Wednesday, December 28, 2011

A Sobering Account: The Corruption of America

Here is a very sobering report on the many problems that face America -- and the world. In particular, the report, entitled "The Corruption of America" by Stansberry Research -- discusses corruption within the government, corporate America, the consumer (and debt), and more.

We have lost our sense of honor, humility, and the dedication to personal responsibility that, for more than 200 years, made our country the greatest hope for mankind. I want to detail some of the factors that gave rise to the current entitlement society. We have become a country of people who believe their well-being is someone else's responsibility.I've labeled these problems: The Corruption of America.

Read more here:

Wednesday, December 21, 2011

Gold at a Crossroads

Here's an excerpt from an article on Commodities & Gold:

As gold surged towards the $1900 per ounce price level over the past few months, there has been growing interest in gold as part of a well-diversified portfolio – and as a safe-haven investment. Indeed, the gold positions of large and well-respected institutional investors such as the University of Texas endowment, and hedge fund manager, Paulson & Company, have been in the news.
Interestingly, many of these headlines came around the time when gold was rallying towards its all-time highs in the $1900 range. We note that many of these large investors have already profited from their stakes in the precious metal. Since peaking at around $1900 per ounce in September 2011, gold sold off rapidly to $1550 within a few weeks. Gold has been consolidating mainly in the $1600-$1800 range since that time. Where will gold head from here? In this article, we look at gold – which stands at a crossroads, as we prepare for 2012.
Our CTA’s proprietary trading models cover the gamut of time-frames, which include long-term and short-term trend-following. Briefly, our futures trading strategy can be described as:
  • intermediate to long-term trend following, with
  • pattern recognition and machine-learning components, and
  • (short-term) risk management approaches that help set us apart from others.
In particular, some industry professionals like the fact that our pattern recognition and short-term risk management components have a slight mean-reversion flavor.

As intermediate-to-long-term futures traders, our outlook remains bullish, but the bullish case has started to crumble. As usual, we will follow our computer models and trading strategies to give us direction.
As our clients and investors know, we apply a “barbell” approach to help us maximize “forward information.” Systematic and computerized trading strategies keep us disciplined – and market action will dictate our positions. 

Read more here:
Carlton Chin, CFA, is the portfolio manager for ADAMAH Capital, which specializes in Computer Aided Research & Advanced Technology (CARAT). He is a specialist in quantitative investment strategies, managed futures, alternative assets, global macro & strategic asset allocation. Carlton combines a CTA hedge fund background with portfolio optimization work for institutional investors. He founded Adamah with his long-time friend and associate, George Parr. Carlton has been quoted and featured in the Wall St. Journal, NY Times, MARhedge, Futures Magazine, and Financial Trader. He holds both undergraduate and graduate degrees from MIT.


Sunday, December 18, 2011

On Diversification & Active vs. Passive Management

In our work and research related to portfolio optimization, asset allocation and quantitative investment strategies, we use historical data and seek to maximize “forward information.” Our goal is to improve risk-adjusted returns and achieve prudent diversification.

In a recent article on Managed Futures and Commodities, we reviewed the performance of several asset classes during 2011 (through the end of November). Some investors noticed that the actual performance of some key asset classes outperformed professionally-managed funds. For instance, the S&P 500 is actually positive (+1%) as of the end of November, beating many actively-managed funds. In addition, because the S&P 500 was positive – along with government bonds (intermediate-term government bonds are +8% through November) – some investors are surprised to see Global Macro approaches down for the year.

Active versus Passive Management

Based on the performance of the S&P 500 and government bonds so far in 2011, we can see that a simple 60% stock / 40% bond mix would have eked out a small, but positive return, through the end of November. Why, then, are Global Macro, as well as many stock funds – and so many hedge fund categories, down for the year?

Professional portfolio managers are paid to manage risk. In the case of the stock market, we have seen very large swings – and money managers need to protect their clients and portfolios from large declines. In 2011 alone, the S&P 500 had at least five declines of 100 S&P points, or relatively large declines of about -7.5%. These declines took place in March, May, August, October and November. The August decline totaled about 200 S&P points, or about a -15% decline.

Read more here:

Carlton Chin, CFA, is the portfolio manager for ADAMAH Capital, which specializes in Computer Aided Research & Advanced Technology (CARAT). He is a specialist in quantitative investment strategies, managed futures, alternative assets, global macro & strategic asset allocation. Carlton combines a CTA hedge fund background with portfolio optimization work for institutional investors. 

