DAR¥L

Starting Young, Business Times: Daryl Chia

2011-09-06T00:39:00.000-07:00

The Business Times

Published September 5, 2011

Gaining his father's trust

Daryl Chia sold off half his father's portfolio and hedged the other half with put options, saving him a few hundred thousand dollars in losses, MICHELLE YEO reports

WHILE most collectors hoard antiques, furniture or art, 22-year-old Daryl Chia seeks to collect something rather different: the soon-to-be freshman at the University of Warwick wants to build a formidable collection of letters behind his name.

Mr Chia (left): Recommends saving and investing regularly, especially in passive or index funds rather than mutual funds.

He started investing in 2007; and since then, Mr Chia has already picked up the title of Professional Risk Manager (PRM) and soon will be adding the titles of Financial Risk Manager (FRM) and Chartered Alternative Investment Analyst (CAIA) to his name, before he flies off to school this month.

And after that, he'll gun for a Chartered Financial Analyst (CFA) qualification, though only after he attains his bachelor's degree in Mathematics, Operational Research, Statistics and Economics (MORSE).

Q: When did you start investing and what got you into it?

A: I started in 2007. I actually took a year off junior college (JC) to practise archery so as to compete in the national team. After an injury which put me out of the team, I started using my time to read about investments, asset allocation and the Financial Times newspaper, spending up to 12-16 hours a day at times.

I was fortunate to start at a very interesting period, financially. Based on my research, I felt that there was an impending recession at that time so I went and sold off half my father's seven-figure portfolio and hedged the other half with put options, saving him a few hundred thousand dollars in losses. With that, I gained the trust of my father as well as others I was in contact with.

Q: What do your parents think of your forays into the realm of investment, especially at such a young age?

A: My parents are quite liberal in the sense that they would let me do whatever I want, including taking a year off JC to pursue archery. Of course, there was a bit of convincing to do on my part initially to give my parents an idea of my plans for the portfolio as well as my financial knowledge.

Q: Describe your current portfolio

A: It is almost a seven-figure portfolio. My portfolio can be divided into two portions. The first part seeks to maximise beta returns, but only doing so in the most efficient manner. This part of my portfolio comprises stocks and bonds in the usual 60-40 ratio. Because I think investing in mutual funds is an expensive way of gaining beta exposure, most of the stocks I hold are in passive funds.

The other portion of my portfolio seeks to gain alpha returns. Within this part, half of it is invested in funds of funds while the remaining half of it is invested in my own fund, which I use to conduct my own research.

Q: Do you actively pick stocks?

A: No, I do not engage in active stock picking at all. I believe the asymmetry of information in the stock market is quite high. Those who are in the know would have access to special information but if you are not one of them, it would be hard to get such information.

Q: What was your best investment?

A: I would say my best investment is really the investment I made in my education because I really worked very hard for it. In the field of investments, it is easy to look back at your past decisions and rationalise them into either good or bad ones when they could have purely been based on luck. I did not get education because of luck. It is something I worked hard for.

Q: And your worst investment?

A: My worst investment would be the time I spent trying to time the market and to spot the dips and bumps. A lot of cognitive biases come into play during this process.

Q: Describe your risk appetite.

A: I would say I lean more towards the aggressive side. Ultimately though, I think my risk appetite is still quite balanced and because my portfolio is very diversified, I can afford to take on larger risks.

Also as a professional risk manager, I make sure I use Value at Risk (VaR) metrics to ensure that I stay within my risk limits.

Q: What advice do you have for young investors?

A: I recommend saving up and investing regularly, especially in passive or index funds rather than mutual funds. Also, if it is financially possible, I recommend investing in a few funds of funds.

Finally, do not waste any time trying to time the market. For younger investors or those who are new to finance, I stand firmly by the 60-40 stock-bond ratio which I think is a good enough basic rule to follow. That way, you will not need to constantly keep track of the changes in the market and hope to time it but can spend your time focusing on more important things.

Q: Where do you see yourself financially in the future?

A: I want to go into either fund management or risk management after I am done with my university education.

Eventually, I hope to achieve financial freedom so that I can focus on the more important things in life such as family and friends.

Q: Do you have any role models?

A: I do not have one specific role model but many. I would say I am a pretty outgoing person, and I like to make friends and network. I believe that there is something to learn from everybody, and I try to learn as much as I can from the people around me.

www.darylchia.com is up!

2011-09-04T23:21:00.000-07:00

do head there please.

DC Global Macro Performance Update - 2 Sep 2011

2011-09-01T23:25:00.000-07:00

Financial Risk Manager Preparation

2011-09-01T09:16:00.000-07:00

As promised at the GARP Financial Risk Manager (FRM) August chapter meeting, I've complied the material I covered during my preparation for FRM Part 1 in May this year to share with candidates who might be interested. Do email me at darylchia89@gmail.com if you wish to receive them.

