February 12, 2015 (Thursday)

Since Inception June 2014:

Equity/Futures Account: +13.07% ($11,307,024)
FX Currency Account: +58.11% ($15,811,351)

Benchmark: S&P 500: +6.64%

Equities/Futures

Year

Jun2014

Jul

Aug

Sep

Oct

Nov

Dec

Jan2015

Feb

20142015

+2.01%

-1.02%

+2.02%

+6.28%

-2.52%

+4.29%

-1.69%

+1.07%

+2.15%

Mar

Apr

May

Tot. Ret
+13.07%

FX Currency

Year

Jun2014

Jul

Aug

Sep

Oct

Nov

Dec

Jan2015

Feb

20142015

-0.15%

+4.84%

+7.24%

+20.17%

+6.01%

+4.47%

+5.58%

+0.37%

-0.30%

Mar

Apr

May

Tot. Ret
+58.11%

2/12/15 Thursday
The reversal in USD/JPY compelled me to flatten the position in the currency pair as well as cover the short position in the EWY (South Korean ETF).
The iShare Mexico (EWW) looks interesting with definable risk/reward (stop at $56) and will be closely watched.
2/11/15 Wednesday
The price action and the relative risk/reward setup of the positions placed last week (RSX, SPY, XLU, TLT, USD/JPY, Nikkei Futures) continue to be
positive.
Of the group, RSX has the most upside in the short/medium-term. First is the favorable price action and the technical risk/reward setup in the index.
Second is the rally/stabilization in the oil market - which has been a positive catalyst for the index. And finally, the third is the possibility of a peace
deal (accepting of a demilitarization zone) being inked brokered by Germany. What gives me hope is that troop movement on both sides have
increased significantly and the fighting has intensified (with each side making advances) since the peace summit was announced. Military history
has shown (the Korean War is a perfect example of this) that a peace deal is often preceded by frantic and daring military actions as it usually
honors the territory gains up until the agreement. Its also an indication of each side trying to gain as much leverage before sitting at the table to
discuss terms.
Historical parallels keep me hopeful that an unexpected peace deal would catch the market by surprise. Even if it doesnt materialize, I expect the
index to inch higher. However, Im also ready to cut the position at the slightest hint of negative price action.
2/6/15 Friday Trade Update
The trade for the S&P 500 since December has been selling the index into rallies in adherence to the trend already in place. But given the recent
price action (reflected in the chart below), the risk/reward profile of that trade no longer offers much value.
To gain clarity, upon reflection of the confusing trading month in January, I had taken risk exposure down significantly late last week. I also
unloaded positions in gold and gold miners by 75% this week ahead of the jobs report. Fridays jobs report gave birth to trades that I think have a
great risk/return profile for the next few weeks (if not longer, as momentum will likely clearly shift from these securities).
Immediately after the announcement of the job news, I shorted XLU (SPDR Utilities ETF) and TLT (US Bond ETF), and have added to the short
Dollar/Yen (USD/JPY) position as well as taken a small long position in the Nikkei 225 Futures (/NKD).
The Dollar/Yen looks poised to take another leg higher and the set up in the Nikkei looks bullish as well. The backdrop of todays data points will be
great fundamental and sentiment drivers for the trades placed in the last 48 hours.
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Current Equity Positions (as of 2/12/15 - Thursday)

EWC - iShares MSCI Canada ETF: +50,000 shares = $1,400,000 (Long)
GLD - SPDR Gold ETF: +3,000 shares = $352,320 (Long)
HEDJ WisdomTree Europe Hedged ETF: +25,000 = $1,546,000 (Long)
RSX - Market Vectors Russia ETF: +180,000 shares = $3,186,900 (Long)
SPY - SPDR S&P 500: +5,000 shares = $1,044,000 (Long)
TLT - iShares 20+ YR Treasury ETF: -20,000 shares = $2,595,400 (Short)
XLU - Select Sector SPDR Utilities ETF: -60,000 shares = $2,756,400 (Short)
Account Cash Value: $11,307,024, Total Exposure: $12,881,020, Leverage: 1.14x
Current FX Positions (as of 2/12/15 Thursday)
Euro/US Dollar: $0.00
US Dollar/Japanese Yen Spot: $0.00
Account Cash Value: $15,811,351, Total Exposure: $0.00, Leverage: 0x
Market Vectors Russia ETF 2/12/15