Friday, December 16, 2011

MF Global: About 72% of Assets Transferred

As of Thursday, Dec. 15th, about 72% of client assets have been transferred to clients.  Over time, we expect that more assets will be transferred.  We believe that ultimately, efforts will be made to make clients "whole."

Please let us know about your MF Global client transfers.

Here is an excerpt from an article about this transfer:

A U.S. bankruptcy court judge on Friday approved a $2.2 billion bulk transfer that would bring the recovery of nearly all U.S. commodities customers of fallen brokerage MF Global to about 72 percent of their accounts.

Saturday, December 10, 2011

Some of the more Hopeful MF Global News for Customers

From Futures Magazine:

The Trustee for MF Global's SIPA liquidation proceeding filed an omnibus reply to objectors yesterday in which he clearly defined customer property and affirmed the super-priority status of segregated customer funds that the CCC has sought since its inception.  The reply defines customer property as not only “all segregated funds, but also all property that was unlawfully converted and is property of the debtor’s estate, and if there is shortfall in customer segregated assets, all other property of the debtor’s estate.” The Trustee’s reply goes on to state that “there is virtually no scenario under which any property of MF Global’s estate would be treated as non-customer property in the event of commodity customer shortfall.”  Read the full reply here:
For the first time since the bankruptcy proceeding began, the Trustee has affirmed that commodity customers will have a right to claw back assets of MF Global’s estate in the event of a shortfall of funds.

Mr. Roe added:
We are closer to our stated goal of the return of 100% of customer segregated funds.

Thursday, December 8, 2011

Managed Futures & Commodities: Overview & 2012 Outlook

Below is an excerpt from an article by Carlton Chin on Managed Futures, Commodities and corresponding indices, including a Liquid Commodities Index and an Investable Managed Futures Index -- as well as Barclays & NewEdge Indices: 

The performance of the Managed Futures industry and CTAs (Commodity Trading Advisors) is generally uncorrelated to the stock market and other hedge fund strategies. The year 2011 has seen most CTAs flat- to-slightly down, along with most other investment strategies and asset classes.
Here is a sampling of several Managed Futures industry benchmarks through the end of November:
  • Barclays CTA Index -3.1%
  • Barclays BTOP 50 Index -4.0%
  • NewEdge CTA Index -4.7%
  • NewEdge Trend Sub Index -8.4%
  • Investable Managed Futures Index 0.0%
Although CTAs would have loved to achieve positive returns this year – to further its diversification arguments – the Managed Futures industry has already proven its diversification mettle in 2008, when CTAs produced double-digit returns during the start of the financial meltdown. In particular, the Barclays CTA Index was up 14.1% and the Investable Managed Futures Index was up 25.5% in 2008, when the S&P 500 was down -37.0%.


Managed Futures and S&P 500 Annual Performance
Managed Futures and S&P 500 Annual Performance
  • Annual returns for S&P 500 and Investable Managed Futures Index.
  • 2011 Returns are year-to-date as of November 30, 2011.

The author, Carlton Chin, CFA (CTA and portfolio manager at Adamah Capital) is a specialist in systematic and quantitative investment strategies as well as dynamic asset allocation.  He believes that alternative assets can help diversify traditional portfolios of stocks & bonds -- and improve risk-adjusted returns. 

Read more here:

Carlton Chin, CFA, is the portfolio manager for ADAMAH Capital, which specializes in Computer Aided Research & Advanced Technology (CARAT). He is a specialist in quantitative investment strategies, managed futures, alternative assets, global macro & strategic asset allocation. Carlton combines a CTA hedge fund background with portfolio optimization work for institutional investors. He founded Adamah with his long-time friend and associate, George Parr. Carlton has been quoted and featured in the Wall St. Journal, NY Times, MARhedge, Futures Magazine, and Financial Trader. He holds both undergraduate and graduate degrees from MIT.

Wednesday, December 7, 2011

Stock System Indicators: Turn Bearish 12/7/11 11:35am (ET)

Our stock market indicators have turned bearish, with the S&P currently at 1254.  Our last update to our stock market systems was on November 23, 2011, when the S&P 500 stood at 1167.  Stocks have had a nice run-up -- and our intermediate-term overbought indicators, in particular, have flipped to bearish.

  • Our long-term indicators remain bearish but have ticked up to "slightly bearish" from its bearish stance on 11/23/11.  
  • Our intermediate indicators have flipped to moderately bearish from its moderately bullish stance two weeks ago.

Sunday, December 4, 2011

The MF Global Mess continues to drag on...

Some telling events (or lack of events) as detailed by this website, MFGfacts (, which questions:

... Why the CFTC has not compelled the MF Global Trustees (Giddens and Freeh) to provide an audited accounting of all inter-company transactions between MFGI and MFG Holdings over the past  months, and especially since the bankruptcy and specifically relating to these accounts...

