After the hit we took in October it has been very quiet in the markets. Sure, we have seen plenty of spectacular headlines and some large daily moves, but there has been a lack of clear trends and diversified futures managers are just idling along sideways. What we see now is a building up of positions again as more and more trends are starting to emerge. As always, this can end in two ways. Either we’ll get a nice run for a while if these new trends stick around, or there will be a painful reversal with plenty of stops. One this is sure though, with the increased risk building up in the strategy, we will see some action soon.
The main themes in the financial markets at the moment are short agriculturals and long US dollar. The non-agricultural commodities are starting to build up as well as this may turn into a more general short commodities/long dollar bet.
We also still hold a notable allocation to long rates futures, which may seem worrying to many people. Yields are getting close to zero and we are still long the bonds. How much farther can the prices go? Well, it’s not up to us to make that call. When they turn down, we’ll take our stops just like any other position. If we have learnt anything from the past crazy years of financial chaos is that anything can happen. Don’t forget that one of the most profitable trades of the year involved staying long the EuroSwiss futures after it had a negative yield. Just stick to the rules.
|Sugar #11||Short||Agricultural Commodities||2011-11-25|
|Soybean Meal||Short||Agricultural Commodities||2011-11-11|
|Cotton #2||Short||Agricultural Commodities||2011-11-08|
|Swedish Krona/U.S. Dollar||Short||Currencies||2011-11-28|
|MSCI Taiwan Index||Short||Equities||2011-11-28|
|Natural Gas-Henry Hub||Short||Non-Agricultural Commodities||2011-07-08|
|Australian Govt Bond 6%(3Yr)||Long||Rates||2011-11-11|
|Australian Govt Bond 6%(10Yr)||Long||Rates||2011-11-21|
|Canadian Govt Bond 10Yr||Long||Rates||2011-11-24|
|Euro Swiss Franc||Long||Rates||2011-12-08|
|T-Note-U.S. 5 Yr||Long||Rates||2011-12-08|
|T-Note-U.S. 2 Yr||Long||Rates||2011-12-08|
|T-Note-U.S. 10 Yr w/Prj AX||Long||Rates||2011-12-14|
|Euro German Schatz||Long||Rates||2011-11-10|
The performance is flat on the year under quite a bit of volatility, showing that we are still in a very difficult period for trend followers. Of course, if you were in the buy-and-hold equity camp, you would be significantly in the red under even heavier volatility.