Inside the House of Money by Steven Drobny is one of my favorite books on the market because it allows practicioners, as opposed to authors, tell their story. Drobny collects interviews with a few of the best names in global macro fund management and publishes them. One of my favorite interviews is the very first one, on Jim Leitner of Falcon Management. I especially like the interview because Leitner recounts dozens of trades that he’s made and explains where the idea came about. A few are below, some are quotes and some are summarized …
- Long Turkish glass manufacturers. Tragedies can be a buying opportunity. When Turkey had a massive earthquake in 1999, we bought shares of glass manufactureres because we knew everybody was going to have to repalce their windows. Turkish stocks were going down across the board but we bought all the shares of glass manufacturers we could. (page 45)
- Overnight Swiss rates. Price of overnight Swiss franc interest rates, one day in advance. Sensed Swiss franc IR next day were going to be very, very high, so borrowed billions of francs one day forward. Made 1 tick. First successful trade based on knowledge of market. (page 47)
- Long Yugoslavia. We find it interesting from investment because we believe Europe wants to show that they can rebuild countries even if they aren’t good at sending troops. Also, Bosnia is a Muslim country, and with the question of Turkey joining the EU, the Europeans want to show that they don’t have a problem with Muslims, just Turkey. Money is pouring behind this political agenda. However, there is no bond market and currency is difficult, and there are no equity indices. Only way to get exposure is through stocks, so need to sift through and find the appropriate stocks to buy.
- Long Ghana. Ghana is a good example of the value of reading the Economist. There were a few stories about their president, Kufuor, detailing his economic views and policies. He was very impressive.
- Long Guinness Nigeria. A few years ago, the Economist had something on Nigeria, stating that average beer consumption had dropped from 34 liters to 3 and then rebounded to 4. There’s something going on when beer consumption drops 90 percent in a hot country and then starts to rebound. We started buying Guinness of Nigera and it’s gone straight up over the past three years.
- Long gold puts. In 1997, the gold forward curve was upward sloping, which we thought was kind of weird. Spot gold was at $310 and five year forward gold was at $380, and 5y puts at $310 were at $3. Good risk reward. Bought them at $3 and sold them two years later at $18, when gold was at $258, making 2x the money.
- Inflation index linked housing bonds from Iceland. High real yields in an economy with a budget and trade surplus, independent central bank, and inflation and rates coming down. Guaranteed by government and yielding more over inflation than any other inflation linked bond in the world. Good liquidity. Play is that they are to become euro-clearable in the next few months, opening up the door for a huge number of investors. Good carry, fundamentals and technicals.