Is the Age of Macro Ending?

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….


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:


  1. “But perhaps the biggest surprise in 2013 and beyond is that the era of tail risks is coming to an end”

    One of the most stupid and arrogant assertions published this year. Finance people don’t know science and thermodynamics in particular so for them if things are quiet for a while, the whole world will be quiet for the next age. They still don’t know anything about equilibrium and from where disorder comes. Sometimes intelligent economists like Minsky do discover what scientists discovered 150 years before. Economy is not a science and finance is even less.

  2. Define dead. As far as I can tell, countries, governments, currencies, debt, interest rates, commodities, and equities still exist. I don’t think Dan Loeb would agree that macro is dead either given the $500mm of profit he just made on Greek sovereign debt.

    Even in countries at the zero bound, there are enormous forces at work on the currency side. Saying tail risks no longer exist is just silly. It’s like saying bears no longer exist in hibernation season. Declare them dead at your own peril. Perhaps Joe W should read “The Black Swan”.

  3. It’s clear that the world is shrinking, but I am really wary of declaring that volatility worldwide has become permanently less or more prevalent. That sounds like a type of efficient market theory that will simply be blown up by the next boom or bust.

  4. This doesn’t say anything about volatility. It says that correlations between various countries, economies and stock markets are likely to continue converging in the coming decades. What happens in one country or one market is no longer going to impact just that market or economy. I fully expect, for instance, US revenues to decline in the USA as companies diversify outside of the USA. If we were to look at GDP relative to revenues, for instance, we should fully expect US companies to one day generate just 25% of their revenues from domestic business. We’re headed there. It’s just a matter of how fast.

  5. Similar to tbill’s comment, the Age of Macro, Part XXX, is just beginning. The amount of global government intervention is unprecedented since the 70’s. We’ll look back at 95-05 as the Age of Global Laissez-faire.

  6. Cullen,

    Re-read the piece and agree, I was kind off on a tangent about the BI quote. By the way, living in Canada, I wish there were more correlation between our protected telecom sector and US-based telecoms. My cell phone will would likely be halved….

  7. The end of macro would signify the end of massive central bank intervention and manipulation. I do not see this coming to and end any time soon. Case in point, the Nikkei has been rallying based on only the speculation that the new prime minister will unleash a massive stimulus wave. That is pretty ‘macro’ to me.

    “This indicates that we are close to being in a differentiated/stock picker’s market.” — This is pure wishful thinking.

  8. Alberto,

    You nailed it there. This is exactly the reaction I had to this statement. Obviously they do not believe what they are saying because the so-called once in a universe events, statistically speaking, seem to re-occur on a fairly regular basis and that’s not an assertion, that’s just recent history.

    “Minsky’s Financial Instability Hypothesis

    Minsky’s Financial Instability Hypothesis (FIH) is best summarised as the idea that “stability is destabilizing”. As Laurence Meyer put it:

    “a period of stability induces behavioral responses that erode margins of safety, reduce liquidity, raise cash flow commitments relative to income and profits, and raise the price of risky relative to safe assets–all combining to weaken the ability of the economy to withstand even modest adverse shocks.”

    Meyer’s interpretation highlights two important aspects of Minsky’s hypothesis:

    It is the “behavioral responses” of economic agents that induce the fragility into the macroeconomic system.
    After a prolonged period of stability, the economy cannot “withstand even modest adverse shocks”.”

  9. Conventional Wisdumb, Could Japan And China squaring off over the Senkaku islands fit any of these behavioral responses?
    it has been pretty calm between them for quite a while.

  10. Cowpoke,

    The concept I am referencing is meant to be applied to financial markets rather than politics. I really don’t know if it applies here.

    However, I suspect we would have a lot less stability in the world without the US as the supercop. Perhaps a decline in our military might would quickly reveal the rot at the foundation of the world’s political stability.