In This Issue:
Our Monthly Performance Update
China: The Economic Elephant in the Room?
Chinese Fool's Gold
Smoke and Mirrors
Trade Earnings of the Impossible Kind?
A Drop in the Bucket
Portfolio Performance Analysis
Why Pigeons Walk Instead of Fly in Boise Idaho
Was the flash crash a market related fluke, or could it
be telling us something about our future? When most investor's think
back to the most recent bear market, many remember Bear Stearns, Lehman
Brothers, and the gut grinding months of September, October, and
November. The event was so traumatic that it is easy to forget how it
all got started.
The first shot across our bow was in
August of 2007. As it turned out, most of the larger quantitative based
market neutral long/short hedge funds had become correlated with their
positions and didn't know it. Each thought they had developed some
super secret alpha generating model, but actually these funds had
developed similar models that were making the same trades. Everyone's
super secret computer model had found the same edge in the data.
In August of 2007, the perfect storm hit causing these funds to
unwind their trades at the same time causing huge losses for their
clients. When there is no one to take the other side of your trade, it
is painful. The losses were so large that it caused many hedge funds to
close their doors. Even Goldman Sachs had to close down some of their
billion dollar funds, so it must have been completely unexpected.
Genius failed again.
What happened in August of 2007 and
the flash crash in May of 2010 seems eerily similar. Do you recall
what happened next?