Monday, December 24, 2012

The Economy Will Improve (Economist)

Here is a 2013 Forecast from The Economist and the CMEgroup.


The new year will begin with heavy clouds suspended over
much of the global economy, but with the prospect of
brightening later in 2013. 

Uncertainty over the “fiscal cliff” will weigh on U.S. growth in
the short-term, but assuming this hurdle is safely negotiated,
confidence should improve next year. By mid-2013 stimulus
should also more visibly be boosting China’s economy, and
even the euro zone should be growing again. 

The Economist Intelligence Unit’s latest global forecast—
largely unchanged from last month—is therefore for a
limited pick-up in Gross Domestic Product growth next
year, with improvements in key economies setting the
stage for a stronger recovery in 2014



Read more here:
http://www.cmegroup.com/market-insights/files/eiu-global-economy-2012-12-12.pdf

Happy holidays!


Tuesday, December 4, 2012

Stock Systems: Re-Iterate Long Trading Signals 12/4/12

We have not needed to update our stock trading signals because the signals have mainly remained the same. Our last signal update was on October 11, when the S&P stood at 1438.   The S&P closed yesterday at 1410.  Our stock market signals remain:


  • Long-term models remain bullish.
  • Intermediate-term (Overbought / oversold) models remain moderately bullish.
  • Short-term trends continue to dictate our stock positions.  

Since October, the stock market has been fairly volatile, dropping from the 1460 level down to 1350, before  rebounding to the 1410 level.  
  • Long-term investors should look to add to positions on stock declines.  
  • (E-mini) S&P traders should look to be long, based on our long-term (bullish) and intermediate-term (moderately bullish) signals.  


Tuesday, October 16, 2012

High Frequency Trading: Good Overview

Here is a great overview of "high frequency trading."



High frequency traders employ pattern recognition algorithms that look deeply at bids and offers on stocks to determine if the movement on the bid quotes or offered quotes implies a directional tendency.

Computer-driven algorithms are “reading” the quotes, the intentions of buyers and sellers as they put down their orders in real-time, to make a trade that the HFT player expects to profit from if the directional bias their computers pick up is correct.

HFT computers look at all the bids and offers wherever any stock is traded. Sometimes stocks are traded at several different exchanges or “venues” at the same time.
But trading the price discrepancies that sometimes occur because there are different quotes at the same time at different exchanges for the same stocks isn’t where HFT players make their money, although they do that, too.

What the HFT boys actually do more of than high frequency trading is “high frequency quoting.”

They have their computers send out their own bids and offers, or quotes, to all the exchanges, almost all the time.

How HFT Manipulates Markets

What they are doing is trying to influence, I call it manipulate, what other traders and investors do with their bids and offers. They are trying to fake or set-up other market participants to react to the quotes the HFT players fire out onto the exchanges for all the stocks they trade.

Only the HFT quotes sent out aren’t meant to be acted on. They aren’t looking to buy on their bid quotes or sell on their offer quotes.

Instead, they are sending out orders to “ping” markets.

Ping refers to how sonar works. For example, a submarine sends out a sonar beep which hits a target and sends back a sound (which sounds like a ping) which the sonar operator “reads” to determine the pinged object’s distance and shape.

HFT players are constantly pinging stocks where their quotes are housed and displayed. They send out their orders to manipulate others to adjust their quotes, which get fed into the HFT algorithms to determine any directionality; then, if an opportunity exists the HFT computers buy or sell shares that someone else has put onto the market.

They aren’t quoting constantly as bona fide “market-makers” are supposed to do, which they claim they are acting like. They are simply putting out millions of fake bids and offers which they pull almost immediately, just to read the movement of other market participants who react to the HFT come-ons.

It isn’t illegal. But it is manipulation.

