MacroESG Investment & Trading Philosophy

by Gregory C. Beier, Founder & Global Macro ESG Strategist, MacroESG

Introduction: (originally appeared on MacroESG.com)

When I launched MacroESG, as the pandemic took over, my plan was simply to produce a daily piece Sunday through Thursday inspired by the mantra of “Markets, politics, and technology for a sustainable future” — and see where it led it me.

I have learned that MacroESG analysis yields market-moving paradigm changes; the ideas that I had the highest conviction in, turned out to be the biggest surprises in the markets.

The MacroESG Investment and Trading Philosophy

• Bet big on policy changes that ignite paradigm shifts. The best ideas are clear wins based on clear incentives to people in power: The less obvious, the better.
• Trade the spread between policy change and emotionalism. Betting on policy change is a lot more predictable than emotionalism: Determines risk-reward.
• Analyze the drivers of global power dynamics. Markets, politics, and technology for a sustainable future: Try to understand the Deep Game.

Now, let’s discuss what does it means.

• Bet big on policy changes that ignite paradigm shifts.
• MacroESG’s primary success has been identifying paradigm shifts in markets where the entire view changes quite quickly. These are the pivotal opportunities. Therefore, it’s logical to make this the focus of big bets, particularly if 75% of price change happens in 10–15% of the time while the remaining time is choppy, sideways price-action — in other words, static noise.
• MacroESG’s edge is understanding the clear wins that people in power have clear incentives to make. This drives policy changes that ignite paradigm shifts. MacroESG specializes in being empathic to all of the different players — seeing the world through their eyes, and integrating all of these different views, and imagining how the game will play itself out.
• And, of course, the less obvious or observed a change is that is taking place, the less people are even willing to believe it — the bigger the paradigm shift will be in markets. For example, when I wrote the piece on the coming Covid crisis on February 12th and rang everyone I knew from reporters to policy wonks — nobody understood where I was coming from — they simply didn’t believe me, they didn’t get it. But Covid turned out to the be the biggest market event of the year.
• Trade the spread between policy change and emotionalism.
• MacroESG believes that prices change for two reasons: regulatory change or emotionalism. At the global level, regulatory change should be thought of as policy change.
• Betting on policy change is a lot easier to predict than emotionalism. George Soros said, “I don’t play the game by a particular set of rules; I look for changes in the rules of the game.” Policy change is change in the rules of the game and when one knows how the rules are going to change — it’s much easier to predict what the markets will do.
• When the policy picture is not clear, the markets are running on emotionalism. But once clarity about the policies is achieved, then it makes sense to get much more committed, which determines risk and reward.
• In this sense, MacroESG trades a spread between policy change and emotionalism — when the needle on the dial is deep in policy change, then it is time to be active and when the dial reads emotionalism, then it is time to be still.
• Analyze the drivers of global power dynamics.
• Once a view becomes clear about one scenario, it then pays to see how it will drive power games around the world and anticipate how it will be expressed in markets. The key is studying the drivers of change: markets, politics, and technology for a sustainable future very carefully. Every great MacroESG idea is made up of all these points.
• While it sounds ominous, The Deep Game means understanding how heads of state are incentivized, how they are interacting with each other, and what the likely outcome is. Though I can’t say that I’ve been able to solve anything larger than a small piece of this puzzle even once — it’s the intellectual focus of MacroESG research.

Who Can Benefit From MacroESG?

• Long-term investors that have to make strategic bets based on the how the world is structurally changing.
• Leveraged, aggressive investors that have to ensure that, at a minimum, they are not caught on the wrong side of a paradigm shift — or they can be wiped out. And, hopefully, on the right side of a paradigm shift to provide a banner year to clients.
• Long-only fund managers that need to ensure that they are tilted correctly in relation to their benchmarks around times of volatility and excess returns.