A dictionary explains the word macro as:
-something very large in scope, scale, or capacity.
A dictionary explains the word fundamentals as:
-serving as, or being an essential part of foundation or base / underlying
Macro fundamentals are an overall driving factor of currencies, relating to a large number of topics/sciences, each of them contributing a portion to the whole performance of the currency. It includes a wast area, which can take several years or more to study. It is vastly misunderstood by many Forex traders in terms of what it takes to create a usable approach in this industry and execute trades with some consistency on long term macro trading. And since FX markets are very easy to over-leverage if the risk is not very well calculated it provides a relatively dangerous field without proper risk management or position sizing.
The beauty of macro trading is that it is a never-ending puzzle tied into events happening around the world, and provides a constant challenge in regards to reading, testing, exchanging ideas to other knowledgeable traders...etc.
Journey of macro trader
Trading, in general, is a competitive and difficult industry, only the most stubborn and dedicated individuals will persist to see the consistency. But macro FX trading is another field in itself, even more excluding in terms of who will be drawn to it and who might make it till the other side. It is an area that requires studying relatively heavy and dry subjects which will not be for everyone's taste. It is no wonder why so few females participate in this field, and even with males, it requires certain personality strengths that won't be in everyone's arsenal.
A typical journey of beginner traders in the macro field is that they are completely lost, swinging from topic to topic without really understanding which area of expertise they need to study to get a grasp on the dynamics of currencies.
Is understanding GDP to debt ratio as important as knowing how much currency reserves country has or is reading the news daily on political stuff more important? Is knowing what bills have US senate just passed trough more important than knowing a specific macroeconomic factor such as NFP report, are those evenly important, or if not why not? Beginner traders will be locked in a full fog of such questions at the beginning, and in reality many of them even after many years.
So where is the issue? Why does it come to this? The issue is that there is no general guideline of step by step tutorial or educational system that tells you which topics you need to study as a macro trader, step by step to make the most optimal progression of knowledge, just like any school would do. In the macro field, you are all by yourself, your decisions on what you will study, what topics you will spend time on will eventually dictate if you will progress slowly or faster. In the end, macro trading requires a large amount of curiosity and truth-seeking, consistently trying to fit the puzzles together, seeking and continuously pushing into new areas as a part of curiosity.
How to progress faster?
From my observations of many other traders who were unlike me very educated (2 or more university degrees), were in professions ranging from pilots to school teachers to doctors, the overall general knowledge that one gathers (non-market related) has very little impact on the path of macro trader. By far the most important quality you need to have is the ability to see right through the outer circle of all information, straight into the core. Being practical and always seeing which initial particle moved the whole chain reaction. A common problem that macro traders have , is that they are easily lost in sidetracks. Macro trading is all about absorbing large amounts of data /information from different macro topics and having the ability to not get sidetracked, having the ability to see what the initial moves that created cascade were.
The biggest macro trades are the ones where trader sees right at the start of that initiation, otherwise you are just late to the trend, or in many cases too late and being on the wrong side as the market already reverses by then. A great tactic to use in macro trading is to apply the same strategy that best investigative journalists use: follow the money. Meaning tracking the steps to the initial initiative step, the source. There is always a specific individual or group of individuals who tart the initiation.
The way to look at the ability to see straight trough secondary information and seeing the primary chain reaction that caused cascade:
To see those primary effects trough the fog of secondary effects, it takes a lot of trial and error. Having a practical guided mentality as mentioned above is a must to have, but by no means is that enough. It takes a lot of practicing and uncovering those hidden pieces here and there to learn from those mistakes and get better at it. And not all macro drives of currencies are the same there is huge difference overall, some currencies are driven strongly by short term macros (coronavirus example on Chinese yuan), mid-term macros (aggression in Syria 2014 and the liquidity drive on Syrian pound), or large macros (Turkish lira, debt cycle 2017+). And the range of topics could vary a lot, bellow will be underlay the most important topics that impact the currencies.
The majority of traders on the macro side are completely un-aware of primary drivers of either the cases above, and thus have no lead where the macro is heading over the next 2 years on either of issues. Mind that without understanding the primary reason, everything that happens in the world will seem completely random. And of course, there is no such thing as randomness as humans are rationally / intention driven when it comes to larger topics.
Be unique and your own interpreter of the news
As a macro trader, you need to understand that real practical knowledge of the global market is built upon the studying history and NOT just following the news, and then making up on the fly what one thinks about the news.
Without the solid context of history under which the current news fits into, you cannot have any real probability about what the news could mean. Sure anyone can make a logical conclusion about the news, even someone who never heard about what currency is could try to make up the reason what he/she thinks of the news. And weirdly enough that is how many macro traders operate.
The actual proper approach is you always need to fit current reality into context, without context all you are doing is guessing. And money in the market is only made by probabilities, not possibilities (at least consistently).
Many macro traders spend hours a day just reading through the news, making it only the fly what they think about it. And don't get me wrong, there is a certain portion of this that one has to do at the beginning. However, spending much more time studying historical contexts is that much more important. Once one actually acquires enough knowledge you start to track a lot less news because most big macro patterns in FX markets are "just one of those" to put it in words of Ray Dalio. Meaning, it is just another pattern that you already studied/traded/learned and it should have a certain expectation on how it should develop.
Subjective vs objective topics or news
As mentioned above spending more time studying history is key, relative to time spent tracking the news, but even more important is to know how to filter out the news articles/videos/opinions.
If you want to be your own constructor of reality, and all you care about is objective truth (which as a macro trader you must!) then what others peoples subjective opinions should not matter to you. Your task is to collect objective pieces of the puzzle, fit them into the right order to see the primary vs secondary variables, and the potential start of the pattern. However, if you insert just one subjective piece of the puzzle in between from someone else (without you fully understand that you are not using objective piece) then your whole macro thesis will fall apart. And I can only say that with certainty because I have seen it in countless cases. Because after that a negative cascade reaction starts, where a trader will just start to fit wrong (non-objective) puzzle after puzzle, turning away from future reality more and more. It takes very little and it requires the practice of being objective with trial and error.
Currency is a very wide social construct, it wraps around the whole society of that country/state and it is very easy for an individual trader to get lost in subjective topics, just because it fits traders' personal beliefs (morality, taxes, law, ...).
It is required for a trader to be able to see the difference between subjective articles and objective news releases or differences between facts and personal statements. Often it is the best idea to discard subjective opinions on the global news events as there is just a too high chance of the wrong perception (statistically), or certain personal beliefs "filtering out" the conclusion of news in the wrong manner. And let's get real here, that is exactly what happens in most cases where subjective opinions are given on the news, the core objectivity is extracted from the actual news and turned into a sidetrack. And in markets sidetracking does not create consistent performance, markets are all about playing on reality and the strength of whoever that is (bulls or bears). Subjective moralizations in markets are a sure way to get sidetracked for macro traders, whether it is your own or the ones from other individuals.
Usually, the news sources are not just fully subjective or objective, instead, they are mostly mixed, which is even worse as it creates an even easier environment for a trader to be deceived.
A ratio of 80% objectivity and 20% of subjective filter on news is common to see, and that 20% of trader cannot properly see where it is, could be an issue. This will largely depend on the site itself. For example, certain stock related news sites can have relatively solid objectivity, and even the news that are subjective opinions of company management will be highlighted as such in the article "Those are merely opinions of management and by no means tend to reflect the actual future performance". And then there are other news sources such as Youtube videos which could have a huge range of subjectivity on the news release or the events happening around the globe.
But if everyone understands that to be the objective reader of reality is the utmost importance (putting the focus on raw facts), why do so many still prefer to go to Youtube videos where a certain individual will give them their own opinion on the news or macro itself, rather than just having the objective read by themselves? The answer is rather simple, it takes certain experience and knowledge to interpret the news correctly, and many beginners are far more comfortable trusting someone else who they perceive trust-worthy rather than having trust in their own perception of news especially if they judge themselves as under-experienced or beginner. Thus this is natural to see, but it is important to stay away from doing it as much as possible. A solid macro trader needs to develop his/her own compass to interpret the news, and if you are being served interpretations all the time from someone else, you are not developing this muscle.
Are currency movements all about macro economics?
Often misconception of FX traders is that to learn how the dynamics of currencies work it requires only studying of macroeconomics, putting full attention in this area in the expectation that macroeconomics by itself explains all the reasons why currencies move. There is no doubt that the majority of traders starting on the fundamental path of currency trading will be under such an impression, and the reality is much more complex than that.
The issue often with macroeconomics is that it does not provide the initiating factors within the major macro moves of currencies, it is usually a secondary link in the chain reaction, not the primary one. This means that just using knowledge in this area/field will leave traders often lagging, being late in the trend of the currency. This is the main reason why a majority of FX traders are late to the party sort to speak, they see clear signs of currency weakness or strength by using macroeconomics where the trend is usually just about to reverse.
Macroeconomics will help explain what conditions are currently present on the currency creating the weakness or strength over the long term, but usually, those reasons are not enough at all to trade upon by itself. It is only a portion of the whole picture. And in trading one of the most important things is to be practical enough with the knowledge required so that one can execute actual trades with consistent performance. And by default that is where the issue is, macroeconomics will too often be strongly lagging substance and not providing enough of frequent executions for any retailer to take it seriously. If your knowledge only provides you to take 1 trade per year, that will not be enough to consider this field as a full-time trader.
Now, by all means, this is not to say that one should disregard macroeconomics when it comes to practical needed knowledge in Forex trading, it only means it is just another piece of the puzzle needed to get the whole picture clear.
Choosing the right assets to trade in macro Forex
If one had asked a random macro FX trader what is his main asset on daily watchlist the answer might be EURUSD or GBPUSD. This is herd behavior of the online trading communities flocking to the most liquid traded asset without really understanding what macro trading is about. It is not about following news releases and figuring on the get-go what direction the currency pair might take, even though this is largely promoted on the net itself.
The main focus of macro trader should be picking the right assets that fit best and clearest possible conditions to base trades upon over a long duration of time. And for this, a currency pair needs to have the right counterpart currencies bulked together within a pair. Two economies/markets that are in opposite forces of inflation/deflation or growth/decline or other factors at which the general strengths are measured but the variances should be very clear. The wider the gap between two economies and their currencies the better a that has ability to create very one directional move on the FX pair. The smaller the gap and the more even the economies are the more difficult it might be to pick direction on such pair, resulting in choppy range.
The common issue that traders make is they do not put much attention to those factors and just decide to trade EURUSD because it represents the two strongest economic blocks in the world and has easy access to news or liquidity. And this creates an issue that relatively evenly balanced economies and their currencies do not have strong and clear distinctions that cause currency FX pair to perform in a strong trend, giving macro trader clear direction. This is why so many EURUSD traders tend to get annoyed in frustration as the pair just does not pick any major long term directions and is often very choppy and un-predictive.
Thus a macro FX trader needs to go where the opportunity is. Instead of forcing opportunities on the market (going the easiest route into EURUSD), a macro trader should study situation of economies and then placing attention on two economies that are driving apart the most (strong versus weak). Now obviously the issue is how does one really objectively define weak or strong, that is whole another cattle of fish as that can be highly problematic without doing very detailed comparing across each sector of the country. But again that is how proper macro trading looks like, it involves a huge amount of research and work, before a somewhat decent macro thesis can be built, and then traded upon.
The example below outlines the difference between two strong economies/currencies bulked together on the left side versus the right side where a strong economy is bulked against the weaker economy (economy in trouble) in currency pair. The right side is where the optimal macro trader should be.
Wide grip on studying topics
To create sustainable knowledge in the macro trading of Forex, there are certain topics that have to be studied (even though that conventional wisdom does not mention them much). Those are the topics I found are a must to study, for one to have decent view if one is trading longer-term directions of currencies (or even short term):
1. History
2. Aggressions
3. Debt cycles
4. Geopolitics
5. Orderflow
6. Crowd / mass behavior
This by no means is an easy task as each of those topics is deep in size. The key for such inspiring macro trader will be understanding how to input the right amount of time into each topic, and which sub-sections are worth researching and which are not. Because we all have limited time on the planet and limited hours each day it is not practical to just spend an immense amount of hours on just one topic, the time has to be well spread across them all.
Prioritization is important because each topic is so wide that one could spend a whole life studying each of them and still not being done. But to know how to prioritize time into each of them comes with practice, it basically relates to the section of article higher, how being practical is the key, knowing as soon as possible if the information you are reading about can be practical "potentially" useful or not. Always ask yourself, does this make sense, if so how could I use it? Can I build a thesis or stress test around it? If the answer is no, realize that as quick as possible and dedicate your time elsewhere.
Bellow is a very crude outline of what to study under each topic, but this will be a very crude attempt, the article itself would have to get into the un-readable state if one was really to explain each of the topics in depth.
1. History
History is rather a diverse subject because in relation to markets there could be more general history (rise and fall of the Roman empire for example), monetary history (inflationary crises trough history of Russian ruble for example) or more narrow subject related history (last three twitter messages of US president). Each of them could or could not serve a purpose for the macro trader, but more or less...they are all useful.
History provides context for the macro trader and patterns keep repeating everywhere, just like in markets so are within the society overall. Whether its the mathematics, macroeconomics, biology or any other science, the patterns are there, and the primary requirement to see any pattern is: History / data. Or to say with other words, historical data is needed to define, identify, and then future see the pattern.
The most practical way to structure historical studies are within two sections:
-strategic oriented history (specific events within larger context)
-a society based / broader history (50+ year cycles)
The general tendency is that history tends to repeat, the society across countries move in cycles which tend to repeat, in certain countries, there are cycles that are more common and in certain countries, it is where some other type of cycle is more common.
Overall one can list the countries trough entire history on a few simplified spaces:
Leading/ruling empire or republic
Satellite countries to the leading power
Strong powers willing to challenge the ruling power
Satellite countries to the strong challenging power
Strategically less important countries with no strategic resources or landmass
Neutral countries (opened to all)
No matter which era of history one picks in the majority of cases since 0AD the globe is conglomerate of those structures and to get the dynamics coming out of what each country has the ability to do within its own abilities and where it belongs is very important. What is the ability usually the country will sooner or later try to act upon it and achieve its "most ideal outcome" and since those actions usually are not well accepted by the ruling powers, this usually leads to some sort of response?
Again the history just keeps recycling the same behavioral patterns within the society/countries as systems over and over again. The more research one has on the topic the more it becomes obvious. More about this will be outlined on article below.
Knowledge on history is superior to knowledge in economics when it comes to financial markets, because a lot of knowledge in economics is merely reactive, while historical knowledge can provide the trader with pro-active insight in what is about to come, in the next few years.
And while yes it can be said truly the same to economics or macroeconomics as well, but the difference is to build a solid and useful view in economic field it takes about 3 times the effort, relative to the history (broad/strategic history).
My suggestion to any aspiring macro trader would be, especially for FX markets, is to study the history of decades around the times of where major ruling empires were present and the reactions/actions that took place across the world in the environment of such. (Roman Empire, the British empire, Spain/Dutch, Mongol empire,...and the most important the history of the United States over the past 100 years.)
2. Aggression / conflicts
From all of the topics that macro traders ten to study there is one topic that is the most overlooked, and perhaps in my view by far the most important one: conflicts as the result of global competition. The biggest directional moves on currencies (bearish) come from situations where a country is in the conflict with major military power. A conflict by superior military power against an inferior smaller country or two relatively balanced nations which are consumed in cold-er conflict. On such occasions, the capital outflows are guaranteed to happen, and the capital starts to flee from weaker countries in expectation of losing the conflict. And capital outflows are reflected trough rising inflation and bearish performance on currency, significantly. History offers a large amount of such cases to study, I will not be listing them one by one as the article would get too extended, but the key area that macro trader should study is to focus on conflicts where superior military power started a conflict against the weaker country and to note the performance of currency along the capital flow happening inside that country. The data suggest a very high % reliability rate, over 90% (over a span of 2+ years).
Cold / hot conflicts
Conflicts are not limited just to military expeditions, cold wars are just as much of part this example. Cold wars by itself are attrition conflicts, which means that capital will react slower with a lag, as opposed to hot conflicts where usually the flows begin instantly a strongly, impacting the currency.
Proxy escalations
Proxy escalations are external conflicts on the territory of a smaller satellite country where two major powers fight each other without being officially present in the conflict. Usually using mercenary contractors and fueling the conflict with capital until one side can no longer support it (Afganistan in 70s for example). Such an recent example would be Ukraine in 2014 with Russia on one side and Western powers on the opposite side along with the Ukrainian army. Or Cuba in the heist of the cold war, or Syria in the same year as Ukrainian conflict.
The point being that as a macro trader if one has view on why conflict might start, or what is the real purpose and strategic reason why it started in the first place, it can provide a huge long-lasting view on where the currency of such country or countries tied in conflict might go. Usually (statistically) super-powers are not impacted much on currency, the only country in which currency suffers is the one where the conflict is taking place. And especially in the modern era of financial markets, currencies of external countries can be used as aggressive tools to speed up capital outflows from such an impacted country, as it was present in the Syrian conflict by use of Jordans artificial currency propping to fuel the drop of Syrian currency.
The impact of conflict on the currency has a much higher priority than any other macro factor within the country. Even if a country has a solid macro-fundamental structure of the economy, or large excess of capital the conflict itself will still completely decimate the currency, no matter of bullish factors. Especially if the country has been in a strong growth phase for years, and then all of sudden is taken under escalation, the reversal of the trend in the currency will be very strong and quick. Such a case was present in 2014 on Russia when the US and Saudis initiated oil collapse, placed trade embargo, and started the initiation of large capital outflows from Russia. Since Russia was part of strongly growing emerging economies since early 2000 when the oil price boom started, once the conflict began the markets had to fully price in complete change in the situation (after 15 years) which created a strong and consistent bearish performance of Russian ruble for nearly 2 years.
As usual, the biggest moves in the markets always come where the market has been experiencing a consistent growth for many years, and then all of sudden there is a big change. Cascade starts from there.
Something to keep in mind when it comes to full-scale conflicts or proxy wars is that majority of countries involved in the conflict will suffer consequences in terms of capital outflows, rising inflation, drop in the value of the currency and equity markets as well as some departure of the high-grade workforce...with exception of one country which at the current time and for past few decades has been more or less exempt from that equation which is the US. Whether it is due its military might which outperforms any other country, or the size and safety of the financial system which by default will be a priority for capital inflows no matter which country is engaged with. And that is absolutely the key for a macro trader to observe as that is the center-piece to know where and how the global capital flows will go about if there is a proxy or larger scale (cold war) conflict ongoing.
This means that any country opposing the US will most likely be the one to take the fall of currency/equity markets and debt markets, as the capital flows from wealthy people or institutions leave the country of weaker player and go into the country of stronger player (at the time), which is historically what happens in the majority of cases. This should give the macro trader a robust idea of what to expect if it comes to this. And this has nothing to do with politics, this is merely the fact that global markets at its core measure the world trough lense of who is stronger and who is weaker, which is what dictates the short and mid-term flows of capital re-allocation.
A typical way to play the escalation (trough global/FX instruments):
Short currency, this is the most straightforward one. No matter what country or the size of its economy (except the US for most of the cases) it will take a hit on currency, as capital outflows are assured and so is the rise in inflation.
Short equities if a country has relatively small military force as might get under kinetic conflict, if not then equities are not ideal short since the rise in inflation might bucket the fall in the midterm.
Short bonds, the more debt that country has borrowed before escalation the more negative reaction can bonds have, the less debt it has denominated in foreign currency, the less ideal it is too short bonds.
Some near historical examples:
There are literally hundreds of examples to note in this category, and they are all pretty much very similar in terms of how currency/equity/bonds market reacts, but since many of cases are un-tradeable due to too weak liquidity in many of historical cases, only a few of most prominent high liquid capital/countries will be included. Up to the reader to study history further into details to gather more case if wish so.
2014, Russian escalation
2014 US/Russian escalation, followed by EU sanctions. In the first quarter of 2014, Ukraine faced internal conflict from two opposing forces, the pro-western and pro-eastern sections, which resulted in the inclusion of Russian forces into the country itself.
The actions followed were US/EU lead coalition to place sanctions on Russian economy from food to energy (pipelines, the debt of energy companies) companies, to the financial sector (prohibition of access to EUR or USD denominated debt markets). The impact on the Russian ruble is as noted below, all of which was fueled even more by the flooding of global crude markets by Saudis in the middle of the whole situation.
The response of currency was severe and inflation skyrocketed, all of which provided the solid shorting opportunity on the ruble itself (long USDRUB).
Below is the outline of when the sanctions started and the path it progressed from there (all of which are still valid and open today in 2020):
Russian bonds in the mid of 2014 escalation. Since Russia is not highly indebted to the outside international partners the bonds took relatively late response and only took a real hit once financial sector within Russia got sanctioned as well, which meant that currently borrowed international debt could no longer be expanded by large sums and the bonds reacted (tightening).
Ukraine (continuation / correlation to the result of above Russian escalation):
Ukraine currency UAH:
Ukraine equity index on image below. One thing to note, when there is an escalation it matters a lot how resilient the economy is to escalation and how much of the economy remains operational, as well as how much of international capital was present in the country before the escalation started. The more international capital present, the larger the outflows will be (as this capital tends to leave the country the quickest when things start to turn sour), while if there if the economy is rather more isolated to itself the drop in equity index might not be that strong, even if the country is militarily weak. This is an important factor to gauge which equity indexes are more or less likely to take a hit when it comes to this.
US / China escalation (2017)
Below is an outline for escalation which technically started in 2015 already, but for the reader's practicality and the actual movements, it is better to note start in late 2017.
Chinese yuan/renminbi took a large fall as the conflict escalated ("large" is only relative as it is unusual for the growth that the Chinese economy is achieving for currency to take the plunge in such conditions it can only be due to outside pressure). In high growth economies where the inflation is relatively under control (relative to growth % rate yearly) the currency should not weaken. However, conflicts have the power to flip the equation around.
Shanghai index below. Even though the economy is growing fast the index was unable to press strong numbers and is lingering around the lows. Also, note the example from above for Ukraine, China is a military superpower and has a super fast-growing economy, yet the equity index took a relatively large plunge. Why? The strong presence of international capital, and once escalation starts this (outsourced) capital tends to leave the country the fastest, and the larger the presence the more impact it can have. The presence of capital is not just meant as investments in the country itself, but also access to other international markets for financing and selling of the goods.
Greece 2015
Greece is by no means typical fit for conflict in terms as traditional connotations, however, it was a financial conflict between elites of EU / US and the Greek government. Which basically means that exactly the same rules apply as any of the cases listed above. A very strong player (elites) against a much weaker player (Greek govt), where there was a very little room left for discussion at the end, as Varoufakis has noted trough the entire negotiations, as well as in hindsight 2 years later. Strong players always negotiate from a position of strength, which in reality means, they don't actually negotiate, they set standards of expectation and demands for the rest to follow.
Greek equity index:
Greek government bonds:
Why should a trader care about escalations and conflicts?
Escalations whether they are in terms of the trade conflict, financial conflict, larger-scale cold war or proxy wars they all allow for a long term established trends to develop across many asset classes leaving very clean read on the direction of where the assets should go as long as the trader has a full understanding of how main global financial instruments work and respond under such conditions. Again, the history needs to be a leading guide on this.
Those situations usually develop trends that last on approximately 1 year, allowing plenty of intraday opportunities to extract from, however certain cold war conflicts tend to develop trends that last for many more years. The majority of conflicts are both long and short opportunities. First short when the conflict begins and as it is done, in the majority of cases there is a solid long opportunity after the end phase, especially if one is able to trade on it (not all markets are easily accessible for the retailer).
Additional thing to note, when it comes to such conflicts there is usually one asset that tends to perform very well inside the country at which the conflict takes place, which is gold. However in the current era of 2020, Bitcoin should be added as well, but obviously at much higher volatility and potential negative swings relative to gold. But both of those assets are solid to trade, however only if one is trading them against the internal currency of the country that conflict is taking place. For an example of 2014 Russian escalation:
Long Bitcoin or gold against USD : No.
Long Bitcoin or gold against RUB: Yes.
Below is comparission of gold in dollars versus gold in rubles at the same time window and the US/Russia/Ukraine/EU escalation. (To note why trading gold or Bitcoin on long side against internal currency is the right decision and not against the dollar itself).
3. Debt cycles
When it comes to the debt it is key to look at what kind of debt does a country has, either internal debt nominated in its own currency (such as the US for example) or external debt nominated in borrowed currency (such as Turkey for example). Those two differences play a key role in what kind of flexibility does the country have to re-pay those debts or to simply ignore it. A general rule is that emerging market countries have a lot higher portion of external debts, denominated in the USD or EUR since this is where the majority of credit is issued.
One key aspect that trader needs to understand in this area is especially debt cycles of emerging economies. By far the most frequent mistake that macro observers tend to make is that they bundle in just any type of country, judging the size of its debt relative to GDP in order to gauge if a certain economy might get into the debt problems in near future. This is a sure way to get issues in terms of being accurate. While yes there is the case that majority of countries trough history either default or go into hyperinflationary crisis if they cannot repay foreign debt, but the key difference is TIME. Remember, trading is not about "eventually ill be right" instead the time matters and so does the accuracy tied to it.
