Shutting down our small fund

Discussions about Money Management and Risk Control.
MarkS
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Post by MarkS » Fri Jan 11, 2013 10:06 am

doubleR wrote:it is also possible that the unprecedented joint intervention of all Central Banks into FX, bonds and stocks has killed volatility and being a trend follower means to be long volatility. Those in 'charge' are forcing the hand of investors into things that, maybe, they would not invest in 'normal' conditions. Still, the price is the price and TF is all about following the price. However, I also believe, that this crisis is rightfully pushing TF on more sophisticated shores with better asset class mix, better managemente of the size and risk.

The Turtle idea to use ATR for position sizing is brilliant and still valid however it is a static concept when the trade is initiated. More sophisticated TF techniques may be required to manage the size DURING the trade. Apologies for stating something mentioned here already...

Happy 2013.
Double R -- you are most likely spot on. I know much of our losses stemmed from aborted currency trades. And from today's Wall Street Journal, an article how most currency funds have gotten crushed for that exact reason. I hope this link works:

http://online.wsj.com/article/SB1000142 ... lenews_wsj

Chuck B
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Post by Chuck B » Fri Jan 11, 2013 10:56 am

Link didn't work for non-subscribers, but the way to get it is to highlight/copy the title, Google search it, then click the first link in Google. For whatever reason, WSJ allows Google to index its pay site -- works great for those who want to read articles there.

MarkS
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Post by MarkS » Fri Jan 11, 2013 11:07 am

Thanks for letting me know Chuck. For those who want to read it, the article title is called "Currency Funds Face Diminishing Returns" dated today, 1/11/13.

doubleR
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Post by doubleR » Fri Jan 11, 2013 11:32 am

One indicator I found most useful is the Deutsche Bank G1 Carry Trade (FXCARRSP Index on your bberg). I was interested in the relationship between RISK ON/OFF and the carry trade on a basket of currencies. The DB index shows the return of a simulated carry FX.

From 2009 onwars the DB carry Index has matched the SP 500

even better since 2010 the index moved in a trading range helping to spot extreme in the SP 500. Now it is breaking a 4 year high matching the 5-year high in SP 500.

Same pattern seen since mid 2007: down SP, down carry trade so those HF long carry could not generate returns.

Now the interesting bit: this SP (RISK ON / OFF) vs DB Carry has not been always like that, perfectly correlated.

2000 - 2003 saw the crash in S&P 500 and the DB Carry moved UP fromm 100 up to 120: ideally one LTTF could have made 20% on a carry trade and benefit from a 50% sell off in stocks.

So the idea that interest rates have been and ARE artificially manipulated to zero has pushed in the last 5 years a 1 to 1 correlation between stock market moves vs FX Carry.

The problems that Central Banks are unleashing on TF could come to an end when we will see the relationship SP vs Carry BREAK down. Until then, I assume that the financial repression seen in rates affecting FX will continue to directily impact stocks.

just my 2 cents (or pennies being in London).

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