Read more here:

Other facts:

Friday, December 2, 2011

Holiday Shopping List: Investing Books

Some of our readers asked us about our favorite investment books (after our last post on "What Works on Wall Street.")...  Here are some of our favorites:

Thursday, December 1, 2011

What Works on Wall Street

One of our favorite websites, CXO Advisory, had a nice summary of O'Shaughnessy's Book.

From Chapter 21, “Using Multifactor Models to Improve Performance” (Page 470): “…you can do vastly better than a passive investment…by using more than one factor to select a portfolio of stocks. …Investors are best served by buying stocks that have jumped a series of hurdles rather than just one.”

From Chapter 24, “Sector Analysis” (Page 545): “…what works in the All Stocks universe also works quite well at the sector level. …what we should avoid investing in at the All Stocks universe level should also be avoided at the sector level.”
From Chapter 25, “Searching for the Ideal Growth Strategy” (Page 567): “One of the very best ways to use price momentum is to marry it to a value constraint [composited value factors]. …six-month price appreciation is a more effective final momentum filter than 12-month price appreciation.”
While the author takes steps to mitigate data snooping bias, there are so many characteristics/combinations tested on the same data sets in search of best portfolio strategies that discrimination among strategies/variations may derive materially from luck.

Friday, November 25, 2011

Is the end of the Euro near?

Good article from the Economist:

EVEN as the euro zone hurtles towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro’s destruction are so catastrophic that no sensible policymaker could stand by and let it happen.
A euro break-up would cause a global bust worse even than the one in 2008-09. The world’s most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls (see article). 
Past financial crises show that this downward spiral can be arrested only by bold policies to regain market confidence. But Europe’s policymakers seem unable or unwilling to be bold enough. The much-ballyhooed leveraging of the euro-zone rescue fund agreed on in October is going nowhere. Euro-zone leaders have become adept at talking up grand long-term plans to safeguard their currency—more intrusive fiscal supervision, new treaties to advance political integration. But they offer almost no ideas for containing today’s conflagration.

Read more here:

Wednesday, November 23, 2011

Battle of the Stock Market Indicators 11/23/11

We haven't posted about our stock market indicators since October 13, 2011, because our indicators have stayed relatively constant.  On October 13th, the S&P stood at 1195 (when both our long-term and intermediate-term models were slightly bearish).  Currently, the S&P stands at 1167.  Here is an update on our stock market indicators:

  • Our long-term model is currently bearish (more bearish than the slightly bearish stance on 10/13).  
  • Our intermediate-term indicators are moderately bullish (from the slightly bearish stance on 10/13).  
Our key models have offsetting signals, so that stock positions will be dictated by the short-term movements in the stock market.  Long-term investors should be watching key levels of stock market technical support -- and/or adding to positions on market weakness.  Traders should be wary of the short-term trends in the markets.  

Happy Thanksgiving!

Tuesday, November 22, 2011

Largest Hedge Funds

Here are the largest hedge funds as of April 2011 (with assets under management, in $ billions):

Rank  FIRM/LOCATION                                 AUM
1     Man Group / London                            69.0
2     Bridgewater Associates / Westport, CT         62.0
3     JPMorgan Asset Management / New York          45.5
4     Paulson & Co. / New York                    36.0
5     Brevan Howard Asset Management / London       32.3
6     Och-Ziff Capital Management / New York        28.7
7     Soros Fund Management / New York              27.0
8     BlackRock / New York                          26.6
9     Highbridge Capital Management / New York      25.0
10    BlueCrest Capital Management / London         24.5
11    Baupost Group / Boston                        24.0
11    Cerberus Capital Management / New York        24.0
13    Angelo Gordon & Co. / New York              23.5
14    Farallon Capital Management / San Francisco   21.5
15    Winton Capital Management / London            20.0
16    King Street Capital Management / New York     19.9
17    Goldman Sachs Asset Management / New York     19.8
18    Canyon Partners / Los Angeles                 19.0
19    Renaissance Technologies / East Setauket, NY  17.1
19    Elliott Management / New York                 17.1
Read more here:

Monday, November 21, 2011

Large Institutional Investors & Gold

Gold has been in the news a lot lately.  In particular, several large institutions have relatively large positions in gold.  Here are some headlines on their positions.

