miami University (OH) in finance and history.

Gliner pledges all personal profits from the sale of this book to charity.

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 

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