MACRO investing: Big to Small; Plus, China Proposes to Cut $2TRILLION
April 24, 2011
– Comments (9)
Uh oh.
Chinese actions demonstrate yet another reason why US investors without global perspectives are going to get slaughtered. I left my last 2 investment newsletters because the stock pickers were just that---stock pickers. They had no interest in, and little knowledge of, the global macro situation. I see CAPS players, including one rated at 100, continue to push individual stock selection, without regard for the larger picture. They can crunch numbers like it's nobody's business, and they can identify "value" in their companies. It all assumes, however, that the status quo will remain the status quo.
In the last year, I'e been lucky enough to meet with a hedge fund manager, and have been greatly persuaded by the investment methodology of the best hedge fund managers---Jim Rogers, John Paulson, George Soros, Michael Burry, etc. Do you know what they all do that your average TMFer does NOT do? They look primarily at big macro trends. By doing that, by seeing the major shifts, the bets are much safer and surer, and risk is much less. While someone like Jim Rogers will buy up the whole Sri Lankan market, Michael Burry takes it one step further and, after determining where the big moves are going to happen, narrows down the asset class in question to particularly attractive individual equities. That's what he did to profit off the subprime mortgage fiasco, and it's what he's doing now with gold and real estate. It's BIG TO SMALL. Get the big picture, THEN analyze the hell out of your little companies. I'm no stock market genius, but it's obvious when you see this style in action that these guys are using a superior method of investment.
There has never been a time more critical than now in understanding macro moves. Your financial situation might depend on it. Investing in your little bubble of microcaps, without regard for the bigger economic tsunamis out there, is setting yourself up for wipeout.
All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait. Instead, China has decided to serve the world another surprise. Following last week's announcement by PBoC Governor Zhou (Where's Waldo) Xiaochuan that the country's excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the "buy US debt" Nash equilibrium will be. Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE" again?
China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings
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