Read more here:

http://etfdailynews.com/2012/10/16/the-truth-about-high-frequency-trading-and-the-coming-stock-market-crash/

Part 2 of article (no increase in liquidity, but increased chances of out-of-control markets)
http://etfdailynews.com/2012/10/19/unless-we-act-high-frequency-trading-will-crash-the-stock-markets-indexsp-inx/



Thursday, October 11, 2012

Stock System Update: Long at 12 noon (10/11/12)

Our stock market systems are going from neutral to moderately bullish.  Our last stock system update flashed a warning on September 10, 2012 -- and went neutral when the S&P stood at 1433.  Currently, the S&P stands at 1438, so it was a fairly successful signal.

http://z-trader.blogspot.com/2012/09/stock-systems-flash-caution-330pm-91012.html


  • Our long-term models remain bullish.
  • Our overbought/oversold models are moving to moderately bullish.  
  • As usual, short-term trends should help dictate your trading positions and risk management.  

Thursday, September 20, 2012

Improving Investment Decisions with Quant Analysis

Below are some excerpts on a SeekingAlpha article -- that highlights "the application of quant analyses to produce meaningful and objective investment information."  




With so much at stake in the finance and investment world, there are constant debates about investment performance, asset allocation, active vs. passive approaches, and more. In this article, we review recent articles on the application of quantitative models to the investment world - and look at the stock market's technical outlook.
History can tell us where we have been -- and a scientific and mathematical approach can help guide our investment decisions going forward. Quantitative analytics can be applied to many areas within finance, ranging from asset allocation and risk management to trading / investment strategies and the growing interest in alternative assets.

Quantitative approaches can be used to improve investment decisions by producing objective analysis. The goal is to improve investment results and the probability of repeatability. Math and scientific methods can help put history and patterns on our side. Here are some important takeaways:
  • Varied interests and motivations can reduce optimal investment decisions.
  • Performance data is not necessarily useful in predicting future results, especially when studying short-term manager performance.
  • Behavioral finance has shown that many investors overreact to recent events, and tend to ignore long-term historical patterns.
  • Mathematical models can minimize the negative impacts of greed and fear, improving discipline -- and taking emotion out of the equation.
  • Robust quantitative analysis can improve "forward information" and repeatability.
Systematic and scientific approaches can yield meaningful information and help improve long-term performance by providing objective analysis to investment committees.

Read more here:


Monday, September 10, 2012

Stock Systems: Flash Caution 3:30pm 9/10/12

Quick blog post for now; more later.

Our stock market models are currently overall neutral after riding the stock market to recent highs.


  • Our long-term models remain bullish.
  • However, our overbought/oversold models are bearish.
  • In addition, the short-term trend is down.  
More later, but wanted to get this info out.  The S&P is currently at 1433.


Friday, August 24, 2012

FaceBook's share drop and CA state budget

FaceBook's decline in share prices caught the state of California "counting their chickens" too early...

Fox Business reports:


California was counting on $1.5 billion in tax revenue through June because of Facebook’s (FB: 19.51, +0.07, +0.36%) initial public offering. It’s also counting on another $400 million in new sales tax revenue and new tax hikes on the rich.

But the state is now scrambling because it got hypnotized and overstated by a factor of nearly 50% the amount of capital gains tax revenue that it thought was coming in from the Facebook IPO. Based on Facebook’s latest share price, the state is on track to get just $707 million, 47% less than what it projected.


Read more: http://www.foxbusiness.com/investing/2012/08/02/plunge-in-facebook-shares-has-california-seeing-red/?intcmp=obnetwork#ixzz24U9tjezB



Monday, August 20, 2012

Buffett, Leverage, Beta, and Risk (AQR)

Pensions & Investments (P&I) published an interesting article about hedge fund AQR's research about Warren Buffett's success.  AQR says that Buffett's success comes from the usage of leverage on low-beta and high-quality stocks -- along with good risk management.

In particular, P&I reports:





For the 35 years of data studied, controlling for standard equity market factors such as company size, momentum and value did little or nothing to explain Mr. Buffett's success. However, controlling for low-beta stocks and high-quality stocks (defined as companies that are profitable, growing and paying out dividends) — when applied to systematic portfolios AQR designed to simulate Mr. Buffett's investment style — did manage to account for the bulk of his outperformance, according to the paper. 


...