S&P 500 SPY ETF 2/12/15

SPDR Select Utilities ETF (XLU) 2/12/15

iShares Treasury ETF (TLT) 2/12/15

iShares Mexico ETF (EWW) 2/12/15

2/12/15 - Thursday Platform Snapshot

2/5/15 Thursday Trade Update

1) The technical picture in the S&P 500 has changed from being slightly bearish to a rather bullish setup (please see the chart on the following page)
2) Ive reduced the gold long position by almost 75% - as I wrote in the previous update, certain price actions taking place in the market place have
been downright confusing, and since the last update, Ive reduced exposure to the lowest point in more than three months. I realized over the years
that whenever the mirror gets foggy, its always best to slow down and get rid of positions that I no longer feel confident in and keep things simple
until trends become more identifiable and stories more coherent. As they say in poker, money saved is money earned.
3) Oil may be trying to find a bottom here, and if it does, a great derivative trade should still be the Russian equities (ETF: RSX - although Ive been
stopped out once before due to the unfortunate timing of the credit downgrade by S&P). I also think that about Canadian equities (ETF: EWC). Ive
taken a small position in both. I should be able to capture the upside of the stabilization of oil prices with half the volatility of the actual physical
commodity.
1/23/15 Friday Trade Update
I dont regret the decision to take profits by liquidating all currency exposure because I believe event risk should be avoided especially if one has
built up a significant profit ahead of the event and if the outcome is heavily binary. Though it was difficult to see the euro fall another 2% against
the U.S. dollar (missing out on the action), it wasnt all a loss. The yen traded down to 117 against the dollar even hours after the ECB
announcement so I was still able to get back on the long side against the yen without giving up too much of the upside.
Also, given todays price action within the broader risk assets, I quickly realized that the day and possibly the next couple days (until this euphoria
surrounding the ECB fades) wouldnt be too good for the simulations core holdings. I trimmed both the EEM and EWY short by a third but I also
hedged the downside risk by going long the SPDR S&P 500 (SPY) and will continue to look to trade around the core.
In the last few weeks, the Russian ETF, RSX, seems to have been carving out a bottom and has started to trade independently from the headlines
coming out of the region. Like today, despite Ukrainian separatists taking over Donestk airport, that didnt stem the rally in the ETF.
I initiated a small long position in the ETF:RSX today (making up roughly 15% of the portfolio) with hopes that it can defiantly break $16.50 and
establish an upward trend. On the downside, I plan to keep the initial position on a tight leash with $15 as the stop loss.

1/20/15 Tuesday From Grozny to Frankfurt

Grozny, Chechnya
The chance of a peace accord taking place between Ukraine and Russia went from slim to none this weekend. The fact that the leaders on both
sides need the conflict to continue or even escalate further to stay in power is quickly elevating the danger.
One turn of events that can deescalate the situation is if Grozny becomes a bigger problem for Russia, as it did during the Yeltsin era, than Ukraine is
at the moment. Chechnya is quickly becoming a hotbed for Islamic jihadist activity, and part of the resurgence is due to many of Russias military
and intelligence assets being shifted to the Ukraine front (or within Ukraine itself) and, secondly, the formation of ISIS and some factions of Chechen
Islamists pledging allegiance to al-Baghadi and fighters returning back to Chechnya from Syria/Iraq.
The severe rise in attacks on Russian security forces in the region combined with a heightened fear of a pan-European terrorist network following
the recent tragic events in France may lead cooperation between Western Europe and Russia. Russia may be one major terror attack on its own soil
away from experiencing a strategic shift towards the Caucus rather than the Crimea. It may be a long shot, but monitoring the events in Chechnya
and the Caucasus region, which no longer has the coverage it used to, perhaps will offer insight into how the Ukrainian conflict concludes in the
short-term. Further deterioration in Chechnya would may become a buy signal for Russian stocks as it puts Russia on the same page as the West.
Such cooperation and mutual understanding occurred following 9/11 attack between Bush and Putin (Chechnya at the time was also in a period
of violent Islamic insurgency).
Euro
The short Euro trade benefited greatly from SNBs snap decision to remove the peg. The move has created an excitement for more downside
potential for the euro on the speculation that SNBs decision is to get in front of ECBs massive QE. As a result, the Euro has moved significantly
lower ahead of this weeks meeting on the 22nd reaching a 1.15-handle against the U.S. dollar.
Even the most optimistic size of the quantitative easing might be already priced in, so the risk has gone up significantly of staying short ahead of the
ECB meeting on Thursday. A temporary counter-trend rally to 1.20-1.21 where the currency really breaks decade-long support is not out of the
realm of possibility this would probably be a great level to re-short the currency against the dollar.