Paulson & Co., the U.S. hedge fund run by John Paulson, cut a stake in the SPDR Gold Trust, an exchange-traded fund backed by the precious metal, during the third quarter, according to a government filing.
Paulson held 20.3 million shares in the SPDR Gold Trust as of Sept. 30, compared with 31.5 million a quarter earlier, a filing today with the U.S. Securities and Exchange Commission showed. SPDR is the biggest exchange-traded product backed by gold.

Read more here:

... University of Texas Investment Management Corporation’s (UTIMCO) recent announcement that they are holding $1 billion in gold bullion. This is significant investment for America’s second largest college endowment and it’s important for investors understand why UTIMCO chose to invest in so much gold, and also why they chose to invest in bullion.
Read more here:

Another article:

The April purchase of nearly $1 billion in physical gold bullion by the University of Texas Investment Management Company (UTIMCO) is raising questions among endowments, think tanks, and asset managers: Was this a prescient investment, or a political statement?

“Gold has had a huge run-up—which suggests a bubble,” says Dean Baker, Co-Director at the left-leaning Center for Economic and Policy Research in Washington, who has previously warned about institutional investors overallocating to gold. “I would not consider investing in gold. I assume they expect higher inflation, but I don't understand it. I think it's silly. In this case, I don't see why UTIMCO would do this.”
Read more here:,_or_Political_.html

Friday, November 18, 2011

MF Global: Customer Asset News thread

We'll update this blog post with recent news about the missing customer assets. We hope that the Trustee transfers substantial assets soon.

$200 Million in MF Global Assets potentially found

CME Group Raises Guarantee -- and Expected Customer Assets up to 75% (hopefully more),0,7413232.story

Missing Customer Assets may double to $1.2 billion (Nov 21, 2011)

Customer Assets were shifted to BNY Mellon (Nov 18, 2011)

Just "Words" but Trustee says Goal is to return 100% of Assets (Nov 18, 2011)

Tuesday, November 15, 2011

MF Global: The Search for Missing Assets... AND when will Assets be Transferred?

It is now the middle of November, and it has been several weeks since the MF Global bankruptcy on October 31, 2011.  There have been numerous articles detailing the news and sometimes sensationalizing speculation about the MF Global debacle.  In this article, we give some background, update relevant news, and summarize thoughts we have heard from alternative investment industry participants – on how the industry can move forward.

Website Links to the Major Parties
Here are several important links (Trustee, CFTC, CME) involved with the MF Global bankruptcy and asset transfer.  These sources typically post factual and relevant information: – this link forwards to:
CFTC – The Commodity Futures Trading Commission page on MF Global:
CME – The Chicago Mercantile Exchange page on MF Global:
Recent MF Global News

The links above, along with several informative articles on the MF Global situation have been archived at this blog:  Below are several recent news articles related to the MF Global bankruptcy and customer asset transfers.  More specifically, many are interested in the search for missing customer assets – and when the bulk of assets will be transferred.
Here are some excerpts from a recent article on the continuing search for missing MF Global Assets.
“(the) CME Group pledged $300 million to help accelerate the release of customer cash and other collateral from MF’s bankruptcy…”
“In addition to helping make customers whole, some additional assistance may be appreciated by the 1,000-plus MF employees fired on Friday…”
“The case of the firm’s missing $600 million also continued this week.”
Read more here:
Here are excerpts from a detailed Forbes article on what may have transpired.
“When did MF Global exploit the customer segregated accounts and why?  How were the proceeds used to stem the firm’s deepening insolvency?”
“Based on the sequence of events described… I believe that MF Global transferred assets, not cash, from customer segregated accounts to a “house” account sometime late Wednesday or early Thursday.”
“I’ve given those who executed the ‘nuclear option’ to save MF Global the benefit of the doubt.  I believe those executives used all available legitimate means to raise cash first, including trying to sell proprietary assets, as CNBC reported, and exhausting existing credit lines.”
Read more here:
Below are excerpts from an interesting article that discusses JP Morgan tactics, as one of MF Global’s main creditors. 
“Similar in nature to one’s bank account or stock market account, JP Morgan is trying to sweep titled segregated accounts into the assets of MF Global into the bankruptcy courts.”
“The analogy is very simple.  Let’s say you have a bank account in your name.  The bank makes bad business decisions.  Then a company like JP Morgan makes a claim on your personal assets that happen to be at the bank.  How would you feel?  How safe do you think your money is?”
Read more here:

