After the highly volatile October, this month turned out to be mostly calm and quiet. The declines last month forced many positions to be liquidated and the overall risk level of the portfolio was greatly reduced. The risk levels stayed quite low for much of October but fresh exposure started building up the last two weeks, particularly in short agricultural commodities and various long dollar bets. As a side theme there was also a couple of short rates position on the far left hand side of the curve which turned out to be the main focus yesterday.
When the central banks announced their coordinated liquidity actions yesterday the short term interest rate market went bananas, to use the technical term for it. We were holding short positions in both the short sterling and the eurodollar and they both went far through the theoretical stop points, racking up painful losses. Remember that the core strategy employed here does not use intraday stops and trades only the day after a signal, so the positions are not closed until today.
While the short term interest rate futures where the main source of loss by the end of the month, the bounce in agricultural commodities and currencies by the end also contributed in a negative way. In the end, the month closed at about -3%, leaving us a few percent in the red for the year.
Relative to the world equity markets we still hold a lead but its getting narrow. After the sharp rally yesterday we only have a 5% lead over the buy-and-hold equity crowd over the year, but at least we didn’t see as severe drawdowns as they did.