Applied Financial Macroeconomics and Investment Strategy: A Practitioner’s Guide to Tactical Asset Allocation (Global Financial Markets)

The headline to this review may be deemed irrelevant since the author states right off the bat that this is a book oriented to asset management professionals or soon-to-be ones. However, I thought it could be helpful to any individual investor who ended up here.By “not critical” I don’t mean useless. On the contrary, I think it is very educational. The problem is that I don’t think applied financial macroeconomics consists of an investing approach in itself. It is definitely a very strong complement. But nothing more than that. Being time and resource constrained, individual investors need to be very efficient in the way they plow through information and make decisions. They don’t care if the investment philosophy sounds appealing, they just need it to work and be easy to implement. And it’s for that reason that this is not a critical book for them.The author’s thesis is based on the idea that the business cycle is a critical factor explaining major fluctuations in the different asset classes (equity, bonds, and commodities). This is true in the sense that, every time there has been a recession or depression, there has also been a major correction (or a straight up crash) in the stock market. The problem is that those are not the only times when the stock market has suffered major corrections. The popular saying “the stock market has predicted 9 of the last 5 recessions” implies that there are almost twice as many stock market cycles than business cycles (please, don't take this literally). And remember, you’re trading the stock market, not the real economy. I don’t think any investor found any comfort in the fact that the real economy was not in a recession in 1987 after Black Monday. Even the author himself shows how since 1945 the frequency, duration, and magnitude of the business cycle has decreased considerably. In particular, there have only been 5 recessions in the last 40 years. That’s an average of 1 recession every 8 years. In fact, the average has been more like 1 recession every 12 years since the beginning of the secular bull market that started in the early 80’s. That might be just too infrequent to be used as a foundation for an investment strategy.Another problem with the business cycle approach is that it uses old data. Although there are some leading indicators around, in general all these macroeconomic data is about the past. And, as we know, the stock market is a forward looking mechanism. So, if you have to wait for the macro data to become available, you will more often than not be late to the party.In general, I think there are much easier and efficient ways to play the market cycles. That starts with focusing on the actual tradeable cycles (those of the asset classes) instead of on the ones underlying the real economy.Now, there are two major positive aspects about this book. First, it is very original. There are not too many books on this topic. In fact, I only know of one (Expected Returns by Ilmanen), and that actually has a more academic bias. Second, it approaches the analysis of macroeconomic events using the right methodology. That is, it avoids the rigidity of mathematical models from academia to favor an approach based on history, concepts, and common sense. That is not a minor point. In fact, it is huge one. The reason why this is a very educational read beyond its practical implementation.

The book is an excellent overview of the drivers of many different asset classes over the past 30-60 years. It is a nice overview, but as one would expect, it is hard to impossible to get into tremendous depth for every asset class in just 250 pages. I specialize in equities and I found a lot of that section quite remedial. However, if you are not an equities professional, you may find it provides a reasonable amount of data. While some sections were lacking on a lot of actionable insight, I found the whole book quite worth my time, as I think that it gives some good long term perspective behind the performance of various asset classes since 1970, while also giving some solid insight into where we stand in the current cycle.

This is simply the best book I have found when it comes to connecting the macroeconomic cycle with investing. Will be too advanced for novice investors, but if you manage money then you need this book on your shelf. Simply awesome.

Well not really superpowers but a confidence about investing that gives you insight that markets cycles are based on longer term secular trends that can be understood. The book provides a tremendous long term view of the relationship between the business cycle and fiscal policy and analyses the impact on three major asset classes-- bonds, stocks and commodities. He also makes you think about how a lot of conventional policy thinking is rooted in a skewed view of employment and savings rates. The authors prose is straightforward but he has a knack for writing very information packed sentences that make the reader really think about the points he is making. Definitely an inspiration to learn more macroeconomics!

As others have said, this is perhaps the best investing book I have ever read. Everything before this seems trivial and like noise. The author provides simple but seemingly accurate (backed by historical correlations and research) explanations for what happens, why, and what one can anticipate in this conditions. This is a no-kidding ‘how-to’ macro invest book.

Very helpful for gaining a better understanding of the business cycle and how it impacts investment strategy.

well summarized and very smarti wish many people read this book.but it was needed some technical treatment of economic indicators.

As a layman, I found this to be an excellent read and basis to avoid the simple "buy and hold". It would have been nice to have had a more"balanced" portfolio in my youth during 2000-2001 and 2008. Ignorance was not bliss at that time ;-)Having no formal education in economics (though some grad level stat classes), I was able to still glean significant and relevant information.

Quite shallow. Reads like a collection of thoughts rather than a coherent and comprehensive book. Also, the author often provides his own (sometimes unconventional) views without even mentioning that those are opinions and there are other points of view as well. Is not worth the price

The author does a really good job at studying different investments since 1960 throughout different monetary policies and business cycles. Basic knowledge of macroeconomics and financial markets are required for this book.

The book is a jewel. I dont know who is the author but this is the book I would liked to have when I started in Finance, but also an amazing piece for an experienced profesional. The book sets a non-quantitative framework for understanding cycles and its effects on financial assets. It uses a top-down analysis of the economy and produces a useful view of the forest (i.e. its not a detailed analysis of the trees). Really really helpful, would recommend to anyone

This book is awesome. super informative especially on monetary policy and articulating the Fed's perspective and their policies' impact on different asset classes. Actually the best ever book around investment strategy I've read so far. Really appreciate and recommend it.

Ottimo libro. Teorico quanto basta. Molto spazio agli aspetti pratici. Molto documentato. Utilissimo. Un must per l'investitore.