2007/02/28

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

9.9%	9.5%	71.1%	166.1%

What a Day!!!

*) S&P 500: 50 pts drop
*) Russell 2000: 30 pts drop
*) Dow: 400 pts drop
*) NASDAQ: 96 pts drop

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

9.1%	14.0%	71.3%	151.9%

VAR numbers are too HIGH!!!! Need to reduce risks!!!

2007/02/27

1% drop of SP500 and 1.8% drop of Russell2000 at market opening.

There hasn't been a market drop like this for several months!

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

3.5%	2.3%	29.4%	92.5%

2007/02/26

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.5%	0.0%	11.8%	50.1%

2007/02/21

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.1%	0.0%	9.0%	38.1%

March Positions

From March 2007, I' going to start trading both S&P 500 and Russell 2000
contracts in the same account.

Trading vehicle for S&P 500 is ES on GLOBEX
Trading vehicle for Russell 2000 is ER2 on GLOBEX

In the above diagram, there are 3 Axes:

*) Vertical Axis is Profit/Loss percentage
*) Upper Horizontal Axis is the GLOBEX front contract ER2 value
*) Lower Horizontal Axis is the GLOBEX front contract ES value

Note: ES and ER2 Axes are scaled based on linear correlation ratio.

There are 3 data lines:

*) Red line: P/L on front month expiration date
*) Blue line (solid): P/L for today
*) Blue line (dotted): P/L for today + 10 calendar days

As for Risk Measurements:

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

1.6%	0.0%	7.5%	28.9%

February Contracts Expired

February Return: 2.4%

Market is Strong

Market is strong, reduce upside risk ...

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.2%	0.2%	10.1%	30.8%

Increase MPP

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.8%	1.2%	14.2%	41.6%

2/17 MPP: ~4.1%

Reduce MPP

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.3%	1.8%	13.9%	46.3%

2/17 MPP: ~3.2%

Bad Timing

Too bad. Just reduced upside risk, right before market is going for a big drop!!!

Now have to look out for down side risk!!!

Adjust March Contracts

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.2%	0.1%	7.8%	81.2%

2/17 MPP: ~4%

Adjust March Contracts

10d,Theta	10d,65%VAR	10d,95%VAR	10d,99%VAR

2.2%	0.0%	8.2%	52.9%

MPP (2/17): ~4.5%

A theory for our brave new economy

http://taodong1998.blog.sohu.com/31852878.html

excerpted from above blog:

当今的世界经济周期似乎已不再由央行主导，而是由资金的全球流动所决定。资金的进出走势决定了一国的流动性，带动信贷周 期，并反映在市场利率水平上，随之出现经济的周期起伏。央行所为，不过是对资金的潮进潮退加以协调、微调。于是，口头干预多过政策变化，汇率变化多过利率 变化。经济与政策的互动关系发生了质的改变，市场主宰着经济的变迁、央行的决策。

市场主导下的全球经济，从效果上看并不差。资金往往比央行对经济变化更敏感，行动更迅捷，还免除了央行决策失误的风险。过 去几年世界经济增长的平稳程度是战后历史上最好的，市场的相对稳定性也是近三十年来最好的。资金的全球化流动、新保守主义经济理念和格林斯潘式的央行管理 共同打造出一个新型的世界经济秩序，成全了战后最长的全球经济景气，也为市场创造出空前的财富。

Translation:

Today's world economic cycle seems no longer led by the central banks, but by the flow of global capital. Capital flow, which follows the ups and downs of economic cycles, determines liquidity, leds credit cycle, and is reflected in the interest rate levels. Central banks' role has all but become influx of capital to coordinate and fine-tuning. There are more verbal intervention, more changes in the exchange rate than interest rate. Interaction between economic policy has undergone a qualitative change. Market is dominating the economy and the central banks' policy.

The effect of market-oriented global economy appears to be not bad at all. Capitals are often more sensitive to changes in economic condition than the central banks. They move more quickly. This reduces the risk of central bank's policy blunders. The steady growth of the world economy over the past few years was the best of the post-war history. Market stability has been the best of past 30 years . The globalization of capital flows, Greenspan neo-conservative economic philosophy's influence on management of the world central banks, together create a new economic order, helped the world's longest post-war economic boom. It also created unprecedented wealth to the market.

Bill Gross: 100 Bottles of Beer on the Wall

100 Bottles of Beer on the Wall
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+February+2007.htm

An interesting reading of Bill Gross's view on the market.

Albeit Bill Gross's view is more pessimistic than mine own, it points out an important
observations that world market is building up higher and higher leverages today.
This could become the cause of potential market instability.

When the storm comes, it will be BIG! The longer we waited, the bigger it becomes.

Be cautious, be VERY cautious...