Here’s hoping the markets “Go to Zero”

One of odd things about being in an investment which can do well when markets are down is that you find yourselves at times cheering the market to go to zero.  That didn’t play well at dinner parties in 2008, and is likely to continue to raise some eyebrows when people start with a fresh round of “tough day in the markets today, huh?” conversation openers. Our go-to response?

“Sure was tough… we hope they go to zero.”

For those from the world of traditional investing, this can be a bit unsettling and cuts a lot of conversations short.  “Go to zero? What the %^#$?”

While we don’t actually want market to go all the way to zero (we still want a functioning society and all of that), managed futures has been an asset class in search of a crisis for much of the past three years bumbling around between down slightly and even.  A nice crisis sending markets into sustained downtrends would be a welcome sight for most in the managed futures world, and would go a long way to pushing managed futures returns back up to their historical averages.

As we have laid out before, managed futures tends to do well during market crisis periods because of their ability to go short global markets. In 2008, managed futures programs found themselves short nearly every type of market not considered a safe haven, be it stock indices, energies, foreign currencies, metals, grains, or softs. Fast forward to the past few weeks, and we’ve seen several managed futures programs start to initiate such short positions in markets like US and non-US stock indices, energies, foreign currencies, and metals (grains have oddly seen strength recently).

Quite simply, we’re cheering the markets to zero because the lower they go in this move down, the more money our clients stand to make, and the happier we are. Of course, past performance is not necessarily indicative of future results and there are clients and programs and positions which may lose money in an extended move lower.  But generally speaking, such down trends work to the benefit of the managed futures space in our experience.

So for now we’ll be cheering… “Go to Zero!”

Chart via Finviz.com

PS – we’ll see if our uncanny ability to make the market do exactly the opposite of what we write about holds up again.  We half-jokingly expect stocks and crude oil to be up about 3% next week just because we had the audacity to say we want them to go lower.










Speak Your Mind

*

Interested in distributing or reprinting this content? Check out our reprint policy here.

DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

*The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

It should be noted that past market performance is not indicative of future market movement.No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.