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"Macro" Musings


giofranchi

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  • 2 weeks later...

Thanks for all the good reading giofranchi.  Much appreciated.

 

dcollon,

it seems we are the only ones interested in at least some macro…!!

Usually, I agree that macro is just for fun, not very useful for thoughtful investing… :) But I also agree with Mr. Watsa, when he says he believes we are living through a once in a 70 or 100 years historical period.

Obviously, a lot of things are said about FFH on the board, some are positive and some are negative, but what I think I really like the best about Mr. Watsa follows:

He is incredibly good at being fearful when others are greedy, and at being greedy when others are fearful.

That, I think, is what really sets him apart from almost any other investor.

So, when he says he is very concerned about the macro environment, I try to pay attention, I try to understand why, and I try to monitor how things are changing.

 

giofranchi

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Macro is maligned because it forces an investor to recognize that profit is not the only dimension that human nature maximizes.  We all know that politics typically trumps economics, & that corruption trumps politics – but how many actually apply that?

 

The US has begun to turn. Most would expect reform to accelerate with the improving economic ability to tolerate shock. The banking lobby group went ‘all in’ on the wrong horse, and it is now in the political interest to expose some of the corruption – set, & get paid on record fines. Revoking a major money center  banks US banking license, to redress today’s ‘moral hazard’ – would also play very well amongst the winners voters.

 

If you weren’t already in a US bank, why would you rush to invest? The saving that you might make by waiting, could well be the easiest gain that you make all year.

 

Investment Bankers don’t get paid unless you transact - & you definitely do not transact when the macro line is all ‘doom and gloom’. But if you can belittle ‘macro’ - you can change the channel …. & get a trade. Fail to change the channel, & you join the ranks of the 10,000 from UBS.

 

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Macro is maligned because it forces an investor to recognize that profit is not the only dimension that human nature maximizes.  We all know that politics typically trumps economics, & that corruption trumps politics – but how many actually apply that?

 

The US has begun to turn. Most would expect reform to accelerate with the improving economic ability to tolerate shock. The banking lobby group went ‘all in’ on the wrong horse, and it is now in the political interest to expose some of the corruption – set, & get paid on record fines. Revoking a major money center  banks US banking license, to redress today’s ‘moral hazard’ – would also play very well amongst the winners voters.

 

If you weren’t already in a US bank, why would you rush to invest? The saving that you might make by waiting, could well be the easiest gain that you make all year.

 

Investment Bankers don’t get paid unless you transact - & you definitely do not transact when the macro line is all ‘doom and gloom’. But if you can belittle ‘macro’ - you can change the channel …. & get a trade. Fail to change the channel, & you join the ranks of the 10,000 from UBS.

 

Macro is maligned because of the complexity involved making it extremely difficult to predict with success.  The complexity invites what might appear to be sensible arguments as they are harder to refute and rely on hidden assumptions.  In your example it seems more like micro than macro, though.

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Because you cant build an algorithm that predicts outcome with a R2 > 75%? You can't back-test? or because it is too revealing when the variables are stress tested to determine sensitivity? - and produce a range of possibilities, versus the ONE answer!

 

Narrow your hypothesis enough & your R2 can only rise - if only because there are fewer possible permutations. ie: to get better, boil it down to real short words and a clear idea.

 

You don't have to be right every time. It is enough to simply apply Kelly criteria on the few times when you have greater certainty. Not really any different than the concept underlying the concentrated portfolio.

 

 

 

 

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  • 2 weeks later...

IceCap Asset Management Global Markets November 2012.

 

giofranchi

 

I didn't read the entire piece, but I've seen similar ones like it. It strikes me as odd that every graph in the document starts at a different year, with no mention of the significance of that year. I don't deny that government deficits are a problem, by just sayin', a quote about statistics comes to mind...

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