Betting Against Beta


led a growing number of money managers to launch low-volatility or managed-volatility strategies in recent years: that a portfolio of stocks with bottom-quartile beta can match or exceed the returns of the broader market with only a fraction of the volatility.


...



 “betting-against-beta” version of that factor — which involves going long and leveraging low-beta assets while shorting high-beta assets — can produce “significant risk-adjusted returns.”

...

AQR's argument that Mr. Buffett takes on considerable risk, meanwhile, isn't incorrect if the context is modern portfolio theory's definition of risk as a function of volatility, noted Mr. Hagstrom. However, Mr. Buffett would likely opt for his own context and argue that buying high-quality, safe stocks at low prices effectively reduces his risk rather than increases it, he added.

...


Leverage, Risk & Return



With leverage a dirty word for many pension executives struggling with crisis-level funding gaps, the fact that Mr. Buffett is “a very big user of leverage” should serve as a reminder that the returns he enjoys aren't possible “without taking a lot of risk,” Mr. Kabiller said.
One period exemplifying that willingness to take — and bear — risk was mid-1998 to Feb. 29, 2000, the final stage of the Internet bubble, when Berkshire's stock price dropped 44% even as the broad Russell 3000 index was climbing 26%, according to AQR.
Diversified Investment Vehicle
Mr. Kabiller said Mr. Buffett's skill in structuring Berkshire Hathaway as an investment vehicle may be almost as important as his skill in making specific investments. In particular, the company's insurance affiliates accrue premium payments years before the policies pay out, strengthening Mr. Buffett's ability to maintain leverage in environments where less deep-pocketed investors would have to resort to fire sales, he noted.
...
Access to Capital / Funding
... Mr. Buffett's “low-cost insurance and reinsurance businesses have given him a significant advantage in terms of unique access to cheap, term leverage.”
The float from that insurance business has provided, on average, 36% of the funding Berkshire Hathaway uses to lever up its portfolio, at a cost AQR estimates at more than three percentage points below the average T-bill rate.





Read more here:

http://www.pionline.com/article/20120820/PRINTSUB/308209983



Thursday, August 16, 2012

Stock Market Systems: Reiterate Buy (8/17/12)

It's been a while since our last update from our Stock Market Systems on July 12, 2012 -- so we wanted to re-iterate our systems' Buy signals.  As our readers know, we update the blog whenever there is a change to our main stock market signals (Long-Term or Intermediate-Term Models).  In this case, our signals remain the same -- but we just wanted to check in and re-iterate the Buy signals.

On July 12, the S&P stood at 1336.8.  Our models kept us generally long -- and today, the S&P closed at 1415.5, reaching recent highs.  Our models remain long -- and we will make a blog post on a material change to our models' signals.

In the futures markets, after gains over the last few months, several markets have been in a consolidation phase (such as currencies, precious metals).  Grains have been choppy, although generally higher due to this year's drought.

Thursday, July 12, 2012

Stock Market Systems: Full Steam Ahead (7/12/12)

Our stock market indicators just switched to:  all bullish.  This is a change from our last update of almost a month ago, on June 16th, when our overbought / oversold indicators flashed a "pause" signal when the S&P stood at around 1343.

Since the last update on June 16th, the stock market has been churning and has been fairly volatile (in a range of about 1313-1370), but is relatively unchanged over the entire time period -- and currently stands at 1336.8.  Here is a look at our stock indicators:

  • Our long-term model remains strongly bullish.
  • Our intermediate overbought / oversold indicators are strongly bullish as well. 
  • Our short-term models reflect short-term movements, so we do not typically list the current signal.  
Traders -- including stock index futures traders -- may want to be long in the stock indices.  Long-term investors with an over-allocation to cash may want to put some of that cash to work.  


Thursday, July 5, 2012

Commodities: Dry Weather Pushes Grains Higher

Dry weather in the US Midwest, over an extended period, has turned what some predicted to be a bumper crop -- into a potential disaster for this year's crops.  Corn, in particular, has been in the news, with recent prices soaring above $7.00 per bushel, from a recent price in the $5.50 range.