Core Positions (listed in reverse chronological order):

1) Short EUR/USD (initiated 6/17/14)
Written on June 17th and edited on August 27th The short euro trade has been the most highly concentrated (and the longest held) position since I
began this trading simulation.
I believe short EUR/USD trade has been one of the few macro trades where all elements of the trade (historical analysis, policy analysis, economic
data, trends/technicals and etc) all line up favorably to be short.
Written on August 27, 2014:
Good trades are often those that have multiple catalysts to push prices in the desired direction. But great trades are those that right or wrong, will
move in that direction anyway.
The short euro trade has been the most highly concentrated position since I began this trading simulation. The divergence in central banks policies
(Fed vs. ECB) and the growing divergence in economic data points have been the main reasons for holding a negative view on the euro against the
U.S. dollar since May of this year. And that as the economic realities become worse, the chances of QE in the Euro zone will increase. On the
flipside, contrasting Fed policy will strengthen the U.S. currency, further fueling the weakness in the Euro.
Government policy is not providing the solution so the burden will only continue to disproportionately fall on monetary policy to somehow uncover
the panacea for Europes woes. In my opinion, the future does not look bright. I see all of this as part of the larger macro trend that is moving
Europe away from the intended goal of integration.
The sovereign debt crisis in 2011 clearly drew the line between the haves and the have-nots. What is also ironic about the situation is that the event
left both sides bitter. The haves were upset because of the imposed financial obligation to help those who have less (or those who lied and abused
the system) and the side on the receiving end felt they were being overly punished and bullied by those who have more. Those feelings still
continue to burn and run counter to a longer-term integration process.
Those grievances eventually manifested themselves in domestic politics. All across Europe, parties that have lost significant ground to their socialist
or center-left political adversaries for decades came back to the forefront of their respective domestic political stages in the first half of this year.
In France, the National Front won the nationwide election for the first time with nearly 25% of the vote, winning 118 council seats on a local level.
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In the UK, the UK Independence party won 23 seats making it a first time in a century that neither the Conservative nor the Labour Party won the
election. In Finland, the newcomer Finns Party established itself as a legitimate third-party option after winning 13% of the vote. And the Five Star
Movement Party in Italy scored 21% of the vote just behind the ruling Democratic Party. Even Germany saw newcomers Alternative Party and a
neo-nazi party burst onto the political scene.
The narrative was much the same for Netherland, Hungary, and Greece those who favored leaving the currency union did extraordinarily well.
This laundry list speaks to the political earthquake Europe experienced in its first major election after the sovereign crisis and to the growing
persuasion of the Euroskeptic platform.
Despite what the establishment and spin-doctors in Brussels may say, one could characterize the population as having one foot over the fence. One
final push over and they may never come back. The more radical tools imposed from Brussels to stave off disintegration may also be the stick that
knocks voters to the other side.
It took a great amount of effort in the decades following World War II to convince Europeans of the merits of European unity and the eventual path
toward integration. But in one single swoop, all of that has changed. The younger generation, which has fleeting ties and experiences to the Great
Wars and vague memories of the Iron Curtain of the Cold War, only knows the failures of the integration experiment.
The worry is that it may be too late to win back the hearts of voters. A further push for integration in order to save the union will produce even
more backlash and build on the momentum Europskeptic parties have already displayed in the recent election. But doing nothing will also produce
a similar outcome as recession, stagnation, high youth unemployment (and high unemployment in general) will see anger directed at Brussels. Its a
lose-lose situation.

