Trade Write-Ups: Update On Positioning

The next stage

Macro Debrief:

We have ended a significant week in global macro. I want to do a short debrief.

First, see the video breakdown I did here:

Second, we are in a progression of connecting structural macro views with specific views.

• The Credit Cycle Playbook: Redundency Planning lays out WHERE we are.

• The Trade Write Ups (See catagroy here) connect this framework to the specific risk-reward of asset classes:

  • Wednesday: Trade Write-Ups: Bonds and FX

  • Thursday: Trade Write-Ups: LEVERAGED TRADE IDEA and Trade Write-Ups: Duration and Capital Flows

Understanding the context and incremental changes is critical for execution. One of the fundamental principles I think about when approaching market and embed into every model I build is this idea: WE ARE ALWAYS IN THE PROCESS OF TESTING POSITIONING AND THE MACRO REGIME

Complexity economics builds from the proposition that the economy is not necessarily in equilibrium: economic agents (firms, consumers, investors) constantly change their actions and strategies in response to the outcome they mutually create. This further changes the outcome, which requires them to adjust afresh. Agents thus live in a world where their beliefs and strategies are constantly being “tested” for survival within an outcome or “ecology” these beliefs and strategies together create. Economics has largely avoided this nonequilibrium view in the past, but if we allow it, we see patterns or phenomena not visible to equilibrium analysis. These emerge probabilistically, last for some time and dissipate, and they correspond to complex structures in other fields. We also see the economy not as something given and existing but forming from a constantly developing set of technological innovations, institutions, and arrangements that draw forth further innovations, institutions and arrangements.

Complexity economics sees the economy as in motion, perpetually “computing” itself— perpetually constructing itself anew. Where equilibrium economics emphasizes order, determinacy, deduction, and stasis, complexity economics emphasizes contingency, indeterminacy, sense-making, and openness to change. In this framework time, in the sense of real historical time, becomes important, and a solution is no longer necessarily a set of mathematical conditions but a pattern, a set of emergent phenomena, a set of changes that may induce further changes, a set of existing entities creating novel entities. Equilibrium economics is a special case of nonequilibrium and hence complexity economics, therefore complexity economics is economics done in a more general way. It shows us an economy perpetually inventing itself, creating novel structures and possibilities for exploitation, and perpetually open to response.

Paper on this: Link

Updates: