Yuan Jun: We are in a major turning point in the macro environment, and there are still many opportunities.

Key Points:

1. Macro factors can be predicted, although not always accurately, but they can definitely be profitable. The so-called macro trading mainly involves foreign exchange and interest rates.

2. We are currently in a macro upheaval, and everyone is witnessing this historic moment. However, such a significant turning point does not happen in just a month or a year; it may take some time to complete.

3. It is not enough to rely solely on the market to reverse a crisis or recession. To overcome a crisis or recession, monetary policy easing by the central bank, fiscal stimulus by the government, and possibly more measures are needed.

4. The main focus that can be grasped in this world is the macro aspect. There are no black swans in the macro realm; they only exist as gray rhinos.

5. Imbalance does not necessarily mean a crisis. When dealing with macro issues, the key is to identify the points of imbalance. If we can keenly identify these imbalances, whether it is inflation, derivatives, or any other issues that can be profited from by shorting, these are all opportunities.

Recently, Yuan Jun, the founder of Shengyuan Global Investment Fund, shared his views on the global macro upheaval, interest rates, and exchange rate markets at an offline exchange event hosted by Wall Street News in Shenzhen.

Yuan Jun, who has experienced multiple market cycles, is a veteran legendary trader who has been active in the financial market for many years and has a deep understanding of global macro and major asset classes.

He has worked for Goldman Sachs and Morgan Stanley for more than ten years, serving as the head of macro trading in the Asia-Pacific region and Greater China, and has rich experience in trading research and management in financial institutions. He has extensive experience in multi-asset investments in London, New York, and Hong Kong.

Yuan Jun's sharing session lasted for 4 hours, and the class representative has selected some highlights for this article.

In the face of macro upheaval, how can we seize opportunities? Interested friends can join the "Master Class: Coping with Macro Upheaval by Yuan Jun" to better understand the transmission logic and market trends of the current macro upheaval together with Yuan Jun. The original price is 299 yuan, but the class representative has negotiated a special price of 288 yuan for everyone, with only 99 spots available. Act fast! [QR code image]

Macro may not be accurate, but it can definitely be profitable

The so-called macro trading mainly involves foreign exchange and interest rates. This includes derivatives of foreign exchange and interest rates, as well as trading from spot to forward options, complex options, and cross-asset options. These are all part of my work and can be profitable.

And let me tell you, 100% securities is the most profitable department in investment banks. It is more profitable than stocks and investment banking.It is precisely this department where all the transactions are macro-level things. Macro-level things can be predicted, but they may not be accurate, but they are definitely profitable.

We are in a major macro turning point

The significance of studying this macro turning point now is that we are already in a macro turning point, and everyone is witnessing this history.

Every event that happens is actually at an important turning point for future generations.

And as such a significant turning point in a major change, it is not completed in a month or a year, it may take some time to complete. Just like after the Bretton Woods system disintegrated, it was not until 1978 or 1980, after experiencing two oil crises, that the petrodollar was established, which took nearly eight years.

For the market, everyone may be familiar with Ray Dalio. Ray Dalio's proposal of the "All Weather" strategy was also developed after he experienced that period and witnessed the failure of various macro prediction theories in the 1980s. It was then continuously developed from the 1980s.

Therefore, in a huge macro turning point, especially when we are in it, you often do not realize that this thing is a decisive change at the beginning. And when you realize that this thing is a decisive change, some prices may have already changed.

But this does not mean that the opportunity has passed, there are still many opportunities waiting for us in the future.

It's just that our cognition needs to undergo a change from the past prosperous period to the current period of change. And talking about a turning point is nothing more than talking about what the past was like and what the present is like, and what we have experienced in the past is what is commonly referred to as the "Great Moderation" era.

The "Great Moderation" era actually has two core points. One is the global supply of labor and production. The other is a very elastic energy supply.

For humans, our means of production are nothing more than these two. You need raw materials, plus people to produce, so it's these two.

Why do we review the past, even if it seems like a Great Depression 100 years ago, what is the significance?

Because any crisis, any turning point has its context.

There are no black swans for those who have not personally paid attention and immersed themselves in it, because a drastic event does not suddenly emerge out of nowhere. Unless a comet comes, even so, human observation level can still see that star coming.

Just like every event mentioned earlier, such as the Great Depression in 1929, it doesn't matter if you didn't see the problem, it doesn't matter if you didn't see it in 1930, but by 1931, the Federal Reserve had already raised interest rates. Would you still dare to charge ahead? Impossible. Just like in 2008, the protagonist of "The Big Short," Michael Burry, the deaf fund manager, shorted CDOs in 2006, but he held on until 2008 to make money.He was the first person to realize the turning point, followed by others, followed by a group of people in our investment bank, and then most people in the market.

So the whole thing took more than two years. You have absolute space to short or get rid of your long position. In short, you can grasp it. So I say that the main focus in this world is on the macro aspect.

If you look at the micro level, there are many uncertainties about companies, but there are no black swans at the macro level. They only exist as gray rhinos. What everyone sees as potential risks may or may not happen. But at least if you remain highly vigilant, you can avoid many unnecessary losses.

For these factors in the whole event, they provide a lot of food for thought for the market and the central bank. No matter what the cause of each crisis is, there must be a strong counter-macro background to push it to the extreme.

War is usually one reason, including World War I and the Vietnam War. Then the financial crisis is the victory of another war, the victory of Western capitalism over the Soviet Union.

This victory has given Western countries great spoils of war. You can imagine it as the spoils of war won by the West in the war between the East and the West. In fact, it is driven by these things. Finally, under the joint action of monetary policy, fiscal policy, and regulatory policy.

Find macro imbalances and seize money-making opportunities

And in this process, a change has occurred, and there must be some factors of imbalance.

This macro imbalance is not a term I created, it was created by Soros. In his book "Alchemy of Finance", he repeatedly mentions that when doing macro, what you are looking for is an imbalance.

You are not predicting whether GDP will rise by 5% or 6%, or whether inflation will be 3% or 3.1% next month. This is important, to be honest, but for your trading and investment, it may not be so important in terms of guidance, but what is more important is to find where the imbalances are.

If we can keenly find those imbalances, whether it is inflation problems, derivative problems, or anything else, or find things that you can make money by shorting, these are all opportunities.

In addition, these imbalances do not necessarily mean a crisis. Many things are imbalanced, but it does not mean a crisis.

Market alone cannot reverse a crisis

A crisis must have a trigger.

For example, uncontrollable inflation is caused by an oil crisis or climate change. Like in 2008, it was the Fed's interest rate hike that led to the collapse of the real estate market. And recently, of course, it is caused by the pandemic and the trend of deglobalization.

The final trigger reflects that the central bank must also take corresponding measures to stop and prevent the spread of the crisis.

So what is this process? This process is the birth of a crisis or prosperity, the emergence of a turning point from prosperity to crisis, the real occurrence of a crisis triggered, and finally the crisis is reversed.

Because to reverse a crisis, to be honest, it cannot rely solely on the market. Don't think that when the market falls to a certain extent, it will definitely rise again. There is never such a thing. Only in a normal cycle, it may fall to a certain price, and then rebound.If a crisis occurs, the self-correcting ability of the free market is not sufficient for self-recovery. If such a system exists, what is the need for Keynesianism, right?

It is precisely because the evil imperialism of the United States and the West has failed for more than a hundred years that Keynesianism emerged, and then there is the new Keynesianism.

Therefore, in the end, to end a crisis, to end a recession, there must be loose monetary policies from the central bank, loose fiscal policies from the government, and possibly more stimulus measures to turn things around.

We can combine the actual situation, such as the decline in real estate or the overcapacity in some manufacturing industries in China. Without a significant counteracting force, it is difficult for them to break free from inertia.

It's like driving a car. It's easy to go downhill without stepping on the gas. It will naturally slide down, just like during economic prosperity.

When going uphill, it's a bit like during a recession. You have to constantly step on the gas pedal to make progress. If you don't step on it hard enough or if your driving skills are not good enough, it can be quite difficult.

These are the fundamental differences between going up and going down.

Exchange Rate Fluctuations

Today, I want to talk about exchange rates and their role as a macro indicator and investment target. But when discussing all derivatives, you cannot ignore this fundamental aspect.

The core uses of currency are, first, as a transfer of international purchasing power. In other words, if the currency in your country is strong and the currency in my country is weak, then the products produced with my currency will naturally be cheaper.

Because the labor costs and raw materials priced in my currency will definitely be cheaper. So if your currency is strong, it is advantageous for you to buy from me. This is the transfer between countries.

Therefore, the cheaper and more depreciated your currency is, the better the exports. This is the most basic theory.

The second use is for investment financing and capital flow.

Here, it is more about the return on investment in different countries.

For example, in the United States, for a considerable period of time, investing in industries in the US is definitely not as profitable as investing in industries in China, especially in the electronics factories in Shenzhen. There is a significant difference in the return on investment between the two, so foreigners like to convert their dollars into renminbi.

This is our foreign direct investment (FDI), entering China to invest in our manufacturing industry.

There is also financing. For example, because China's overall growth is fast, for a considerable period of time, our interest rates are higher than those in the United States. So naturally, as an American, if I have zero interest rates in my bank, and in China, the interest rate is 3%, why wouldn't I convert it into renminbi?

This is also a core logic behind the previous appreciation of the renminbi, there is a strong interest rate differential here.

And this interest rate differential is not simply high-interest financing, it is not the same concept as the Ponzi scheme's high-interest deposits. This is supported by our production and actual income.

In other words, our country and our companies do have high returns, which is why we can afford to pay higher interest rates. This is a very powerful self-reinforcing cycle.Because of your high returns, you pay high interest, and more people give you money to support your industry's development. This is a very strong closed loop. However, many countries do not enjoy such a closed loop. Our country has had a very perfect closed loop for a long time.

The third use is actually what we professionals do, which is hedging and speculation in trading, trading based on expectations of future exchange rate changes. This is the most important component in the foreign exchange market, and the trading volume of the first two is far less than that.

That's all for today's sharing by the class representative.

Mr. Yuan Jun has always been at the forefront of the global market, experiencing the ever-changing market trends.

The class representative believes that his explanations can focus on the current macro changes and review historical changes. Even financial novices can easily understand and better understand and respond to major abnormal risk events.

Let me recommend the welfare price again: 288, limited quantity.

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Author: Wang Li Source: Investment Workbook