Also, just to reiterate, how I recommended people study for the FRM Part 1 is to:

1. Read through and understand the first half (i.e. part 1 chapters) of the 6th Edition Handbook, because the handbook is pretty easy to grasp - i.e. they are not as condensed as Kaplan's notes yet not as long-winded as the FRM readings or recommended readings like Value at Risk by Philippe Jorion or Futures, Options & Derivatives by John Hull.

2. Mark off from the AIMS what has been fully understood from the Handbook.

3. Look for the incomplete AIMS in the Kaplan or Bionic Turtle notes and study them there

4. In the case where the Kaplan or Bionic Turtle notes are insufficient, search for the particular AIMS in the GARP readings (which I don't recommend you use as your main study material unless you have absolutely all the time in the world)

5. Practice - with timing - the GARP papers and Kaplan Qbank and practice exams (which for Part 1 are tougher than the actual exam. I got 70+ for the Kaplan questions but 90 or so for the GARP papers, well above the passing score of 75-80)

All the best to us candidates! I will be taking the FRM Part 2 in London this November. Sound me out if you're taking the exam there too! :)

------------------

On another note, GARP just sent me this. I'll be attending.

LIVE WEBCAST

SOVEREIGN AND POLITICAL RISK

JOIN US ON TUESDAY, SEPTEMBER 13, 2011

Sovereign and Political Risk

Sovereign and political risks are a growing concern for financial professionals and risk managers as the EU is plagued by fiscal and public debt concerns, the Middle East struggles with political upheaval, and the US faces economic and political challenges.

This Webcast will:

• Address the larger questions about the global financial framework raised by the US’s loss of AAA status

• Examine the intersection of sovereign, economic and political risk

• Discuss the impact of these risks on global politics, the economy and the practice of risk management

GARP Webcasts examine the most topical and relevant issues facing risk professionals today. GARP produces more than 18 live Webcasts each year. As a benefit of Membership, Individual and Student Members receive access to all GARP Webcasts free of cost — a value of more than US$850.

Questions or comments about this GARP Webcast?

Contact us at webcast@garp.com

LIVE WEBCAST DETAILS

Tuesday, September 13, 2011

11 AM EDT (New York)

4 PM BST (London)

11 PM HKT (Hong Kong)

60 minutes

PRESENTERS

Robert Savage

CEO, Track.com

Daniel Wagner

CEO, Country Risk Solutions

Peter Went

Senior Researcher,

GARP Research Center

NAV Update - 29 Aug 2011

2011-08-30T07:39:00.001-07:00

NAV: $0.8816 (+0.61% week-on-week, -11.84% year to date)

NAV Update - 22 Aug 2011

2011-08-22T21:40:00.000-07:00

NAV: $0.8762 (-4.28% week-on-week, -12.38% year to date)

NAV Update - 15 Aug 2011

2011-08-16T04:35:00.001-07:00

NAV: $0.9154 (+6.69% week-on-week, -8.46% year to date)

NAV Update - 8 Aug 2011

2011-08-08T23:00:00.000-07:00

NAV: $0.8580 (-16.01% week-on-week, -14.20% year to date)

This must be the worst weekly NAV update I've had to give since the 08/09 crisis.

The largest weekly fall in equity markets across the globe since December 2008 (i.e. the global financial crisis) hurt DC Global Macro's long term long equity positions, namely positions in S&P 500 index futures, iShares FTSE Xinhua 25 ETF and risky emerging market bonds iShares JPM EMBI ETF. Short US 10Y treasury futures positions were also hurt due to record falls in bond yields during the 'risk-off' flight to quality last week. All these occured on the backdrop of extremely weak economic data from the US and EU implying a much increased chance of recession, record high soverign bond yields in the Italy and Spain, FX intervention by the SNB and BOJ, and ratings cuts by S&P of US government and agency debt.

On the FX side, all of of DCGM's FX positions actually benefited from the turmoil, and reduced the fund's losses by 2 to 3 percentage points. As for energy, the lack of exposure to oil (unlike during the past months) probably 'saved' DCGM, as the only market hit harder than equities is that of crude oil - WTI over the past 2 weeks has fallen more than 20%.

Going forward, I hold the view that the probability of an outright recession in the US remains below 50% and hence is not the base scenario, and reiterate such a stance after having had a conference call with Dr Nouriel Roubini - I am a client of his economic research firm - and many institutional investors last night. My end-year target for the S&P 500 is 1250 (much more conservative than many bulge bracket banks' current forecasts, such as Goldman Sachs' call for 1400), about 11% higher than where we are now. I hence believe that although market hysteria could further depress prices in the near term, valuations are looking attractive and it is high time to deploy more capital into the markets for the long term.

