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Opalesque Futures Intelligence

Trend Followers Fail To Find Trends in August

Monday, September 16, 2013

Notching its forth losing month in a row, managed futures indices failed to find their footing in August, with the BarclayHedge BTop 50 down 1.21% as of this writing and the Newedge CTA index down 1.75%. In this issue of Opalesque Futures Intelligence we profile the recently launched iSTOXX / Efficient Capital investible managed futures index and accompany it with an interview with Efficient's founder, Ernest Jaffarian who has some interesting thoughts on the managed futures index world.

While many trend followers found difficulty in August, the relative value / spread arbitrage program from Emil van Essen was up 1.42%; agricultural trader County Cork from the R J O'Brien family was up 3.06%; Protec Energy, an interesting fundamental long volatility play, was up 1.50% on the month. In terms of short volatility players, Global Sigma (profiled in the last issue) was up 1.11%. Trend followers who bucked the trend in August included Emil van Essen's recently launched long / short commodities program, up 4.63%; Rho Asset Management's Altius and Citius 1XL Program, up 1.30% and 1.25% respectively; and Clarke Capital Management's Worldwide Program up 0.74%.

It's been said on many occasions that when managed futures finds performance, the investment category could grow on an even more spectacular basis. Which leads to the interesting question: is there a managed futures capacity limit? We explore this in an interview with Newedge's Ryan Duncan and then a white paper on the topic from the brokerage firm's research team of Galen Burghardt and Lianyan Liu, who partnered with Cantab Capital's Ewan Kirk. After this we have an interest rate piece from Nash Dykes and Christopher Keenan from Welton Investment Corporation who consider the historical performance of managed futures during a rising rate environment.

With the Chicago CTA Expo around the corner, we feature articles by Expo speakers Diane Mix Birnberg, founder of Horizon Cash Management, as well as Grant Jaffarian of AlphaTerra, both of whom provide advice for CTAs looking to grow their business. This is bookmarked with a report on the recent PFG doings by former Newedge General Counsel Gary DeWaal and then we have uncorrelated investing commentary from Red Rock Capital.

Why Did Barack Obama Float A Summers Trial Balloon if He Wasn't Going to Listen to the Results?

US President Barack Obama appears to have had an indecisive and at times very decisive summer. In part I'm referring to Obama's "full throated" defense of the apparent favored Fed candidate from the start: Larry Summers, who recently withdrew his name from consideration due to what was perceived as a difficult confirmation process.

Informed speculation said an influential decision regarding the Fed chair occurred in July from New York City. The subtle and nonpublic "recommendation" endorsing Summers was handed down to DC, as has happened in the past for various Treasury, SEC and even CFTC appointments. It's a system for economic appointments that has, for the most part, worked well and is seldom if ever reported. Those in the middle of Wall Street tend to know the players and issues best. The key to success is to avoid public attention and keep Fed appointments "non-political," code words for ensuring appointment decisions are handled behind the scenes by a select group of influential individuals. But then in July, Obama made the political mistake of floating a public trial balloon, which led to a media and academic uproar. The chief arguments against the "pit bull" Summers was his abrasive management style (he is not known for a congenial personality with staff or those who disagree with him), apparent dislike for regulators (he is credited with leading the charge to force CFTC Chairwoman Brooksley Born from office for suggesting the mere study of unregulated derivatives) and his disdain for regulation in general (he is credited with orchestrating the birth of the modern unregulated OTC credit default SWAP). With even the elite New York Times railing against Summers, it seemed almost everyone was aghast at the choice, with those few souls in Larry's corner mostly unwilling to go on the record. I had predicted that none of this would matter and Obama would not defy the powerful forces who make the real decisions. In the end, the few powerful individuals supporting Summers are the ones who matter most. In fact, this Fed appointment could be the most significant in modern history. With over $600 trillion in unregulated derivatives underlying the world economy €“ the vast majority tied to interest rates €“ and the Fed in a position to pull back artificial support for interest rate markets €“ the economy could tangle with a rising rate environment and a debt crisis with unfunded liabilities that just won't go away anytime soon. Keep an eye out for a potential volatile 2014.

It would have been poetic justice indeed if Larry Summers, the "father of unregulated derivatives," is Fed Chairman during a period of time when we have potential to witness another unregulated derivatives implosion damage the world economy. No one knows the future for certain. The key for intelligent investors is to stay close to the situation and prepare for a variety of market environments, which is the point of this newsletter.

I hope you find this issue useful. Feel free to reach out with comments.

Best Regards,
Mark Melin,
Editor
Melin@Opalesque.com

Opalesque launches new comprehensive Managed Futures resources website

We invite you to register at our new comprehensive Managed Futures resources website www.uncorrelated-investments.com where you will have access to free tools like:

  • Managed Futures Academy: Comprehensive educational resource
  • Video Tutorials: Understanding CTAs and their performance drivers
  • Video Portraits: Meet some of the most successful managed futures managers
  • Mark Melin's Industry Insider's Blog
  • Needs Analysis: This interactive test helps you to determine your managed futures knowledge level.



 
This article was published in Opalesque Futures Intelligence.
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