What Makes A Good Macro Manager?

The Imagination 

Bessent devotes his early interest in macro investing to the imagination which was fostered by his father -  one of the largest collectors of science fiction books. 

Comparing his childhood fascination that ‘there could be something different and it could be on a different planet’ to his fascination with regime change in macro investing, Bessent makes clear his interest in observing and observations. 

He defines macro investing as

‘You are observing the world, you’re observing markets, you’re observing what you think should happen, and you’re observing what is happening’. 

Elsewhere, Bessent acknowledges ‘you are looking for change on the margin and you want to see what the market is giving you’.

For this reason, Key Square, which managed $4.5 billion within its first 6 months, takes its name from the concluding chess sequence between two kings and several pawns. 

‘There is one square you can move to and you win. If you think about the financial markets, many times, there is one investment you can do and you win.’ 

Emerging Market Currencies

Looking forward, Bessent sees de-dollarisation as creating a ‘Global South’ whereby countries such as the French Republic want out of the dollar system - pushing the US to reconsider a new way of doing business. 

Indeed, Bessent describes Russia’s key mistake as transferring their foreign exchange reserves from dollars to euros, or rather ‘expecting Europe to not align with the Americans’. Instead, Bessent posits gold, a store of fixed value, as a more efficient alternative for retaining reserves.

Foreshadowing China’s negative economic trajectory, Bessent notes investment into other emerging markets such as India and Japan as viable long run options. Bessent draws on pessimism concerning China’s increased oil imports and raising tensions between the US and China. 

“They’ve starved the consumer or starved households in favour of manufacturing and doing the rebalancing is very painful” 

Macro Impact of Artificial Intelligence 

With this in mind, Bessent sees AI as a potential drawback to China who may well limit private sector access in line with both Europe and the UK who are steadily imposing regulations. 

On the potential for significant productivity gains by AI, Bessent states ‘this is an arms race’. 

Philosophy of Risk

Drawing on the great Stan Druckenmiller for his risk management theory of asymmetry, Bessent finds himself asking the following: 

‘what’s the market given me? What’s my upside, downside, and how should I size that?’ 

Bessent provides the analogy of shooting a fish in a barrel for shorting the pound, stating:

‘I think that there’s a change in market structure. Either the fish can shoot back or the metal ties holding the barrel together have gotten bigger and the bullet can bounce back and hit you. You’ve got to be much more adept and much more attentive to the other players.'

Concluding Final Five: 

Stepping away from the macro world, Bessent reaffirms the importance of the imagination, specifically the daily habit of ‘imagining the day – imagine you want to have the day you’re going to have’.

Building off the motif of mental preparation, the Presbyterian macro investor emphasises the importance of keeping Saturday sacred. In line with this, Bessent argues ‘starting the week on Sunday afternoon’ is his ‘secret weapon’ to having a jump start on the week. 

Indeed, Bessent’s knack for accessing the macro signposts, when they will come and when they will evolve clearly aligns with his day to day practices of assessing, observing and preparing.

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By Liza Rance, who has completed an internship at The Money Maze Podcast. Liza is a recent Oxford graduate who studied English Literature and Language at Hertford College. Outside of her degree, she is interested in management consulting having been a part of both Oxford Strategy Challenge and CapitOx. She is also an avid hockey player representing the university twice in varsity matches against Cambridge.

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