Investing from the top down: A macro approach to captial markets

302 Pages·2008·1.35 MB·English

by  Anthony Crescenzi

INVESTING FROM
THE TOP DOWN
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INVESTING
FROM
THE TOP DOWN
A Macro Approach
to Capital Markets
ANTHONY CRESCENZI
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To Cynthia and our enchanting daughters, Brittany, Victoria, and Isabella,
who enrich my life every day and provide me with the greatest
possible motivation to work hard, to learn and explore, and to keep
challenging myself
To all who, in one way or another, are survivors, and who despite the many
obstacles and challenges they face in their daily lives, each day find the inner
strength to endure and to excel
To my nurturing parents, Anita and Joseph, who gave me the freedom to
think creatively, explore, dream, and have fun—lots of it. To my brother
Joseph and my sisters Theresa, Gina, and Nicole, to all of my family and
friends, and to the great city of New York
–Anthony Crescenzi
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A C K N O W L E D G M E N T S
Top-down investing is a by-product of a mindset whereby people
take a broad look at the world. Everyone who has this mindset
develops it in his or her own way. I would attribute my own devel-
opment to a number of factors, a few of which many can probably
relate to. It starts, of course, with one’s parents or guardians, and in
my own case my parents helped me immeasurably by giving me
free reign to direct my feet and my mind to go in any direction I
chose to go. Moreover, my parents planted me and my brother and
three sisters into a neighborhood where I was able to have experi-
ences that were a microcosm of the experiences of those found in
neighborhoods nationwide, helping to elevate my awareness of the
ways in which the masses think, a perspective that is vital to devel-
oping views about trends in economies and markets.
The top-down mindset is immensely nurtured when living in
countries that encourage free-market capitalism, and no place on
earth is better at it than the United States. Capitalist societies such
as the United States are most likely to experience change and have
transformations that result in changes in the investment landscape,
upon which investors feast. I feel fortunate every day to be an
American.
Many investors have contributed to the allure of utilizing
macro information and secular trends when deciding on invest-
ments. An idol of mine in this regard is Bill Gross at Pimco, the
manager of the biggest bond fund in the world. He and his col-
leagues have illustrated the benefits of utilizing a macro approach
to the capital markets while also displaying broad knowledge of
the products and landscape in which they invest, doing so with
great success. George Soros is another great investor I admire who
has had smashing success in investing using macro principles.
For the development of my investment approach and in the
writing of this book, I would like to acknowledge the work of the
vii
viii Acknowledgments
researchers at the Federal Reserve, where 200 Ph.D.s produce work
available to the general public. The Fed’s research can be of great
value to anyone who endeavors to know more about the markets,
the economy, the Fed, the banking sector, and much more. The
Fed’s work is easily accessed by subject matter via Fed in Print,
which can be found on the Internet. Often, the work of the Fed’s
researchers is showcased in speeches delivered by Federal Reserve
officials, and I have benefited greatly from reading these speeches
on a regular basis. In particular, the many speeches delivered by
former Federal Reserve Chairman Alan Greenspan were immensely
beneficial to me in learning more about our capitalist system.
Excellent research is also available from the Bank for International
Settlements, the International Monetary Fund, the world’s central
banks, and government agencies.
I would like to thank my employers, Jeffrey Miller and Jeffrey
Tabak, for their continued support of my work and for many years
having given me the freedom to explore with great liberty the
broader capital markets rather than just one area of focus. I thank
them also for giving me the opportunity to build the skill set I’ve
needed to build a career on Wall Street and write three books. In the
production of this book I would like to thank my colleague Dan
Greenhaus, who contributed two chapters in the book and who pro-
vides me with research support on a daily basis. Thanks also to my
colleagues Pete Boockvar and Charles Campbell for their invaluable
insights, to Robert Koggan for so many years of support and guid-
ance, to John Pietanza for elevating the level of my work, to all my
coworkers, to Steven Jordan, Nat Lipstadt, and Walter Weil for their
wise perspective on markets and the ways of Wall Street.
As for my publisher, McGraw-Hill, I would like to thank
Jeanne Glasser for giving me the opportunity to publish and for her
guidance as to the direction of the book. Thank you also for your
patience! Thanks also to Scott Kurtz and to Laurie Abbate for your
support and for motivating me to keep pushing and to do better.
Thanks of course to my three girls, Brittany, Victoria, and
Isabella, for giving me the biggest possible motivation of all to do
all that I do, and to Cynthia for mothering and nurturing our girls
while I worked all these years.
–Anthony Crescenzi
C O N T E N T S
Chapter 1
Top-Down Investing Has Arrived 1
Chapter 2
The 2007 Credit Crisis: ACase in Point 23
Chapter 3
Globalization Makes Top Down a Must 39
Chapter 4
Thematic Trading and Investing 57
Chapter 5
Thematic Investing Using ETFs 71
Chapter 6
Central Banking Is a Top-Down Affair 81
Chapter 7
Filling the Gaps on Value Investing 113
Chapter 8
Diversifying Your Portfolio from the Top Down 137
Chapter 9
Do the Math! 157
Chapter 10
Other Reasons to Invest from the Top Down 175
ix