It is noteworthy that corn started the year in the $6.20 to $6.80 range, but weather forecasts, the shaky economy -- and other predictions (of a bumper crop) -- caused choppy price action down to the $5.50 level.  Today, corn surpassed the $7.00 level -- and all eyes are on Mother Nature -- and the weather.  One expert calls for some potential relief over the weekend, albeit -- not much -- before more oppressive heat (and dry weather) continues in the near-term afterwards.  

Some farmers are comparing the weather and crop conditions to the 1988 drought, while others are even bringing up the 1930's Dust Bowl scenario.  On the other hand, some say it is too early -- and that the situation is fluid (no pun intended) -- and that we will only know after "pollination," at the end of the summer.

A spike in food prices -- and a potential blip in (food) inflation will not be good news for an already shaky economy.  On the other hand, managed futures traders have been caught in choppy market action for quite a while, so sustained trends will be a positive for futures traders.


Please read more here:
http://www.nytimes.com/2012/07/05/us/for-midwest-corn-crop-the-pressure-rises-like-the-heat.html?_r=1

http://www.cnbc.com/id/48058304

Saturday, June 16, 2012

Stock Market Systems: On Hold + Notes on Greece (6/16/12)

With the stock market's recent rise, our intermediate-term (overbought / oversold) stock market indicators have turned slightly bearish near the close on Friday.  We last posted a stock market indicator update on May 21, 2012, when the S&P stood at 1308.  The S&P closed on Friday at 1342.84.


  • Based on market action, our intermediate models are slightly bearish.
  • Our long-term model is bullish.  
  • Net-net, that leaves us slightly bullish.  As usual, short-term market action and models also dictate our market positions.  
In addition, with the financial markets bracing for volatility -- based on the Greek elections on Sunday -- we took this as a welcome reprieve to be flat in markets (that are highly correlated to the situation, such as currencies and equity markets).  

CNBC.com had a nice summary of the Greece elections on Sunday.  For entire article, please click here:

http://www.cnbc.com/id/47824801/



Greece may be a small country, but its vote this Sunday may be the most important in the world this year.

PNC | Brand X Pictures | Getty Images



While the June 17 election is not directly billed as a referendum on Greece paying its debts and staying in the euro, its might as well be. If no party wins enough votes to form a coalition, as with the last vote, then the Greek situation may very well remain as it is now – a jumbled mess of no real leadership, no real plan and perhaps no real way to stay a member of the euro zone economic family.
Though seemingly complicated, this Greek drama is actually quite simple. In a nutshell:
  • Greece could run out of cash to pay its bills by the end of this month, thus...
  • Greece needs a bailout, however...
  • Greece likely can't get a bailout without agreeing to tough economic oversight (aka "austerity"), and...
  • Greece can't agree to anything without a majority coalition government, but...
  • Greece doesn't have a majority coalition government, thus...
  • Greece needs a majority coalition that wields the necessary power to push an austerity/bailout plan through.

Monday, June 11, 2012

Investment Strategy: Risk Parity

Some say that the benefits of diversification are enhanced by "risk parity" strategies.  The Financial Times had a good article on this increasingly-popular investment approach.



... (The) formula for diversifying is not to spread money equally between asset classes, but to spread risk, in a concept known as risk parity.

This approach allows investors to specify the risk they can accept, measured by volatility, then maximise the return they can get for that risk.



Please read more here:
http://www.ft.com/cms/s/0/10cd4030-af0b-11e1-a8a7-00144feabdc0.html#ixzz1xU1ox0JG

Risk Parity approaches have been growing in popularity.  However, the use of leverage for some of the lower risk approaches means that this strategy is not for everyone.  Some investors -- and especially institutional investors -- prefer to avoid leverage.  Indeed, the investment policies of some large institutions prohibit the use of leverage.

Our work and investment approaches are similar to risk parity methods.  In addition, our strategies adjust portfolio allocations / mixes based on technical and fundamental indicators and market action.









