We are strong believers that the first rule of global macro money management is knowing where you are not where you will be. You cannot forecast correctly if you do not know your positioning in the business and credit cycle. This seems like a simple proposition but is actually much harder than expected.
Financial markets are supposed to be expectational markets - discounting future events; nevertheless the discount process is grounded on current situations. If markets are cheap the discounted future value is different than if the market is rich. Current positioning scales the future and provides context.
Let's take the case of the credit cycle. Defaults are on the rise. Spreads are increasing. Investor capital is moving out of the sector. CAPEX is declining in some key sectors. Rates are moving higher. On the other hand, buybacks are continuing, M&A is still robust, and cash positions are still high. The consensus is that we may be late in the cycle, but this positioning is subject to debate.
If you believe the late credit cycle story, it is tile to start moving out of the sector. If you are less confidence of current positioning, there is a buying opportunity at spreads more attractive than a year ago.
We are not arguing a specific point of view but rather a framework for looking at the world. That framework focuses on the today and not the tomorrow.