What Now?
At this point, many investors and interested parties want some action – and many investors and industry participants hope the process of transferring the bulk of the assets starts very soon.  With the whirlwind of media information swirling around, here are several key questions and thoughts:
  • SIPC protection:  There has been speculation about SIPC protection.  The general consensus is that this protection exists for securities accounts, but not necessarily for futures accounts.  But what about T-Bills?
  • It appears that MF Global used a loophole to invest customer assets in "sovereign debt" – and then used the "segregated accounts" to cover margin calls.   
  • The Trustee has stated that they need to understand everything before they start transferring assets.  Others are clamoring for the quick release and transfer of MF Global customer assets. 
  • In the name of the integrity of the business, and practicality, industry participants hope asset transfers for the bulk of client assets start very soon.  Assets cannot be held hostage for this long.
  • Some industry insiders feel that JP Morgan Chase, as a major player in the financial industry, will feel the pressure to help make customers whole.
  • Many hope that the industry and regulators will work to maximize the “integrity” of the business and financial marketplace.  It is always best to maximize client trust and regain customer confidence. 
  • It has been several weeks, and many are surprised that the large majority of assets have not yet been transferred.  If 11% of assets in segregated assets are in question, why have 85% of assets not yet been transferred?  
Lessons – and Moving Forward
  • Many investors typically prefer less government regulation, but some sort of checks and balances would be a good thing.
  • Where applicable, it is best not to have all of your "eggs in one basket."  That is, if possible and practical, it is good to diversify your brokers.  It is especially good to have more than one broker and more "outs" for your trading positions.
  • Although some point to CFTC rule (1.29) that allows the use of customer assets for “sovereign debt” – most people would recognize that the intent of the law would not allow the use of highly leveraged positions.  
  • There are many offsetting responsibilities and wants.  The Trustee is trying to do the right thing.  All interested parties want to access their assets as soon as possible.  The industry wants to maintain the integrity of the marketplace.
  • With the increased pressure on JP Morgan and regulators to move forward, many expect progress and asset transfers in the near future.  
  • In times like these, it reminds us that it is important to know who we are doing business with – including financial advisors, hedge funds, and even our financial institutions.
In the end, many in the investment industry hope that the Trustee, industry, and exchanges will start the transfer of the bulk of the assets very soon, and make the customers "whole" soon after the dust settles.  This will do a lot to sooth customers and regain a measure of faith and confidence in the financial industry.

This is a summary of relevant information surrounding the MF Global bankruptcy and does not necessarily represent the views of the authors nor the z-trader blog.  

For additional articles by z-trader contributors, please visit:

Carlton Chin, CFA, is chief investment officer at Adamah Capital, a specialist in managed futures and quantitative & alternative investment strategies.  Alternative assets offer diversification to traditional portfolios of stocks and bonds.  

Monday, November 14, 2011

S&P Earnings - Q3 record!

Here is an excerpt on S&P earnings.  Earnings and fundamentals are looking up...

Recession fears or not, based on Corporate America’s latest financial results, happy days are here again.
With nearly 90% of S&P 500 companies having reported, the third-quarter earnings season is on pace for a record, according to Bespoke Investment Group.
S&P 500 SPX companies are on pace for overall earnings of $25.42. The four quarter trailing earnings total $94.77, topping the old record of $91.47, which was set in the second quarter of 2007.

Read more here:

Thursday, November 3, 2011

MF Global: thread of information

We'll update this blog post with relevant information as we read it...  At the top are links to the Trustee and other relevant parties.

Links to Trustee and Relevant Parties (which forwards to):


White Paper by MF Global customer group on: Background, Impacts & Solutions to MF Global's Demise (Nov 14)

Assets still missing; Trustee discusses pro-rata distribution (Nov 9, 1am)

MF Global Client Assets & CFTC Rule 1.29 (Nov 8, 2011, 4pm)

On MF Global Transfers & Missing Funds (Nov 7, 2011, 11pm)
Separately, Giddens asked U.S. Bankruptcy Judge Martin Glenn to approve the return of money “misdirected” to MF Global bank accounts, including sums intended for the benefit of customers whose accounts are being moved. He needs permission also to stake claim to any misdirected amounts owed to a party who has a debt to the brokerage estate, he said.

More on the JP Morgan - MF Global Account (Sun, Nov 6)

Good Summary by the Financial Times (Sat, Nov 5)

Search for MF Global Client Funds continues (Fri, Nov 4, 2011, 9pm)

MF Global Client Funds said to be located at JP Morgan; this rumor seems false now -- see above (Fri, Nov 4, 2011 - 6pm)

Corzine Resigns (Friday, Nov 4, 2011 - 9am)

Good article by industry professional, John Lothian (Nov 2, 2011)

Source: Money Not Missing  (Thu, Nov 3, 2011)

MF Global Trustee Aims to Transfer Accounts Before Weekend (Thu, 11/3/11)