Long the US Dollar… And Loving it

While hardly scientific, we tend to have a knack for highlighting a certain market move or environment on the blog, and that market or environment quickly reversing course upon our piece hitting the airwaves. It’s the futures market equivalent of the old contrarian magazine indicator.

The latest example looks to be the Currency Markets, where our talk of record low volatility at the beginning of the summer has given way to some of the most volatile currency market trading in recent memory, with the U.S. Dollar Index up around 6% in the past three months {past performance is not necessarily indicative of futures results} during what Bespoke Investment called  “The Best Quarter for the Dollar in Four Years,

Bespoke Long USD(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Bespoke

If you do any currency trading or have actually exchanged currency in the past and are asking ‘the US Dollar versus what?’ – the US Dollar Index measures the dollar against six different currencies (and mainly the Euro), so a lot of what is happening here is reflective of the Dollar rallying against the Euro. But it’s not only the Euro that’s been selling off against the US Dollar. See if you can spot any downtrends [US Dollar up] in  the Canadian, Aussie, Yen, Pound, or Swiss Franc.

Currencies in One Chart(Disclaimer: Past performance is not necessarily indicative of future results)
Charts Courtesy: Finviz

Now, to be fair… we did ask rhetorically (and wishfully) in our beginning of summer piece whether this was the calm before the storm? So we can’t quite say this was a contrarian move that caught us, or systematic traders, off guard.  In fact, this ‘storm’ is just the sort of volatility expansion systematic futures folks like to see. It’s directional volatility, meaning the market has become more volatile (is moving more day to day) AND is moving in generally the same direction (in the case of the US Dollar, up).

For a while there in 2011 and 2012, we were asking for more volatility without being specific enough and got some non-directional volatility (aka whipsaws), which doesn’t really help anybody out.  You can see the US Dollar “break out” of its past range in the gray shaded area in the chart above (and for the more technically inclined – the 50 day moving average cross over the 200 day moving average), and that is just the sort of move systematic multi sector traders like global macro, trend following, and managed futures plan for. They suffer all of that flat to slightly down performance in exchange for being able to capture moves like this.

So it’s no coincidence that the ‘best quarter for the dollar in 4 years’ coincides with the best managed futures performance in 4 years.  This is just the sort of move that managed futures programs are designed to capture.  It’s a heck of a move in its own right, but it represents so much more than that, for it actually means that multiple currency markets are trending. And what’s more – a trending Dollar can actually affect non currency markets as well. Remember that all those Gold, Corn, Oil, Cotton and other commodities are priced in US Dollars – so all else being equal – a rising US Dollar means a falling commodity priced in US Dollars.

As short term proof – we can see the Newedge CTA Index up 1.48% so far in September after gaining 3.94% in August, to put YTD performance at up +5.57%. (it’s almost like someone said this was a generational low in managed futures around this time last year). But we’re interested in more than just the latest example, and wanted to see just how good a trending US Dollar has been for managed futures over time. Turns out a trending US Dollar is one of THE best environments around for managed futures, at about 3.5 times the monthly return of periods when the US Dollar isn’t trending. (we considered the Dollar trending if its 14 period ADX reading was increasing from one month to the next, looking back to 1989).

Average Trending Days(Disclaimer: Past performance is not necessarily indicative of future results)
Data: Barclayhedge CTA Index starting in 11/’85

So keep  cutting interest rates and doing buybacks ECB.  And keep the Abenomic experiment going, BoJ. And keep growing US Economy – because we want to keep riding this US Dollar up trend (aka Euro, Yen, Pound down trend), although we may have just jinxed it with our contrarian magazine article powers.

Weekend Reads: Secret Recordings Edition

“An unprecedented look inside one of the most powerful, secretive institutions in the country. The NY Federal Reserve is supposed to monitor big banks and prevent another financial crisis. But when Carmen Segarra was hired, what she witnessed inside the Fed was so alarming that she bought a tiny recorder, and started secretly taping.”

The Secret Recordings inside the NY Federal Reserve – (This American Life)

Podcasts:

Covenant Capital Long Term Trading – (Top Traders Unplugged)

The Rise of Podcast Networks – (Fast Company)

Hedge Funds:

Then and Now: The Hedge Fund Industry in 2008 and 2014 – (Preqin)

2 & 20 is Dead – 1 & 15 is on the Way Out… (Do you agree?) – (Pragmatic Capitalism)

“The Passive/Active Distinction is About Cost” – (Pragmatic Capitalism)

Asset Class Performance:

Which Assets Perform When Inflation Is Low? – (Financial Planning)

Bill Gross:

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Is Ebola really the Cause of the Cocoa Move?

If you haven’t been paying attention to the Cocoa market the past couple of days, it’s certainly been on the move. How big of a move? An 11%, Coo-Coo for Cocoa Puffs kinda move since the end of last week. That would be like the Dow going from 17,000 to 18,870 in a week!

Cocoa Daily moves(Disclaimer: Past performance is not necessarily indicative of future results)

Now by the headline, you’ve already gathered that some are linking this sudden move to the Ebola outbreak in Western Africa. There are 5,800 confirmed cases in Guinea, Liberia, Sierra Leone, and Nigeria. What’s more troubling is just this week; the CDC estimated that the outbreak could reach 1.4 million cases within the next four months.

Our thoughts are with the people in these countries fighting to stop the spread of such a deadly disease, and we hope the Red Cross, the CDC, and WHO can effectively find a way to control what could turn into (if it isn’t already) a pandemic in Africa.