Developed economies that have full control over issuing of currency and internal debt in large quantities can afford to sustain large amounts of debt without feeling pressure on the economy for a long time. While the same cannot be true for emerging economies which are often fully at mercy of global capital inflows and financing. Those two distinctions are absolute must to make when it comes to getting the grip on which country might face solvency issue or just pressure on bonds if over-levered and which might not.
So the simple rule personally for me is to only focus on emerging market countries when it comes to trading the debt cycle on currency (short).
For example:
US, UK, Japan, Germany: No.
Brazil, Argentina, Turkey, Russia, India, ... : Yes.
There is a large shift of dynamics in terms of how bonds and equity markets of each of those groups of countries react once the debt begins to expand quickly and the interest rates begin to rise. It is much easier to pick a direction on currency, equities or bonds in terms of trading when the situation is due on emerging economies (if they fit right conditions) than it is for developed economies, especially developed economies with reserve currency or ability to issue large amounts of debt denominated in its own currency.
Let's take two very simple examples to note, the US and the Turkey:
As noted above debt of the US government is far higher than Turkey, yet the country that faced a large inflationary and solvency crisis in 2017/18/19 was not the US but Turkey.
The US is in large control over its debt, especially being denominated in dollars, meanwhile Turkey as an emerging economy is not. Now meanwhile there surely are many macro observers who bet in the last 10 years on the US to be the one hitting default rather than Turkey, and yet they all have been wrong. Not just that, but historically / statistically they would be wrong 9 out of 10 times because this is how the dynamic between EMs and DCs works as outlined above in the article.
Using the debt-to-GDP number as a holy grail to determine what will happen to the economy over the long run is surely a way too over-simplified look at reality because there are many more dynamic factors that play a role on determening the results.
Below difference between Turkish currency lira versus the dollar over past years:
And let's touch upon another subject. Many macro observers tend to justify the reason why the US default chances are high its because over the past 50 years the dollar has lost the value due to inflation. Obviously, this is a pure fact, however, as a trader, you need to understand that what you re trading is actually a weighted scale, the balance between stronger and weaker currency (not currency isolated by itself, since FX trading is about trading currency pairs). It is not just an isolated dollar and the value it has lost over the decades, but what matters is how other currencies have performed against it. Has the dollar lost plenty of value over the last 50 years, but the majority of other currencies have gained the value against it? Of course not, that is not the case, and this is the core dynamic that one needs to understand especially when trading FX markets where the majority of currencies are balanced against the dollar since dollar represents (still) 70% of total Forex international flows.
4. Geopolitics
Geopolitics is generally an area consistent of few components (in relation to FX markets):
-internal impact of political leadership on the economy and currency of the country in terms of opening of economy to globalization, or closing it down (capital controls).
-external impact of political decisions of major powers on other smaller countries (usually aggression, embargos, sanctions, threats,...).
-internal instability of political system where the voters of the country are unable to decide with the majority on who to vote, leaving the country with the broken and fractured political government (Italy being such example) and the countries politicans or elites being caught in the middle of two sides, unable to make decisive directional move.
Where to begin studying the topic of geopolitics and its impact on currencies? It takes time and one has to move step by step. Additionally to that studying history is a must, so that macro trader knows into which category the current political structure or system of a country can be fit.
For example, if one was to have an opinion on Venezuela and how the current political regime might impact currency long term (+-2 years), it would be important to study historically socialistic political systems over the last 100 years to determine potential outcomes that it might have on current economy of Venezuela. Knowing which pattern to fit the current political structure of the country is the key thing to understand. Also its relation to anti/pro hegemon stance as outlined on article below is additionally key component to note, for accurate depiction on where the economy and currency itself might be heading.
A common mistake is that macro traders just try to "predict" what political structure will do based on reading the news and interpreting the front leaders of politics, that is a sure way to get burned by under-performance. As a macro trader you need to be few steps ahead, anticipate actions and for that you need to know what pattern to fit political structure in.
Political structures repeat within the patterns just as much as price action patterns do. Socialistic structures in that basket, hard right structures in that basket, communistic-hard leftist structures in that basket, imperialistic status-quo based systems in that basket, etc...And the assuming potential actions based on patterns behavior across many different countries of a certain basket is how to anticipate potential political moves. My personal preference is to keep my head out of politics as much as possible, since there is no other topic that divides people more than this, but in FX trading you do need to be engaged and well researched which means that you cannot avoid it.
Having a useful read on geopolitics is about understanding on what are the likely moves that current structure of countries government might to partake, and for that macro observer needs to base the moves from historical patterns of similar political structures. This in relation of not just internal politics of the country itself but as well as how this country and its political nomenclature might react to external powers or relationships with other countries under specific conditions.
One of the potentially key elements that best macro traders or participants have is that they can be highly objective, no matter of their own personal views. This means, setting aside your personal judgments of this or that side, and trying to understand each side and participants as objectively within the environment. Personally i do not believe that anyone is made for this or posses such quality as a beginner, speaking for myself and countless of other more-or-less biased observers objectivity of geopolitical view is achieved trough:
1.Practice
2.Intent to be objective (and keep practicing placing personal views aside)
3.Being realistic (your personal views have absolutely no change to actual political shifts within the country for majority of individuals, however your levels of objectivity and clarity have huge impact on your own performance as macro trader, so focus as much on the second, as that does impact you, while the first is negligible). Be practical. And by being practical it does not mean that one is strictly self oriented for benefit, it means being oriented towards where your thoughts and actions do leave consequences, noticable.
Generally the less experienced and younger the participants are the more clouded will their perception of reality be, which is why there is no surprise that when things go sour within the country the first people that go to streets are the younger, those are easier to deceive as their vision on the world is usually too simplistic. And with the practice that can be improved, everyone starts at the same starting line, but its the finish line that differs for everyone after 10 or 20 years of participation. Keep moving that finish line further and further, by constantly challenging your own perception and view on objectivity of countries relationships. And one tip personally i would give for any aspiring macro observers and aspiring traders, is that you need to be as spread across the world as possible, limitation to specific country will create large holes within knowledge and objectivity. Study as many different market / economies as possible. Try to understand every political structures view from their own side and then compare it towards the rest of structures to see how and why they might perceive it differently. And always remember, politics should never be isolated in macro!
