Complex Adaptive Global Macro (Executive Summary) - An Evolving Approach To Trading Global Markets by Gurraj S. Sangha

Traditional economic and market analysis attempts to reduce all events to a single cause and effect.  I am of the mindset that the global economy is much more like a rain forest, where millions if not billions of distinct animal and plant life interact with one another in a complex and adaptive system.  That is everything is connected.  Furthermore, I am of the belief that this interconnectedness manifests itself in nonperiodic, nonlinear, cyclical behavior throughout financial markets.  Business cycles have been present throughout all of time, as noted by former Fed Chairman, Arthur E. Burns “For well over a century business cycles have run an unceasing round. They have persisted through vast economic and social changes; they have withstood countless experiments in industry, agriculture, banking, industrial relations, and public policy; they have confounded forecasters without number, belied repeated prophecies of a ‘new era of prosperity’ and outlived repeated forebodings of ‘chronic depression”.  Furthermore, another Fed Chairman, Paul Volcker, in his 1978 essay (Rediscovery of the business cycle) wrote “The Rediscovery of the Business Cycle – is a sign of the times. Not much more than a decade ago, in what now seems a more innocent age, the ‘New Economics’ had become orthodoxy. Its basic tenet, repeated in similar words in speech after speech, in article after article, was described by one of its leaders as ‘the conviction that business cycles were not inevitable, that government policy could and should keep the economy close to a path of steady real growth at a constant target rate of unemployment.”  Additionally, the cyclical behavior which may be apparent in a single market is affected by the complexity of this interconnectedness, thus altering the cycle, giving the appearance of random or chaotic behavior.

By applying non-linear theories used effectively in other scientific disciplines one can seek to identify the major turning points in markets that occur based on the actions of individual market participants and individual markets that ultimately set in motion a domino effect of often much larger changes in other markets or [almost] all markets simultaneously. It is through the appreciation of the minimizing entropy behavior of market participants, in an arena governed by power laws and dynamic nonperiodic cyclical behavior, that one can utilize sophisticated fundamental, quantitative, and systematic analysis, to build a portfolio that protects investors from extreme events and allows one to opportunistically position for major market shifts.  This approach, a complex adaptive global macro strategy, builds upon traditional global macro approaches by integrating quantitative and systematic analysis, in light of continuing scientific studies supporting the view of the financial markets being a complex, dynamic, and continually evolving system.