The Fed raises interest rates, consumer confidence plummets, war breaks out in the Balkans, a drought in Brazil reduces the coffee harvest, oil prices soar in Rotterdam, Congress passes a new health care bill regulating the prices of prescription drugs, and the U.S. trade deficit hits a record high.
Each of these macroeconomic waves, some thousands of kilometers apart, will move the stock market in a systematic and predictable manner, albeit in a different way.
A thorough understanding of these macroeconomic fluctuations will enable you to make better investments and trades, regardless of your investment or trading style.
This is the power of macro investing, and this is what I will explain in this book.
--- p.17

Whenever a new macroeconomic shock hits the economy, its repercussions affect financial markets in the United States and around the world in a systematic and predictable way.
These repercussions could turn into a tsunami due to unforeseen, massive macroeconomic events.
An example of a small aftermath is Starbucks.
Rain in Brazil lowers wholesale coffee prices, leading to higher profits and higher stock prices for coffee retailers like Starbucks.
An example of a macroeconomic tsunami on the other hand is the Asian financial crisis of the late 1990s, triggered by the collapse of Thailand's currency.
The crisis not only rocked the Dow and Nasdaq, but also brought down stock exchanges around the world, from Japan's Nikkei and Hong Kong's Hang Seng to London's FTSE 100, Frankfurt's Jetra DAX and Mumbai's Sensex.
--- p.28

As Jeremy Siegel, a prominent financial authority, puts it:
“The word ‘crisis’ in Chinese has two symbols.
“First is risk… second is opportunity.” That’s right.
He is right.
As dire as it may sound, macro-savvy investors should view every natural disaster or war as an opportunity to play macroeconomics.
This would not be wrong if only we could accurately interpret and predict the impact of disasters on financial markets.
Therefore, it is important to understand how different shocks can impact industries and markets.
--- p.44~45

When looking at the stock market, macro investors tend to look first at sectors like energy, computers, and retail, rather than companies like Chevron, Dell, and Walmart.
Because we know that most big moves in the stock market are driven by industries rather than companies.
In reality, the movements of individual stocks are usually driven by industry-specific events rather than the company's own sales performance.
This means that even if you invest in a world-class company, you could end up in trouble if you choose the wrong industry at the wrong time.
--- p.109

We are human after all.
So, instead of immediately blocking the loss, there are many cases where small losses are rolled around and allowed to grow like a snowball.
The human psychology that makes things happen is based on two sharply conflicting emotions: hope and fear.
Every time you trade, you have a hope for profit and a fear of loss.
Unfortunately, in situations where losses must be blocked, the hope for profit always overwhelms the fear of loss.
And the result is always the opposite.
(Omitted) We must learn to reduce losses like a cold, ruthless, efficient, and calculating Terminator.
--- p.142

A macro perspective on the stock market can help inform your final decisions, regardless of your trading style or strategy.
This is true for at least three reasons:
First, it helps us better predict the overall trends of the stock market.
As I said, the stock market trend is your friend, so you don't want to trade or invest against that trend.
Second, it helps us discern the different impacts that different macroeconomic news can have on different sectors of the market.
(Omitted) The third reason, which is in some ways the most important, is that it helps us see the entire market more clearly.
--- p.183~184

You might be wondering how you can tell when a recession is looming.
(Omitted) Macro investors will first look at two economic indicators.
One is car and truck sales, and the other is housing starts and building permits.
These two are the most representative leading indicators that first suggest whether the economy is in a recession or recovery.
In addition, two important signals suggesting the onset of a recession can be found in indicators released by the Labor Department.
Unemployment claims are the number of people who applied for unemployment benefits in the previous week.
The five-star employment report, a key indicator, calculates unemployment rates by industry, region, and demographic, and also provides important information on factors such as weekly work hours and hourly earnings.
--- p.229~230

The most important thing in this diagram is to clearly understand which sectors are strongest and which are weakest at different points in the stock market cycle.
Understanding the dynamics of the stock market is key to sector-specific rotation and effective macro investing.
(Omitted) This figure clearly shows the progression of nine different industries, from the initial bullish phase starting with the transportation and technology industries to the later bearish phase ending with the financial and consumer cyclical industries.
--- p.246

A massive earthquake measuring 7.6 on the Richter scale struck Taiwan, killing more than 2,000 people and forcing many factories to halt production.
As soon as he heard the news of the earthquake, scenarios began to swirl in Ron's mind.
Taiwan accounts for 15% of the world's DRAM chip supply, so it was clear as day that this earthquake would affect the world's DRAM supply.
Under such assumptions, Ron speculated that leading DRAM chip manufacturers like Samsung and Hyundai would benefit.
Because now both companies will be able to raise prices sufficiently.
At the same time, it was thought that several computer manufacturing plants in Taiwan would cease production, which would deal a huge blow to computer manufacturers such as Apple and Dell.
(Omitted) Based on this assumption, Ron immediately purchased 5,000 shares of Samsung and Hyundai stocks, and sold them the next day at a 10% profit.
Moreover, he shorted 5,000 shares of Apple and Dell each and was pleased to see their stock prices fall by nearly 20% in a month.
--- p.335~336

You have to see the forest and the trees together.
This is especially true if you have little experience investing in stocks.
We often see cases where people focus too much on specific stocks or issues and miss the overall trend of the stock market.
While it's important to select good eggs that won't break easily (stock selection) and divide them into several baskets (diversification), it's equally important to understand whether now is the time to put eggs in, or whether it's time to empty the basket as much as possible and carry it lightly.
Professional investors with long-term experience investing in a variety of stocks across various industries will already know that assessing not only corporate performance and industry outlook, but also macroeconomic and economic trends is crucial for achieving investment results and successfully managing risk.

--- p.368