Monday, May 21, 2012

Stock Market Oversold 5/21/12

With the stock market's drop from around 1400 at the beginning of May to the current levels around 1308, our oversold models are now bullish.  That decline represents a drop of some -7%.   What do our trading models say now?


  • Our intermediate-term oversold models are now strongly bullish.  Traders may want to trade a potential bounce upwards.
  • Our long-term models remain bullish -- but are slightly cautious, wary of potential downdrafts.


Our last stock market signal update was on May 2, 2012, when the S&P stood at 1406.  The S&P is at 1308 at the time of writing this.  

Saturday, May 5, 2012

On Rebalancing

Some recent research on rebalancing:  There's a tradeoff between staying true to the desired asset allocation -- versus: execution costs (commission and slippage), and normal market action (fluctuations, trends).

Rebalancing too frequently can create extra costs. On the other hand, rebalancing infrequently allows the asset mix to drift -- and can increase risk (nominal risk and risk relative to the desired mix). Based on other publications -- as well as Monte Carlo simulations I performed -- the data DOES show that rebalancing too frequently can give up some gains in exchange for potential expected asset mix drift. This is evidence of how markets can trend -- and yield excess performance for holding assets that are trending... (But some of these topics might be the topic of other research/articles)... The "sweet spot" for rebalancing seems to be 6-14 months, depending on the assets/investment vehicles -- and investment goals.

Interestingly, some products (like commodity indices) are designed to rebalance annually rather than monthly (or even daily)...

Wednesday, May 2, 2012

Stock Signal Update 5/2/12 (8am)

We had a stock signal update just over a week ago, and rode the recent stock market surge higher.  After the rapid rise, our overbought models are signalling a moderately bearish stance.  Our long-term models remain bullish.


  • Long-term investors should maintain long positions.
  • Traders should monitor positions and either be flat -- or have very close stops to exit long positions...  
  • Traders and investors looking to go long or add to long positions -- should wait for a pullback -- or an oversold signal.  
Our last update was on April 24, 2012, when the S&P stood at 1371. The S&P now stands at 1406.  

Tuesday, April 24, 2012

Stock Signal Update (4/24/12)

The recent stock market decline let some of the air out of the stock market's steady rise over the past several months.  Our stock market indicators switched to positive with the stock market currently trading at about 1371.

  • Our long-term model are now bullish.
  • Our oversold/overbought models are also bullish, after the recent downdraft.  
Our last update was in December, when the S&P stood at 1254.  Since that time, our models unfortunately had us underweighted in the stock market.  Systematic trading strategies are not always correct, but following disciplined methodologies helps in terms of repeatability, managing risk, and managing emotions.  


Thursday, April 19, 2012

The Rambus (RMBS) Saga: A Cautionary Tale

Here is a great summary of the Rambus saga, that we have followed over the years:




Few Silicon Valley companies inspire a wider range of emotions than the computer chip designer Rambus. In the view of its leaders -- as well as fiercely loyal shareholders who have flown around the country to watch its lawyers in court -- the company is a visionary turned victim. Rambus revolutionized the computer industry in the 1990s, they say, when the company debuted state-of-the-art chip technology and licensed it to chip manufacturers. Rambus hasn't been fairly compensated for those innovations, its defenders maintain, because rivals copied the technology and refused to pay up. Confronted with brazen collusion and theft, Rambus had no choice but to seek relief in court by suing its rivals.

"We really didn't plan on being a litigation company," says Thomas Lavelle, Rambus's general counsel since 2006. "Our founders had breakthrough innovations and great patents, and they believed that would lead to success. I don't think it occurred to them that -- as cynical as the world can be -- the better product might not be adopted."


...


Rambus officials, for their part, strike an optimistic tone. "We're the small company that went into battle and found ourselves up against a couple of armies and somehow survived," says Lavelle. "While we haven't been successful in all of our litigation, we have plenty of assets, resources, and spirit to go forward. I think that's a remarkable story in and of itself."


