🗞 Every Pro Knows This Strategy - That's Why It's Hidden

WHILE YOU POUR THE JOE… ☕️
The Very Best

These were the few hedge funds that completely destroyed the competition, and I wouldn’t be surprised to see them in 2025’s list.

Now you might have noticed something, they can all credit their success - in one form or another - to a global macro strategy. 🌎️ 

Bridgewater Associates, Ray Dalio’s empire and the biggest hedge fund in the world has perfected this strategy down to a T.

And we’ll go over it in a minute, because right now you’re probably wondering…

What even is global macro? 🤷‍♂️ 

On that note, let’s get on with today’s email 📧…

BEST KEPT SECRET
For Their Eyes Only

You see these two investment legends? That’s Stanley Druckenmiller and his early mentor George Soros.

And as Stan put it best, I think this is what global macro boils down to:

“Figure out what the world will look like in 6-12 months, then reason what assets or stocks will do well in that world”.

By the way this is the guy who arguably holds the best performance record in the market (not Buffett), and he’s a global macro guy.

Now that your money senses are tingling, let’s get into how you can arrive at this 6-12 month view and pick winning trade ideas: 💡 

Market Interconnections

Back to Ray Dalio and Bridgewater.

Over the years, Ray and his team developed what he calls the “all-weather portfolio,” designed to perform well regardless of the market or economic environment.

Now, most think that this is a build-and-keep type of portfolio, but it’s actually the complete opposite.

In this portfolio, Bridgewater beats the market by constantly shifting their positions between asset classes, such as out of dollars and into bonds (happening now), or other variations. 📈 

But get this.

The secret to this strategy’s success is knowing what to cut and what to add, so grab a pen and paper because this is where it gets interesting. ✒️ 

Correlation Regimes

The market is one big correlated machine, but it isn’t always so black and white.

Sometimes, assets that are supposed to be correlated (move together), end up going in complete opposite directions. 🙃 

This is where questions should start popping up, with the sole purpose of answering the why behind a sudden correlation spike or decline.

By the way, this is something AI is years from being able to achieve, so pay attention because this will keep you in the game when algorithms erase your edge in short-term trading. ⌛️ 

If you can successfully manage to spot these swings, and answer the “Why” behind them, then most of your problems are already solved.

Example in Bonds and The Dollar

This chart represents the $TLT bond ETF (orange) and the dollar index (white).

Notice how their correlations have broken down to send them so far apart, that their spreads are at what seems to be an extreme.

This isn’t the first time it happens, nor will it be the last, but you still need to pay attention as to what it means. 👀 

Last time this happened was in late 2022 and late 2023, so let’s go over a few things here. 📅 

Whenever the spread gets to this extreme on the downside, all else considered, it means that the economy (and the market) is strong due to inflation perceptions.

The lower the spread goes, the more momentum we can expect in the S&P 500 and NASDAQ 100 indexes as a result. 📈 

I want you to turn to July 2023, when the spread bottomed and had a sudden pop, I remember clearly being in Thailand and talking to Max (our analyst) about this. Next thing you know, the market went on a three-month straight decline. 📉 

You can see it now as well, the market officially topped in December 2024, just as the spread started to spike again, and has been on a three-month channel, a purgatory so to speak. 👀 

As we approach a potential new all-time high on the S&P 500, I’d be very careful about this spread not making a new bottom, which could signal weakness in the stock market, a fake breakout if you will.

Questions Answered

Now remember you need to start asking questions to explain a potential correlation spike in these two assets, which means a convergence.

That’s bond rally, dollar selloff.

At InvestiBrew, we think that there’s a broader theme happening already to help this convergence take place:

• Trump wants lower interest rates, as the real economy is in a recession not shown by inflation within the services sector.

• A lower dollar is needed to slow down excess consumer spending, and also boost trade.

• PMI data suggests 90% of industries are ready for a lower dollar.

By the way, we made an entire YouTube video about this rotation, where I explain this whole theme as I would at a morning meeting at Goldman Sachs. 🫰 

In case you haven’t figured it out already, the scenario (opposite from inflation) where this dollar/bond spread converges is a recession. 📉 

Every indicator we track suggests this will be the case as well and that’s the beauty of global macro, since we’re already positioned for it.

Speaking of which, this is also where the beauty of global macro comes in.

Multi-Asset Flexibility

Now that we’ve spotted a potential correlation regime shift, and then made sense of this 6-12 month view through economic data and its narrative, we need to express this view in the market.

We’re not Bridgewater, but we gave this a fair try.

