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Saturday, 30 November 2013

Oct update


indexed NAV
adjusted return
100.00
Nov-12 17.8% 117.77
Dec-12 37.4% 161.78
Jan-13 38.1% 223.40
Feb-13 -3.3% 215.92
Mar-13 12.4% 242.62
Apr-13 30.2% 315.81
May-13 68.8% 533.08
Jun-13 36.9% 729.55
Jul-13 -12.6% 637.46
Aug-13 -1.7% 626.31
Sep-13 -9.6% 566.31
Oct-13 -4.9% 538.62



A very frustrating month here :

Equities               0.0%      Long Nikkei positions cancelling gains from S&P longs
Rates                   -1.8%     Shorts in US fixed income and small losses in Schatz & Bobl calls
Commodities      -1.3%     Stopped out of short gold at 1344, which turned a good trade into bad one
FX                       -1.8%    Stopped out of long USDJPY, short AUDUSD and long GBPCHF

Having sidestepped most of the US political noise I found it very hard to re-establish positions. Having had a large drawdown I'm running with much smaller positions and tighter stops. With hindsight, the positions should have been smaller still and the stops deeper : nearly all the trades I cut subsequently came good, so the lesson for November is to look for smaller positions on higher conviction trades.

Market outlook
US
October's first tier data (ISMs and payrolls) suggest that the real economy never believed the Washington pantomime. Perhaps Main Street is just as cynical as Wall street about the threats of US politicians. Either way, it's hard to see how Nov and Dec payrolls are going to be poor. That and the Fed's latest rhetoric (perpetually low rates should outweigh any taper) make me think that a Jan taper is most likely. I think the market basically "knows" this, but hasn't yet priced it in because we all got so badly hurt by the Fed's U-turn in Sept. Short gold, long the dollar (against AUD and JPY) and a small short in fixed income are all worth re-entering.

Japan
As things stand the impact of yen weakness on CPI will peak soon, but CPI is still a way from the BoJ's 2% target. Either Abe concedes defeat, or he makes another push to revive inflation. Defeat looks like political suicide, so my money is on another round of monetary stimulus. It's hard to buy more JGBs - they're already buying more than the annual net issuance - so the path of least resistance might be to buy more ETFs and equity index trackers. They'll be exploring the options for more easing at the same time that the Fed is talking its way to a Jan or Mar taper, so USDJPY


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