Politics is tied to economic system, to financial system, to competition of alliances etc, it is all linked. It is by no means about black or white or left or right, the key word that moves the global politics trough the 2000 years history of mankind is: COMPETITION. And this ties together many more areas than just politics itself.
Mind that to be a good detector of geopolitics you do not need expertise or graduation from college of geopolitics, in fact, I have seen a number of such individuals that fail to successfully predict the actions of governments having such degrees. What you do need is a good strategic vision (which is shaped over time), knowledge of history, and always judging what might or might not happen using historical context from the basket of similar countries and their political systems.
Throw away traditional "democracy" or "tyranny" classifications of systems, they serve very little to no value for you as macro trader
Image above outlines the countries as classes of countries split within how much free the election system or the society is, which actually provides relatively little or no value at all to macro trader. A country with more "tyrant" approach can have booming market and well performing currency for a long time, while at the same time the opposite can be the case. Which means that this is not a good view to base any performance of currency on over a long term.
Better way is to split countries into three major camps and then additionally into two additional camps based on alliences.
First major split:
-hegemon
-countries able to challenge hegemon within 10-20 years
-countries unable to challenge it but are able to create major disruptions to status quo
And then each of those groups is sorted into two aliences:
-pro hegemon (always publicly stated)
-anti hegemon (not necessarily proclaimed)
Hegemon is supreme power which is defined as leader from the "full spectrum dominance" perspective, meaning the leader on:
-technology
-freedom
-wealth
-GDP growth
-security / military power
Once one outlines this and the rest of countries under similar measurments and all countries are sorted in the right baskets, then the picture forward should be much cleaner.
This dyamic has major implications on how countries formulate long term strategies of expansions and it has major impact on the way currencies trade, especially once the cycle reverses (or comes into play).
So why is it so important to understand the world and relationship of countries from the perspective of hegemon / challengers ? Because the fact that majority of strongest global events over life span of any macro trader will be the result of hegemon trying to preserve status quo, while there will be challengers always trying to take its place and then there will be smaller countries who will step over their own limits which will as well trigger the reactions.
Understanding this core mechanism is absolute key to understand the global movements not just in political sense but in sense that relates to anything that eventually touches global capital markets and eventually impacts the way global financial assets trade, especially FX currencies. The currency at its core is reflection of internal decisions of country and the co-existance in world or measured response from outside countries in relation to it. This weights on currency a lot more than just traditional economic variables.
Mind that macro trader with realistic perception does not view world or countries trough ideological lens but instead trough lens of strength. Politics just overlays with the strength that country by itself might or might not have. Macro observer who puts politics in front of proper strength measurments will fail asserting situation realistically which is essentially the mistake that nearly half of macro participants tend to make. Perception clouded by moralization or picking the sides.
Consider yourself like a weight-er measuring one side against the other, by objective assessment of strength s much as possible, not just opinions and moralistic views, put some real weight of hard based science into that weight scale:
Understanding the power structures of geopolitics
Greece (2015) is one of the examples where geopolitics needs to be layered in correct structures of power to understand what might or might not happen. Knowing who is the real leader with strength and who is in the weaker position. Two political structures clashed in this situation, one was the government of Greece with a specific idea of debt restructuring, and the IMF and Germany which held the position of the stronger player.
No matter how rational the decisions or demands of Greece government were (or not, depending on who you ask) the actions were all lead by Germany and IMF. It was a perfect example where many macro interpreters were completely lost in the clouds of what could or could not happen, expecting all sorts of Armageddon scenarios of what Greece will do, without actually understand who is the "lead" in the driving seat of the situation. This is a very common problem with macro traders, they mis-understand the power balance between different players, and they come with wrong conclusions of what might or might not be possible. Having realistic view on world, by understanding which player is stronger or weaker in situation is one of the key tools that you need as macro trader, in any situation. The world rotates based on those rules, just as ecosystems in nature do as well.
There is a huge edge in depicting the game of politics as close to reality as possible, as that removes the weakness of having a bias that is sided with a weaker player. Mind for the realistic view you need to be sided with the stronger player no matter what your political / personal opinion is because in the majority of the time the stronger player will dictate the game of geopolitics when it comes to a country to country politics. And for an internal political situation, similar rules apply, although there are certain differences. Certainly, it is not a popular opinion to give out to be as neutral as possible, as men are not made for such references, but if one wants an improvement in the edge that is the way to go. I have learned this from plenty of my own mistakes, and it certainly has been proven to be the right decision (whether it was intentional or not its hard to say), if performance is taken into account.
5. Orderflow positioning
Orderflow positioning stands for tape/level 2 action and the use of technical price patterns to combine them with macro fundamentals. Tape action in Forex can be used by the help of the futures market (since spot FX does not have level 2 by itself) and technical structural patterns that have edge can be a good combination to use with macro positions for better timing or risk management on trades. There are traders who use order flow to time their trades, and those that do not. Either way, it largely depends how tight does trader wants to be on risk, for tighter risk control it is quite necessary to use order flow otherwise one would get stopped out of trades too much. Additionally order flow provides entry reasons, but it is important to not get "too close to the tape". Focus on extremes and be patient to let extremes come to you, instead of seeking them in every tick of price action. (large orders, absorptions, hidden buyers...)
A good combination is to use futures Level 2 data with correlative traded currency (for example using EURO futures along with EURUSD pair or Mexican peso futures along with USDMXN pair).
Peg defense
A good combination of order flow and macro fundamentals is when the central bank comes into a defense of currency by protecting a specific level on the currency. Those situations can be great to trade, as one can trade with the central bank (long Hong Kong dollar 2016), or bet against the central bank for large RR gain (Long Swiss frank in 2015 for example). A very strong symmetrical level of price bouncing needs to establish, which lats for a month or more before the trader can realistically establish the central bank is behind it. In some cases, the central bank will specify publicly that it is defending a certain level, and in some cases, it will not and the trader will need to figure it out by him/herself.
For example SNB specific publicly for years that it is soft pegging frank to EURO at a specific key level, while Saudi central bank has pegged as well to the dollar but never giving exact number publicly to where they are defending the soft peg (or if they even are defending it).
