In case you haven’t gathered by now – I’m a bit more “macro” than I am “micro”.
You may scoff at this while envisioning “yourself” the ultimate “macro thinker” (as I’m sure that most people do – given the constraints / limitations of a given environment or specific set of circumstances) but one can’t rule out that until you’ve been pushed outside this “comfort zone” or this “area of acute knowledge” you really can’t say for certain that you’ve got a handle on things at all.
I’m pretty sure the aboriginal people of the Amazon equally assumed they “knew everything” until the first airplanes were seen overhead. Can you imagine the wheels turning?
Point being – human nature “should” dictate that we all feel a certain sense of “macro” until of course – something finally comes along to challenge it. Last I looked – this was called learning.
The question is – How Macro Can You Go?
How macro are you even “willing to go” ? as ideas outside your comfort zone generally bring about a sense of discomfort, feelings of vulnerability, fear, anxiety and stress. No one “wants” to consider things they “don’t know” and no one likes the feeling of “not knowing everything”. This is human. This is normal.
The question is – How Macro Can You Go?
As psychology and the phycology of trading is of much deeper interest to me than the day-to-day math, it’s quite likely this series of posts may run on for quite some time. The summer months are slow and my position / view of markets is widely known.
I may take the time to explore the “macro” via the U.S Dollar, monetary policy, commodities and some of the more “impactful” things happening in the news.
I appreciate your patience and invite your comments.
Let’s take a look at see what going on here?
Fortune magazine Jan 1931 cover. Have it hanging in the house. You on Ibank still sir?
Great seeing you here man! The magazine cover is truly a thing of beauty.
I am very interested in learning how the capital flows around the world. Certainly it impacts EVERYTHING….
If you have a dollar in strong enough demand around the world, people outside of the US will get more out of it, and outsourcing will be cheap? (I hope I understand it correctly).
If the dollar is strong it also means capital around the worl wants exposure to US companies with strong balance sheet denominated in dollars, because to them, it’s worth more!
If the dollar is very strong, conversely the companies who have borrowed dollars when the dollar was weak to buy lots of inventory and go into heavy debt now will find it very hard to pay that debt relative to when they took the loan, having the opposite effect with regard to worldwide demand for the company.
You can flip it on it’s head if the dollar weakens as now those who borrow and find a successful business model when the dollar is strong and gets very weak, now debt laden companies on low fixed rate as dollar weakens becomes better, particularly if the fed raises interest rate at the same time providing higher rates than when they borrowed. But if the dollar weakens when interest rates go down, they can still refinance and whatever to lower their payment, and it will be much easier to pay the loan back. If the dollar is weak companies with minimal debt and lots of cash will perhaps have the ability to borrow more, so it depends on what interest rates do, but certainly those that borrowed when dollar was strong and it weakened will find it easier to pay off and as long as the debt provided positive equity, it should be a good thing.
Great input – but perhaps still a touch narrow with your reference to “world wide demand for a given company”.
For the sake of “pure interest” go pull a list of the top 50 companies in oh……Colombia. There is a thriving stock market there as well ( not to mention most countries on Earth). Consider the effect of a strong or weak dollar “there” or “anywhere outside the U.S” for that matter – and ask yourself a couple of questions.
Is a strong dollar or a weak dollar “better” for global growth?
When a Colombian sells coffee to an African – what effect does the exchange ( of either currency ) in U.S.D have?
Why “should” it have any impact / influence at all?
As two of the largest holders of U.S public debt ( China and Japan ) would you consider it of benefit ( to either ) for the U.S Dollar to weaken or strengthen?
It’s fun stuff without question….and there really is no single “right answer” as the exercise is merely to open ones eyes to the possibilities.
As the “current” world’s reserve currency USD enjoy’s benefits on such a macro level that most people really can’t wrap their heads around the implications / ramifications of the entire planet actively “divesting” out of USD. Taking a “piece” out of every single commodity transaction “planet wide” is running thin, as many countries are now making trade agreements “outside” US denomination. This is macro.
I am fascinated by how the change in currency changes everything else.
If the dollar strengthens dramatically, strong balance sheets in US denominated dollars with minimum debt suddenly become more desirable because cash is king. At the same time, companies that went into large amounts of debt will find it harder to pay off, and if they only bought globally based commodities, they could be in trouble if their inventory was too high. At the same time, their monthly costs for those same commodities will be less.
If the dollar weakens dramatically, companies that took out large amounts of debt before it weakened will be able to pay it off more easily over long period of time. Companies with good balance sheets if interest rates go down will be in good position to borrow more, but those that went into debt already can refinance. If interest rates go up and dollar weakens, the cash on reserve is not only worth less than before, but now interest rates make borrowing more difficult as well as buying things to grow company.
But things are much more complicated than just this because tourism, population growth, import/export and other things play a big role.
thanks for the comment, and great reply. Sorry I thought my first comment didn’t go so I guess I kind of double posted it.