...
Rambus's lawyers at Munger tried to make use of an email purportedly revealing a scheme by Micron to fix prices of its chip technology, known as DDR SDRAM. Micron executive Linda Turner wrote to her sales team in 2001 that "we have ... actually been requesting Infineon, Samsung, and Hynix to lower their DDR pricing to help it become a standard (and drive Rambus away completely)." The Rambus faithful have long felt that the Turner email was a smoking gun of price-fixing.
...


For Several observers, the Rambus saga is a cautionary tale. As Quinn, the patent lawyer at Zies, Widerman, sees it, "Rambus felt wronged and said, 'We are going to litigate to get the result we know we deserve.' " That's a dangerous mind-set, Quinn continues: "Once they did that, they crossed a bridge and burned it. There was no going back." Jordan Sigale, a partner at Loeb & Loeb who has not represented Rambus or its opponents, agrees that Rambus should have struck a different tone. "If your model is to have other companies license your technology, when you have to litigate, you do so professionally and without bravado, so that you don't burn bridges," he says. Instead, Rambus went for a "scorched-earth policy." Sigale adds, "I think it's going to be a long time before Micron and Hynix come back to Rambus and license anything."
Rambus may not need them, however. It continues to license DRAM patents, both old and new, to companies such as Samsung and Panasonic Corporation. And it got a morale boost in December, when Broadcom signed an agreement to license DRAM patents. (Rambus had sued Broadcom at the International Trade Commission, alleging infringement of six DRAM patents.)
Perhaps sensing an uncertain future in computer memory, Rambus is branching out. Last year it paid $342 million for Cryptography Research, a company that provides security to semiconductors. It has also acquired the rights to portfolios of LED lighting patents from smaller companies. "That's where we are really putting most of our focus going forward," says Lavelle. "I like to think that over time, we are going to be a role model for how to do what the U.S. is good at -- innovate and turn that innovation into revenue.

Read more here:


Tuesday, March 13, 2012

MF Global article

Here's a good article on MFGlobal by the NY Times... 

... a few weeks ago, Azam Ahmed and Ben Protess, who have done a remarkable job covering the MF Global bankruptcy for The Times, wrote an article suggesting that prosecutors were having trouble putting together a criminal case against anyone at MF Global. So far, wrote Ahmed and Protess, they’d been “unable to find a smoking gun.” In fact, they continued, “a number of federal prosecutors have expressed doubts” that MF Global “intentionally misused customer money.” Apparently, the current theory is that it was all just a big accident, the chaos of those final days causing the firm’s executives to tap into customer funds without realizing it.

Excuse me while I roll my eyes. Of course there isn’t a smoking gun. As a general rule, financial professionals tend not to write e-mails that say, “Hey, we’re desperate. Let’s break into the customer accounts!” And, of course, they are always going to say it was unintentional. They are saying it already, starting with Corzine, who told Congress last year that “there was no intention to violate segregation rules.”

... A failure to prosecute anyone at MF Global would be, if anything, even worse. It would mean that executives at a broker-dealer can indeed steal customer money and get away with it — so long as it was “unintentional.” And it would only deepen the cynicism so many people feel about government. I’ve heard it suggested, for instance, that the Justice Department won’t prosecute Corzine because it would hurt President Obama. (Corzine, the former governor of New Jersey, had been a big fund-raiser for the president.) I don’t happen to subscribe to that theory, but I certainly understand why others might.

To be sure, it is early yet. Federal investigators are still digging into the facts surrounding MF Global’s failure, no doubt searching for that elusive smoking gun. But if, in the end, they decide they can’t make a case, I hope they understand what they are telling the rest of us. Giving the big guys a pass isn’t good for the financial markets. And it isn’t good for democracy either.


Read more here:
http://www.nytimes.com/2012/03/13/opinion/nocera-is-mf-global-getting-a-free-pass.html?_r=3&ref=opinion  

Tuesday, March 6, 2012

Dallas Fed: Markets Hooked on "Monetary Morphine"



Dallas Fed President Richard Fisher said the markets are hooked on "monetary morphine" and he sees no reason for further easing.

AP
Dallas Fed President Richard Fisher said the markets are hooked on "monetary morphine" and he sees no reason for further easing.



