The Credit Crisis Financial Stocks Short Journal

Simply check the assets under management in the managed futures industry in the 80s and 90s, then compare to the 2000s. Then look at the performance in the 2000s.

The aggregate performance in the 2000s is anywhere between 60-100%. That profit alone is bigger than any POTENTIAL losses in the previous 20 years, simply because assets under management this decades are magnitudes bigger.
 
Quote from Daal:

Please bear in mind that the big CTA�s typically offer 8 or 10 different �programs�, so that they can quietly close down the worst performers, or just stop reporting their result."
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The same hypothetical argument can be used against Global Macro or any other strategy. All the losing funds were closed (Tiger etc.) Who can we be sure that investors over the last 30 years actually made money with Global Macro?

Maybe global macro is overall a losing strategy? Maybe investors are fooling themselves thinking they can out-smart the market using economic analysis? Who can guarantee if economic analysis provided an edge in the past that it will provide an edge in the future? Maybe everybody following Global Macro is simply fooled by randomness?

All these counter-arguments are laughable at best and embarrassing when taken for face value.
 
Quote from makloda:


Maybe global macro is overall a losing strategy?
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This could be true, I dont think I ever said humans analysing economic data will get it right more often than not.

Matter of fact I believe just the opposite which is why mispricings will occur. GM could be a net destroyer of wealth(specially if compared against certain benchmarks), that doesnt mean that when I engage on that I wont make money. GM and TF are very different in this regard. If momentum is an illusion all TFs get killed, if the dollar loses 99% overnight, some GM funds blowup some make fortunes. In the end it comes down how correctly you see reality

Since 2007(when I began GM), I have been net $ positive by amounts that satisfy me so my alchemical experiment tells me to continue. But I will be the last person to claim GM hedge funds are the way to go, specially with 2/20 fees. I also will be the last to say that anyone reading bloomberg can make money in the financial markets as a hobby. GM is a tough game
 
Quote from makloda:


The aggregate performance in the 2000s is anywhere between 60-100%
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Is this derived from the $ return?Judging by the experience of John Henry who got big money then lost big I'm not so certain. Specially given that he is frequenly used as an example. Furthermore its possible the TF funds had drawdowns with bigger AUM(like VN claims), so the total $ return to clients is positive by its not meaningful. Henry could be in the category, if his $ return is positive but mediocre its possible that one would do better through T-Bills
 
Henry managed $2bln at his peak as far as I remember. Henry used to be big in the 90s. Today's hand full of big funds manage $5-20 bln each, dwarfing Henry. The top funds' 2008 performance made 10x the money Henry ever lost in his entire career, and then some.

Henry is the posterchild of the "terrible returns" of trend following funds, just like LTCM is the posterchild how "relative value doesn't work" or Tiger for "Global Macro always blows up". This is all stuff the media created and picked upon.
 
Quote from Daal:

VN said
"While these are serious objections, they are of the armchair variety. We have tested similar strategies on big groups of stocks like the S&P500 and found it produces random results."

Which you replied with
"When restricted to the S&P 500 we found an inverse relationship between the tendency to have substantial and prolonged % moves and market capitalization. Intuitively this made sense to us as index members have already experienced the market cap growth necessary to get into the index. Also, index members tend to offer transparency that is communicated in real time by an army of analysts and research reports. Furthermore, their business models tend to be overly diversified relative to small/medium companies. Additionally, there is typically millions of dollars bid and millions asked just cents away from the prevailing price at any given time. It seems only an accounting scandal, speculative mania, or major market shock can provide the fuel for outlier moves. That being said, we don't discriminate against them; we are just happy that there are so many more small and mid-cap companies to buy."

So it appears that this TF 'edge' only works in situations where there is less liquidity, coverage, information, borrowing difficulties/costs,etc

So yes, one can take advantage of that by using that system but I'm thinking about the implications of that. If that TF edge only works in instances where the market is having a tough time arbing it means that suggestion of VN that big TF funds are -$ in terms of returns seems more likely to be true given that they are trading highly liquid, widely followed markets
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I prefer to think of it as the TF 'edge' doesn't work as well on stocks that have already appreciated by 1,000% and have 30 analysts following them. Then again, nothing works as well on these stocks. Thankfully those stocks are alway the minority in terms of numbers. The big TF funds that VN talks about are almost exclusively futures trading CTA's; almost nobody applies TF to stocks. Do not confuse TF with momentum trading. They are not the same thing.
 
Quote from ecritt:

almost nobody applies TF to stocks.
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Actually there was a guy here on ET named anekdoten who claimed TF worked so well in US stock index futures he made a living daytrading them. He claimed he had 7 losing days in 2007 using TF to SCALP the ES. I thought his story was true but now I'm beginning to question it, a lot, given the large cap stock indices are mean reverting
 
Quote from makloda:

Henry managed $2bln at his peak as far as I remember. Henry used to be big in the 90s. Today's hand full of big funds manage $5-20 bln each, dwarfing Henry. The top funds' 2008 performance made 10x the money Henry ever lost in his entire career, and then some.
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Its a matter of looking at these other big funds during the Henry drawdown(given their correlations) and seeing what kind of drawdowns they had with what AUM, then comparing with the profit from 2008 and seeing if they those net $ returns are any meaningful.

Given that their compounded % is nice(but not ultra awesome) if VN is right they have a tendency to have bigger drawdowns with higher AUM its possible they the real compounded % return is not that great, specially when compared to the vol
 
Quote from Debaser82:

Daal, I admire your analytic and critical thinking so I was wondering if you could share your opinion on the Shadowstats report claiming hyperinflation is a given.

http://www.shadowstats.com/article/hyperinflation
Cheers.
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I disagree with that guy. First he seems to praise measures of money like M3 which are flawled. M3 counts stuff like time deposits which are simply bank bonds, if BAC issues a bond and you use cash to buy it, that doesnt increase the money supply or people's ability to create inflation, if the bank lends the bond proceeds that should show up in M1 or M2 so no M3 is needed(the proceeds will show up initially as bank reserves, no M3 is needed for that). Repurchase agreements also are generally not inflationary because it simply swaps the owners of cash in a temporary basis, it doesnt produce new money

Sure the government understates inflation but that guy overstates, according to him the US economy had little growth during much of the 90's, where productivity and employment soared, and the population grew also. Just what kind of weak economy is that where people on the ground are hiring like the world is running out of workers

Furthermore the Fed(as currently structured) would in it's worse case scenario(in my view) recreate something like 70's style inflation(double digit CPI), I believe they will be a bit late in starting to exit but thats far away from any kind of hyperinflation. All the monetary base created can be withdrawn, it seems that John Williams doesnt understand that the fed is monitoring bank lending through the Fed Senior Loan Officer Survey and bank balance sheets through the Fed H.8 tables, so they will know when the monetary base is converting to M1/M2 and they can do reverse repos/sell USTs/create deposit facilities for banks/raise interest on reverses to prevent the monetary base from balooning the money supply

I assume you ask this because your bullish positions in gold. I'd say disinflation is more bullish for gold than imminent inflationary pressures. That is because deflation will get the fed to expand QE, while inflation will trigger some kind of exit
 
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