Analysts at Bank of America have posted an interestirng prediction for 2013 (via Business Insider):
“One of the biggest surprises this year was the bear market in volatility. Massive liquidity programs from global central banks trumped tail risks. A rise in volatility next year would not be a surprise, particularly in the FX market. With policy rates around the world close to zero, the new automatic stabilizer is FX. But perhaps the biggest surprise in 2013 and beyond is that the era of tail risks is coming to an end. Note that the pair-wise correlations of all S&P 500 stock combinations has fallen to 30%, down from a high of 70% in 2011. This indicates that we are close to being in a differentiated/stock picker’s market.”
In the article Joe Weistenthal asks an important question – is the age of macro coming to an end? But to me, this is unimportant because it’s not what macro is really about. The rise of macro investing is all about riding a huge wave that is changing the world. And this wave didn’t begin with the financial crisis (although it made it more obvious to everyone). This wave started decades ago. And this trend is all about understanding globalization, technological changes and the natural evolution of the world. Macro is rising because the world is becoming an increasingly tiny place. American corporations are no longer just American corporations. They are global corporations. American politics no longer impacts only America. And technology is disrupting the entire globe. The impact of all of this is a world that is increasingly tiny. What happens in China matters in the USA. What happens in Europe matters in the USA.
Macro isn’t going away. If anything, the world is getting smaller and smaller. This doesn’t mean there won’t be micro trends. After all, macro is just an extension of the micro. But we live in an increasingly macro world. Either jump on the wave or get out of the way because it will bury you if you don’t understand its impacts….