Fed officials have said they would consider another round of quantitative easing or QE3 if the economy needs it.
"Personally, I see no need to do another additional dose unless the patient goes into post-operative decline," said Fisher, speaking at the CERAWeek energy conferenceMonday evening.







Read more here:


On a side note, we haven't had stock indicator updates in a while because our models remain in their modes as of the last update.  


Friday, February 3, 2012

Alternatives in the News

How Managed Futures Fit into Your Portfolio

In a nutshell, what managed futures provide is an important non-correlated asset that any serious investor should have in their portfolio. Statistical studies—academic studies—suggest that that should be anywhere from 5% to 15% of a portfolio.
Some people say, “Well, it should be held for three to five years.” I would posit that it should be held as long as you own equities and/or fixed income in a portfolio, because of the diversification effects.
What we’re trying to do is to provide some stability. One of my colleagues likes to suggest that it’s the seatbelt in the portfolio. You get into a car, you’re in a high-performance car, you still want to put a seatbelt on in case there’s an accident.

Read more here:



Bruising Year for Commodities Hedge Funds

The drop came as multibillion-dollar commodities hedge funds such as Blenheim, Clive Capital, BlueGold and Merchant posted double-digit losses for the year.

Some of the industry’s best-known managers were hardest hit. Blenheim, which has $5bn in assets, posted a loss of about 17 per cent, according to three investors. The fund, founded in 1988 by trader Willem Kooyker, suffered its worst month since inception in September, weighed down by bets on corn and aluminium, an investor said.

(May need free registration at FT.com)


Interview with Carlton Chin of CARAT / Adamah Capital

I truly believe that the best way to enhance diversification is through managed futures. A lot of hedge funds will use the same basic building blocks - using stocks and bonds - while managed futures uses everything from currencies to commodities. That really adds diversity to a portfolio.

...
I love to look, especially for hedge funds and managed futures, at downside volatility. We can look at the standard deviation of the S&P 500, which over the past 30-plus years is 15.6 percent. Interestingly, if you look at the downside volatility, that is 11.7 percent. So the scary, or downside volatility, represents 75 percent of the overall volatility. This is one place where managed futures shines because based on a series of returns, mostly the BarclayHedge CTA Index but also my performance, the volatility has been 17 percent in total. The standard deviation is about 17 percent which is a little higher than the S&P 500 but if you look at just the downside volatility, when the performance for managed futures was negative, that number is just 10.1 percent.
...
I’ve been lucky to work with some folks at the University of Chicago -- and Frank Vannerson was from Princeton. These academic studies can add credibility as well, and show that managed futures/alternative investments have benefits.
...
Carlton Chin is chief investment officer and head of research at CARAT/Adamah Capital LLC, a fund manager and CTA focused on systematic managed futures strategies. An investment professional since 1990, he spoke with Managed Futures Newsletter editor Jim Kharouf about his start in the business, whether markets change and how he looks at volatility.

Read more here:


Tuesday, January 17, 2012

Fitch: Greece to Default, but in Orderly Fashion

According to Fitch, Greece will default on its debt, but in an orderly fashion.  In many ways, this is what we expected.  The "world economy" sometimes delays the inevitable, and then when the "big event" occurs, investors are "used to the idea" (so that there is not a tidal wave of trouble)...  At some point, we may all pay for the economic troubles, but we also believe that the world will "delay" and "inflate" its way past crises.





Rating agency Fitch said on Tuesday that Greece would default on its debt, although it said that such a default was likely to take place in an orderly manner.

The Parthenon in Greece
Scott E. Barbour | Getty Images



"It is going to happen. Greece is insolvent so it will default," Edward Parker, Managing Director for Fitch's Sovereign and Supranational Group in Europe, the Middle East and Africa told Reuters on the sidelines of a conference in the Swedish capital. "So in that sense it shouldn't be a surprise to anyone."
The Fitch comments come after Moritz Kraemer, head of Standard & Poor's rating agency's European sovereign ratings unit, said on Monday Greece would default shortly on its debt obligations.






Read more here:
http://www.cnbc.com/id/46021999