In the meantime, if Ebola does spread as fast as the CDC predicates, the disease could easily find its way into neighboring countries like The Ivory Coast, and Ghana. And that’s where Cocoa comes into the picture. Those two countries produce around 60% of the world’s Cocoa. The Wall Street Journal explains that this would halt exports of the crop, because of the way Cocoa is transported.

“Cocoa is grown on tiny plots, with growers selling their beans to middlemen who ride from farm to farm on motorbikes gathering the crop to transport to the coast for export. The travel restrictions and quarantines used to contain the disease could quickly isolate millions of farmers, choking off supplies to the world’s chocolate makers.”

This also seems good and logical until you take a step back, and think about the big picture. The first case of Ebola was identified back in March… and Cocoa was actually lower a few months later in May, before inching, and now shooting, higher.

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108 Tools to Grow your CTA Business

It’s that time of year again for Alternative Investment folks to storm Chicago for two different conferences, NIBA and the CTA Expo, with emerging and seasoned managers alike speaking, networking, and cocktailing in between sessions on Liquid Alts, compliance, and history lessons from CME founder Leo Melamed.

A little over a year ago, we came out with a piece entitled, “So You want to be a CTA?” explaining the ins and outs, and steps needed before making a real go at it. But where’s the list of software, lawyers, accountants, and what not – that CTAs use and rely on to make their business go?

Without further ado – our list of 108 or so commodity trading advisor resources:

(Note, firms are listed alphabetically in each category, and we’ve used their own descriptions, edited to remove the ‘we’re the best’ language… and – we can’t take full credit for aggregating all of these, The CTA Expo service provider directory gave us a great start).

 

 

Kick Ass consultant, broker, marketer, lead source, pool operator, AUM Grower

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Alt Links: Lots of Performance Talk

Performance:

Managed futures have been a lackluster investment this decade — until now – (Financial Post)

Managed futures buoyed by summer bounce – (Financial News)

Credit Suisse: Hedge Funds Rise In August – (FIN Alternatives)

Event Driven Hedge Funds Top Performers In 2014; Managed Futues Has Big August – (ValueWalk)

The Top 10 Managed Futures Performers of August – (Attain’s Alternatives Blog)

Regulation:

The New Chairman: An Interview with the CFTC’s Tim Massad – (FIA)

Cross-Border Swap Dispute Risks Trade War, CFTC’s Giancarlo Says – (Bloomberg)

Diversification: 

5 Ways to Prepare Yourself for Retiring in a Bear Market – (US News)

ICYMI:

Why managed futures aren’t getting the job done – (Investment News)

CalPERS Hedge Fund Exit: Earthquake of Godzilla? — (Attain’s Alternatives Blog)

A Golf Clap for Reporting on “Commodity Hedge Funds”

We’re not going to lie, when surfing the web, researching what others are writing about the Alternatives world, it typically turns into a post by us because, other articles that either conveniently  leave out essential information or purposefully leave out information because otherwise the article wouldn’t make sense. Managed Futures and alternatives have been getting a bad rap over the past couple of years, and we’ve spent far too much time “setting the record straight.” We thought it might be a good idea to highlight a major publication (The Wall Street Journal) for doing a decent job capturing the climate of “commodity hedge funds” this summer. What are we talking about?

Commodity Hedge Funds are finally getting some “good press” lately, as for the first time in 9 months, they’ve seen positive net flows into funds, according to the Wall Street Journal.

Commodity AUM flows(Disclaimer: Past performance is not necessarily indicative of future results)

It’s certainly not difficult to write a headline about commodities lately, whether we’re talking crops taking a nose dive, the meat markets at all time highs, or coffee showing the biggest move of any of futures market. But the article’s not just talking about asset flows and the “current climate.” It’s talking trends, and unique return drivers, and the ability to make money whether prices are rising or falling.

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The Top Ten Managed Futures Performers of August

While one month’s performance is no way to judge an investment that has 3 to 5 year cycles, a glance at who’s doing well in the different environments month to month can be a useful data point at times. Here’s the top managed futures performers (by return only) for the month gone by:

Note: These programs are not necessarily recommended by Attain. For a list with much more thought behind it – check our semi-annual rankings (updated July 2014).

 (Disclaimer: past performance is not necessarily indicative of future results. Programs listed consist of those with at least a 3 year track record tracked by Attain Capital Management for investment by clients via managed accounts and do not represent all available programs in the managed futures universe.  The Max DD represents the worst drawdown of all time for the listed programs).

Top 10 CTA's of August
August ROR
Max DD
Min. Invst.
Brandywine - Symphony Preferred (QEP)13.85%-26.34%1,600,000
KeyQuant SAS -- Key Trends (QEP)13.20%-19.15%10,000,000
Robinson-Langley Capital Management 12.49%-43.29%200,000
Schindler Capital Management -- Dairy Advantage 10.80%-41.49%100,000
DUNN Capital -- World Monetary (QEP)9.83%-60.06%500,000
Mulvaney Capital -- Global Futures 9.33%-45.02%10,000,000
Eclipse Capital -- Global Monetary (QEP)
7.93%-25.95%5,000,000
Global Ag (QEP)7.45%-20.90%1,000,000
Drury Capital - Diversified 7.37%-32.51%5,000,000
TradeLink Capital Integrated (QEP)7.27%-36.53%1,000,000