Pegs or soft pegs often offer solid trading opportunities however they as well pose extremely high risk if trader finds himself on the wrong side of the table, such as it was case for many long traders in EURCHF in 2015:
6. Crowd / mass behavior
Crowd behavior in markets and its source is often the fact that many macro traders do not use their own lens to view world trough. They wait and listen to other peoples opinions about a certain event and then replicating the same view. Now this behavior is required, but the key is to do two concepts to avoid crowd behavioral trap:
-Question the knowledge received (stress test, historical back-test etc)
-Build upon the received knowledge or opinions and expand (use cross informations to build upon the initial thesis of certain individual)
What masses like to do is to over simplify and then keep repeating around oversimplified messages. Oversimplifed messages sink very quickly as one can just use logical assumptions to make sense out of it.
As a macro trader, you absolutely have to get away from doing that and be accurate and well research-oriented. Because conclusions made without significant research and confirmation will yield the wrong perspective very likely.
"Money printing"
To address the issue of over-simplification and how a drastic performance impact it has, one can use the "money printing" statement which has been over-used over past 10 years at mass, since the FED started its first major QE in 2008.
Many investors or macro participants tend to call that QE (quantitative easing) is just another fancy word for money printing and that such measure is highly inflationary for currency. "QE is just another fancy word, made up by central bankers to mascarade the real intent of expanding the money supply".
Obviously this is not true, at least not nearly to the extent that many tend to believe.
Lets take two examples. First is United States and the inflation and money supply over past decade since QE was launched, and the other case is Venezuela.
Below is the chart of US M2 money supply:
Below is the chart of Venezuelas M2 money supply:
Below is the chart of currency pair performance of dollar versus the Venezuelan peso:
The point about raising the difference between those two countries is the fact that Venezuela is actually executing the traditional money printing scheme while the US is not. And those real differences play large role on differences between currency performances of those two countries (peso has collapsed while dollar has not). For FX macro trading being detail oriented and researched is important to note the difference and to see the realistic direction that such currency pair might took.
So where is the core issue here? It is the fact that QE I, not just another word for money printing if one takes a proper time studying the structure of QE and how the liquidity is provided there are significant differences to standard "money printing" that is usually used when the country has a large deficit that has to be financed through content printing of currency (Venezuela currently for example).
If one uses oversimplified words and starts to match oranges to apples you simply get wrong future expectations. A dog does not behave like a cat, because those two are different animals, and each animal is named with different word because there are certain behavioral or biological differences that matter. And the same approach has to be used in a macro, a macro trader should not just overlap two words as the same if there are key structural differences. Thus make sure that you always put your time into researching the facts of how certain structure works before you have an opinion on it. And by research that is not meant to sort trough opinions of what other individuals think about the situation, but rather to study the factual data which is not filtered, the source.
Ergo QE=! money printing (to put in programming language), because there are structural differences in how those two programs are done and their impact on inflation or deflation. Always keep in mind something: The majority of traders/investors and opinionated people do not do research (deep dive into the subject), instead they just re-hash what they hear from others. This means that if initial opinion is not well researched once it get passed on 100 of times it gets stretched further and further from reality. Thus it should be expected that there are large amounts of oversimplified statements flowing around, especially when it comes to "money printing".
Market is wrong (or is it?)
One of the most dangerous thought approaches that macro trader can make is to operate with the mentality that the market is consistently wrong because it is made of delusional participants. This type of mentality goes exactly against the realism that markets tend to portray trough the performance of equities or currencies.
A very simple test component is if an individual has a macro thesis and the market does not perform within a certain time window it is highly likely that knowledge or the thesis of that individual is flawed. In 90% of cases, this will be it, perhaps the easiest way to determine who does and who does not have credible macro insight (over 10 sample cases). In majority cases it wont be the market who is wrong, but instead the individual and his/her thesis.
This type of mentality is especially very common in beginner circles since people tend to "praise the under-dog" and "bash the king and its throne", where everyone likes to throw its five cents against the central bankers while praising any economists who dare to speak as negative about them. This kind of behavior just further fuels the perception of "market is wrong" and for trading, it just does not yield positive performance.
7.Emergency rate hikes or cuts
Generally speaking, emergency procedures on interest rates from central banks can be split into two (very rough) areas:
-the emergency rate hike on collapsing currency and rising inflation out of control (Turkish central bank in 2018, Russian central bank in 2014)
-emergency rate cut amidst the start of the financial crisis, or the move from the central bank to stop the rise of currency (due to trade factors) such as it was the case for US / FED in 2020 and many other central banks amidst the coronavirus situation.
Both rate hikes and cuts can be traded within the FX however keep in mind one very key thing. When the US cuts rates usually there is the presence of global crisis (2008, 1989, 2001, 2020) which means that dollar might not necessarily weaken against other major currencies a lot, even if FED is cutting rates, since in global crisis conditions the capital always seeks the safest harbor which is the US, for the majority of FX transactions. This means that even if other central banks cut rates relatively small the currencies of such countries might still weaken more against the dollar, due to capital flows. It seems and sounds counter-intuitive but this is pretty much the case of what happens, and very frequently tends to be misunderstood by many macro traders.
Example of an emergency rate hike by Turkish central bank on the chart below:
Below is chart of Turkish currency (USD versus Lira) and reaction to the emergency rate hike:
Studying historically the behavior of currency after emergency rate hikes is also a great tool to have in the playbook of macro trader. Generally, there are two types of emergency hikes or cuts:
-surprising (central bank tries to front-run the market delivering significant move of strength in order to "save the face" and prevent any capital outflows as result of projected weakness in international markets). This kind of action is especially great to trade in FX since market has not priced in the action itself, giving trader plenty of time to trade with the direction of trend.
-expected (central bank hikes rates after the currency has had significant drop and the inflation rises within the country (Russia 2014 / Turkey 2018). Those kind of actions even though very largely expected by market (since central bank is cornered) are still great to trade because in majority cases market cannot front run the central bank by buying a currency since the currency itself in majority of cases is dropping sharply posing huge risk to anyone trying to front-run it).
What is interesting however is that even on expected emergency hikes (where the situation gets highly out of control and many media outlets start to circulate the same idea around) is that currency still reacts strongly in most cases, in the direction of emergency hike/cut response. And the reason why is that so is that once the situation gets very dire, many market participants still do not believe that the central bank would be able to respond with deep enough measures to stop the currency falling or rising. In most cases, the central bank does come with follow-through and does the extreme move in rates. In such case where the confidence is lost in the currency and market has perception that central bank cannot raise rates high enough to stop the falling, this is where the central bank has to deliver. Meaning if market believes that central bank cannot hike rates by 3%, the CB itself has to deliver 5 or 6% hike, to deliver move of a confidence, else the doubt remains in markets.
