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Greek Perspective on Global Macro

Given the major economic crisis that erupted in Greece, it is fitting that we have a commodity trading advisor from that country to discuss global risks. We wanted to present a distinctive viewpoint on the big picture as everybody is daily reminded of unpredictable events by headlines about political blowups in the Middle East.

George Tzanetatos' analysis of long-term macro trends points in the opposite direction of current bullish market sentiment. He can attest that it's not easy to be a contrarian. In a recent conversation he remarked that he must be one of the few bearish players left.

His outlook is informed by tail risks, those big events that don't come often but can cause immense damage when they do erupt. After the experience of recent years, there is greater recognition of the need to pay attention to the possibility of such events. We believe this is a good time to present someone who thinks of tail risks as part of his strategy.

Mr. Tzanetatos grew up in Greece but became a member of the Chicago Mercantile Exchange and vice president of Merrill Lynch Futures. He founded Tzanetatos Capital Management LLC in 2000. He has homes in both Greece and Chicago.

In 2008 the Tzanetatos Global Titan Original Program made over 60%. The program had a small positive return in 2009 but lost 5.8% in 2010(as of November). It was among the Top Ten published in the September 15, 2009, Opalesque Futures Intelligence.

Below, Mr. Tzanetatos explains why he is bearish on several markets. We've included two photos of the Greek island Cephalonia from his album. The photos, one in daylight and the other at night, contain dramatic contrasts-like scenarios of normal versus crisis conditions.


I grew up on the island of Cephalonia on the west coast of Greece, near Italy. Recently I returned home to Chicago but I have traded from Cephalonia for long stretches of time, far away from urban spheres of influence. Growing up, I knew that I had to go abroad. Emigration is way of life for us because there is not much to do on the island-besides fishing, which I enjoy. To succeed as an emigrant, you need to acquire skills and study the world. I think my early experience helped form a global outlook.

My strategy is discretionary, backed up by fundamental and quantitative analysis. To put it simply, I place bets on future macro events. These are of a very long-term nature. The emphasis is on long duration trades and macro trends.

"There are huge geopolitical risks that are not built into trading systems."

Some macro events are predictable-the Greek economy's hard fall being a prime example. In May 2009, at an asset management conference in Athens, I presented a simple analysis. Greece relies largely on tourism and shipping; both were in trouble because of the worldwide recession. Plus there was a lot of debt. I said a tsunami is coming, and when it did, people asked me how I knew. But the evidence was there in plain sight!

There are huge geopolitical risks that are not built into trading systems. People take it as a given that markets will operate as usual, but there are signs of economic dislocation and more frequent movements between greed and fear.

I look to understand unusual developments. Take shipping. The Baltic index went down some 70%, with trading at levels not seen in 25 years. New ships are being delivered but shippers can't get lines of credit, so they can't use the ships. What this means for the future is the kind of question I ask.

China carries significant and imminent risks for the world economic order. The Chinese learnt from developed countries but history shows that learning is not always enough to avoid mistakes. China may be repeating the West's excesses on a grander scale. The country has been stocking up on commodities: Greek ships go to China and come back empty. This can't continue. I expect a sharp downward shift in commodities and have been selling commodities in the last two months.

Because I look to possible scenarios in the future, I often take contrarian positions. In 2010, short selling the S&P 500 and the euro, I did well until August. When the Federal Reserve started its new quantitative easing, though, I had to reduce short exposures substantially. But I am still short the S&P 500 and have increased our emerging markets short positions. We are long the US dollar and have been building short commodities positions.

While fundamental and strategic views determine the core components of our portfolio, we adjust the leverage of the positions and reduce risk as necessary in response to market conditions. I continually analyze events and filter the noise, then reexamine my macro view and trades.

The past six months have been tough for my futures macro program, Global Titan. But I have gone through such periods before and seen that the strategy works over time. In 2006 and 2007 we positioned for future events that came in 2008, when we had a truly exceptional year that rewarded our patience and discipline.

Significant macro risks continue to build globally and systemic risks are increasing worldwide-just look at the protests spreading from one Middle Eastern country to another like wildfire. Shifts in geopolitics could rapture the financial system while policy options are much constrained. Monetary stimulation will likely become less effective and the debt burden for the most indebted countries is reaching levels that we think are intolerable.

My strategy is like an emergency light in the case of a power failure-it takes into account tail risk and the model is built to withstand those power failures. The focus on long-term macro trends complements a robust portfolio that aims to deliver even in the most adverse market conditions.