Since we expect a lower dollar and higher bonds (lower yields), we are prepared to look for a couple of things:

1. Overseas Stocks: Since these ADRs are quoted in US dollars and exposed to FX risk, a weakening dollar will drive these stocks higher. A good example of fantastic risk/reward exposed to this theme is China and Brazil, where stocks like Alibaba and Ternium made the top of our list and have been breaking out already. 📈 

2. Forex: You can’t tell me that the setups in the EUR/USD and the USD/JPY don’t look ripe for a major move right now. 💴 

3. Commodities: But not just any type fo commodity, we need to find one that has yet to reflect the weak dollar premium, bu that is also exposed to the new business and trade activity coming from a manufacturing PMI breakout. If you’re thinking oil, you guessed it. By the way, here’s our top pick in the oil sector for you to enjoy as well. 🛢️ 

Picking individual stocks is a whole different subject though, and so is the timing of your trades (we’ll make a dedicated product on order flow and volume analysis).

For now, here’s the YouTube video covering part of our stock selection process that led us to our top pick in a steelmaker breakout. ⬇️ 

Asymmetric Risk/Reward

One thing you might have already noticed is that all of these setups carry with them a fantastic risk/reward ratio. 💎 

This is why global macro hedge funds are able to keep their volatility and drawdowns so small, but that doesn’t mean they’re never wrong.

But get this, being wrong is not what you’ve been taught it means, such as a % loss or hitting your stop loss level.

Being wrong in global macro means your “6-12 month” view is wrong. Take the bonds/dollar idea for example, being wrong there would mean that dollars keep going higher, while bonds go lower.

That would signal inflation in the economy, and if the data confirms it, then we can either flip the book entirely into inflation-friendly trades or hedge for the time being (low volatility, low drawdowns).

As a matter of fact, we have been down in our $TLT position for a while now, but overall the portfolio is green, since we’ve also been heavily investing into this metals and energy breakouts. 📈 

Risk Management

That’s the perfect segway to discuss risk management in a global macro strategy setting.

Apart from picking their weightings in asset classes according to the macro narrative and correlation regimes, these funds engage in what’s called “dynamic hedging”.

That means that as correlations between two assets swing to positive or negative, positions are added to or reduced in the direction of the correlation swing.

Let me explain. ⬇️ 

Oil futures (white), and $TLT bonds (orange) this time, with a red line measuring their correlations below.

Notice that there’s typically a cutoff level at -65% correlation there, which triggers a shock into positive correlation shortly thereafter.

That’s not all it measures though.

When the correlation cutoff is breached, it typically comes coupled with an S&P 500 selloff as well. 📉 

Since we’re below the cutoff, setting us up for a breakout, and we’ve landed on a recession scenario already, this is what global macro would tell me:

• S&P 500 bearish 🐻 

• Oil and oil stocks bullish 🐂 

• Bonds bullish 🐂 

You can quote me on this, and if in 6-12 months I haven’t been proven right, then you can unsubscribe and never hear from me again.

Now back to risk management.

Volatility Regimes

Say that the correlation between oil and bonds keeps going lower, then that would mean current narratives (inflation) would keep accelerating, and the path of the dollar would be up.

Well, that would mean we are wrong, in our view, so we need to adjust by hedging, either buying some large-cap tech stocks or looking for volatility regime changes in areas like gold or currencies to hedge.

What do I mean by volatility regimes? Great question.

To answer that I want to bring you back to a slide deck I put together during my time at Goldman, helping a trader explain his shifting view in EUR/USD. 💶 

Volatility is at the top, EUR/USD at the bottom.

He wanted to go long the EUR/USD in late 2022, because the volatility regime had peaked after a massive one year decline in the currency (coupled with a one-year breakout in volatility).

Fact: EUR/USD ended up going higher by some 1,500 pips. 🔥 

That means, leverage up and forget hedging, since a volatility compression gives you more freedom to do so.

On the other hand, volatility breakouts call for more hedging and less exposure, which is something you need to measure on a weekly basis (we’re building software to help you do this).

Thank You For Making it This Far

In a world where AI is going to drive more and more of the short-term price action in the financial markets, strategies like global macro will not only become more popular, but also the ones that investors will demand the most out of. 👀 

Which is why being able to connect the dots a few months down the line will guarantee you keep your place in this industry, and if you use the free resources we’ve given you in the links below, you can then start developing your own professional-level trade ideas. 🧠 

The same ones that can make you over ten thousand dollars a month online, but that’s something we covered in another video.

GO AND MAKE IT HAPPEN
My Favorite Read

I studied dozens of successful traders and fund managers, and they all had one thing in common:

Global macro

Today’s book recommendation 📖 is one of my favorite books on the subject, because as you go through it, you realize that all these fund managers and traders credit their amazing success to watching all markets at all times.

To your success,

G. 🥃