One of the key things to note is that the country will usually not be able to afford emergency rate procedures for too long, especially if the rates have been hiked substantially (for example 7 percentage points). On average such emergency conditions will be held for 6 months, and after that central bank will start eating rates lower since the country cannot afford to borrow at such high rates, and the pressure on economy by internal borrowing costs of businesses is too dire as well. For this reason, often markets will tend to call the "bluff" on the central bank and start facing the currency even before the central bank starts to ease rates. Such example was given on image above for Turkish central bank.
This 6 month time window is very important for FX trader to keep in mind, as usually the currency will start to weaken again 6 months after emergency hike, which is important factor to keep in mind, in order to trade such currencies trend for a while.
Front-running FED or US administration one step ahead to gain edge
From a practical standpoint, one of the most advantageous steps that macro trader can take is observing the key chess players of the global capital flows. Every country and its government/political or financial market structure contributes in some sense to global capital flows, some countries more some less, but there is no other country that impacts the world at the scale that the US does. For this reason, studying the key structural players is utmost important and it has far higher priority than studying any other country in itself as likely over 10 or 20 years the impact of US policymakers or the central bank policy shifting will have an impact in one way or the other to the secondary countries no matter of the moves taken by those countries or internal institutions.
From a significance of the actual policies that impact the flows of global capital markets for any aspiring macro trader there are two major components to study:
-US administration (Pentagon, CIA, DOJ, CSP, key advisers in White house with connotations of "strategic", key lobbyist senators or Congressman active at the time, national security defense apparatus ...)
-FED (Federal reserve)
Think of structure at which the US operates as one organism with a trickle-down mechanism:
(forget all that you learned in school or read of how it operates meanwhile, this isn't about theory, it's about practicality):
The policies at which either the administration or the FED impacts the global markets are few folds:
-dollar shortages or liquidity expansions (tightening or cutting the rates, or QEs)
-dollar shortages caused by fear flows with targeted approach of US administration as a result of responding to outside moves of international countries
-expansion of global debt denominated in dollars for EM countries at too fast peace, that eventually ends in the wrong cycle where the FED starts to increase interest rates, causing major issues for currencies of borrowers (10-year cycle)
-political or economic pressures from sanctions
Basically, the whole purpose of placing administration and FED in front of anything else in relation to global financial markets is the chicken and egg problem. What is more important, the internal economic policies of each country and that impact it has on itself or does the outside market such as the US dictates the whole game while the rest of countries are just running reactionary actions? Obviously, the answer is both, the reality is a construct of both ingredients but from a macro point and executions of actions as a trader it really does help to define who holds the power in each situation and up to which point really the countries have freedom of action if met under certain situations? And this exactly is where it becomes critical to understand the multitude of freedom that each central bank or economy by itself has.
Think of it this way, if an emerging market is about to expand it is at the mercy of US capital markets to provide that or not. This decision has much stronger implications for countries' currency and equity markets if compared to actual internal government actions. To note the significance of this there is a decent historical example of the rise of Asian tigers in the 90s where the US capital influx has created a large boom in those economies (Thailand / Indonesia) but at the same time once capital pulled out it created even greater economic issue/crisis. In and out.
This is perhaps one of the most frequent issues that macro readers or traders completely over-estimate the strength that a single country has to go counter the moves of US administration or the FED if met on the wrong side of the table. Even the strongest countries historically are left to very little "wiggle room" when it comes to this, and even if "successfully" evading the consequences of doing so are severe and long-lasting. And as mentioned on previous article, the cost is always inflation which is reflected trough the currency performance (short).
The issue comes from the fact that global debt is largely denominated in dollars, which causes than large issues in countries that borrowed a lot at cheap rates when FED had a policy of low-interest rates and once the cycle shifts up the EM countries that borrowed a lot in an external currency such as USD now face two-fold problems. One is rising inflation as the dollar strengthens against the national currency and the capital flows proceeding from policy shift and the other is the fact that in most cases country will be forced to borrow even more just to service short term debt with new fresh debt borrowed from over-seas.
This multiplied across many countries around the world creates global dollar shortage flows which have a large impact on how US treasuries, dollar, and equities trade, but most importantly the local currency of the borrowed country. Understanding this cycle and how it is led by the FED is by far one of the critical points to note as a global macro trader, whether one is trading FX currencies or equities themselves.
The world is a open sandbox, not a jar of dirt
Another point that many individuals tend to miss, is that they try to comprehend the moves in global financial markets of specific countries (often the US itself) without using the context, by isolating them.
In the 21st century, the economy and especially financial markets are heavily globalized, where the impact on one country is felt into others and the actions of one market impact the other, isolating any actions by themselves will create un-fruitful results.
Which is why for example many macro observers had a vision that the US might be heading towards the path of hyperinflation in 2008-2020 by judging the moves of FED (QE) in isolation without putting it into a global context. Or thinking that Russia will become dominant European partner-economy (pipeline projects, energy dominance) without putting the context of the powers that US administration is able to pull against Russia (2014-16), or those who believed that Chinese yuan will become global reserve currency by the end of 2019 and dollar will in relation to that loose global reserve currency status, while in reality currently almost the opposite picture is playing out on all of the three above stated cases. (QE caused deflation and not inflation, Russia was placed under embargo by the EU and FX dollar transactions in Asia have risen in relation to yuan and not fallen).
All of those examples are where observers tend to isolate the actions of one country/player without putting it into a global context or putting it into a real historical context.
In order to have a more realistic view of the world and capital flows one always has to think of chain reactions. How does the action of one government or institutions impact its internal markets, but at the same time how does it affect other linked economies or perhaps are there certain actions that linked or competitive economies might take against the initial action of the country in order to prevent such move to come to fruition? Thinking within this terms surely it is much more time and research demanding, but that is the only realistic way to anticipate the right moves or at least to anticipate all the counter moves/flows that might take place as those will dictate on the pricing mechanisms of certain instruments. This approach is especially needed when the bearish cycle is under way for the economy.
Conclusion
This article by no means provides the macro trader with practical knowledge to execute on in markets, it is only meant as a guide for aspiring macro beginners on which areas to focus on and study. It is a complex challenge that takes years to complete, well technically it is never complete since the well has no bottom when it comes to macro.