2) Long Gold (SPDR Select ETF: GLD position initiated on 9/30) I laid out the case in the Nov. 3rd note that golds move has always been centered on financial stability. Golds move from $700 to $1900 (from
2008 to 2011) in my opinion was driven by the fear of financial instability and the perceived inability of central banks to calm the storm. Whether
its extreme inflation or deflation, start of a bubble or end of a bubble, the very existence of either extreme is a knock on the system and an erosion
of confidence in central banks. It wasnt until 2012, after several years of stock markets steady rise, that those fears were placated, which also
marked the top in gold.

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The world is on track to double the size of its sovereign debt load from 2007 supported by little more than half the growth when the debt load was
half the size. And the final word has yet to be written on the unprecedented monetary policies in U.S., Europe, and Japan and whether the world's
largest economies are in fact playing musical chairs. If the threat of deflation is real, central authority will continue to rely on the printing press to
reflate.
Thus, perhaps the biggest risk to the market is when the music actually stops, when the realization sets in that the panacea isn't in financial
engineering and when the childlike innocence and trust in central banks' ability to fix problems shatters. Hope becomes the biggest enemy of the
market as it creates wild swings and extreme positioning. It's likely that each time hope is crushed the central planners will outdo the previous
method. Rinse, repeat.
Down the line, the insane debt levels all around the globe will do everyone in. Such a prognostication is excruciatingly gloomy. But I also accept that
within it, there will be market swings of excess in both directions and plenty of opportunity to make money in either direction.
3) Long USD/JPY (initiated 8/20/14)
Written on August 20, 2014 It was only a matter of time before the yen moved lower on the backdrop of dollar strength as well as the divergence
in central banks' policies -- they've been in different stages of easing for quite some time now. The prospect of additional easing seems more likely
to combat the continued lukewarm data points in Japan.
USD/JPY cross has been on the radar for a while as it's been in a tight trading range since February of this year. The position was initiated as it broke
out of consolidation and given how long it has consolidated, it will retest and likely close higher above the previous high of 105.43.
It is likely that this move might be the next leg lower for the yen part of the larger macro move that has occurred since late 2011.

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Trading Account Rules:

1) Starting Account Size:
a. Cash equities/futures/option: $10million
b. Forex: $10million
2) For the cash account (non-forex), macro views will be reflected using listed equity indexed ETFs with deep liquidity/volume and net assets of
$1 billion or greater in order to best represent the odds of the strategy being scalable (single-stock, company specific stocks will not be
traded).
3) Most of the speculative positions can also be accurately expressed using futures, but because the volume is more constrained at different
times and because the platform fails to take volume into consideration (hence the trades' impact on the actual price), the use of futures will
be limited. Positions that I deem to be core/longer-term would be better expressed via equities. But for commodities such as crude oil,
silver, copper, etc., they will solely be expressed through the futures contract market due to contango/decay issues that most commodities
ETFs suffer.
4) The overall goal is to identify attractive opportunities with goals of holding the positions for multi-week/month periods. Importance will
always be put on liquidity and risk exposure. Also, being able to realistically liquidate all positions by end of trading day or vice versa, scale
up risk, will be an advantage of the strategy.

5) Daily updates will be simple and short, as youll receive a time-stamped screenshot of the account summary where detailed positions and
P/L will be all within a single image.

6) Leverage for spot currency position will be limited to 2.5x the underlying cash

Leverage for equity/futures account will be limited to 1.3x the underlying cash with net aggregate overnight risk exposure (net liquid
value) often falling well below that limit.

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