"Be fearful when others are greedy, and greedy when others are fearful" - Warren Buffett

United States of America Long-Term Rating Lowered To 'AA+'; Outlook Negative

2011-08-06T06:03:00.000-07:00

Aww, big deal.

Link: Standard & Poors RatingsDirect Research Update

I actually had the luck of going short 10Y treasury futures as a long term position on Thursday afternoon New York time - a day before the downgrade - and later found myself commenting on facebook over the weekend:

Well, fortunately it seems the equity and treasury markets barely moved* after the news. Although there's no real alternative for the USD and a risk free asset at least within this economic cycle, I still wonder what the longer term impact would be for US govt and corp funding costs and hence economic growth, and also what the systemic impact within the financial system due to the higher haircuts on this 'risk-free' collateral would be like.

*well, it actually swung 20-25 basis points

I shall read up more.

Portfolio Update - DC Global Macro Risk Allocation

2011-08-05T01:30:00.001-07:00

NAV Update - 1 Aug 2011

2011-08-02T00:10:00.000-07:00

NAV: $1.0216 (-0.62% week-on-week, +2.16% year to date)

DC Global Macro Portfolio Risk Allocation

2011-07-26T23:31:00.001-07:00

NAV Update - 26 July 2011

2011-07-25T20:10:00.000-07:00

NAV: $1.0280 (+-1.11% week-on-week, +2.80% year to date)

Singaporeans in Conversation 2011

2011-07-23T22:57:00.000-07:00

As a global macro finance man who largely focuses on the G7 economics and middle eastern geopolitics, I must say I know nuts about the local (Singapore) political landscape as compared to some of my learned peers. Still, I managed some very general and brief answers off the cuff when asked why I'd like to attend Singaporeans in Coversation 2011 - an open discussion with DPM Teo Chee Hian. Here they are! :)

And you can sign up for this too by clicking here. Deadline is this Wednesday.

WHY DO YOU WANT TO SIGN UP FOR SGIN(C) AND HOW DO YOU THINK YOU CAN CONTRIBUTE TO THE SUCCESS OF THE EVENT? (A short answer will suffice)

Having kept abreast with geopolitics and global macroeconomics since having started managing personal, familial and friends' investments since mid-2007, I come with a more 'global macro' perspective.

With the ongoing two-speed economic recovery between the developing and developed world, and a structural shift - as opposed to a shorter-term cyclical one - from traditional western powers to the BRICs and ASEAN economies, I am especially keen on learning about and discussing the policy maneuvers which Singapore plans to take in order to navigate the choppy waters of such a paradigm shift.

WHAT'S YOUR OPINION ON THE POLITICAL CLIMATE OF SINGAPORE?

I think one of the largest and most pertinent issues to tackle today are succession planning within the government and minimising the negative social and political repercussions of a widening income divide and a squeezed middle class - a by-product of increased mobility of labour and capital, or globalisation.

"SINGAPOREAN YOUTHS ARE APATHETIC ABOUT SINGAPORE’S FUTURE" - THE ONLINE CITIZEN. PLEASE COMMENT.

People tend to extrapolate their present situation when looking into what the future might bring. It is no surprise that young people who have not experienced first-hand social strife and the effects of bad governance or corruption on a country's economy and social fabric are not very concerned about working to maintain the systems of checks and balances that has brought us to where we are today.

Therein lies the importance of national education and the need to provide the right incentives to the young and mobile, such that the government may be as competitive an employer in the jobs market as private firms are.

WHAT ELSE WOULD YOU LIKE US TO KNOW ABOUT YOU?

I believe in capitalism, and I believe in doing what works and what is practical. A nation should be run like a business - efficient with its use of capital and human resources and always adapting to the changing marketplace and global landscape.

Like any business, it should answer to and please as many of its shareholders as possible - these are the Singapore people, and not only the wealthy or powerful, but each and every citizen and permanent resident who have pledged their allegiance to the nation.

____

P.S. I picked up most of my crapping skills from the newspapers (local and otherwise) and Bloomberg and CNBC interviews :) :)

Developed world cannot thrive at 'stall speed'

2011-07-22T02:07:00.000-07:00

By Bill Gross

Debt is the disease – growth is the cure, but as the latter falters, economies and their associated financial markets hang in the balance.

Academics Kenneth Rogoff and Carmen Reinhart have outlined what happens when countries assume liabilities that future growth cannot comfortably pay. Ninety per cent debt to gross domestic product is their Maginot line beyond which leverage dynamics begin to work in reverse, slowing growth instead of enabling it, promoting too much risk as opposed to potential gains.

The developed world as a whole is now approaching that key percentage. The Rogoff/Reinhart analysis also shows that, as it does, economic growth slows by approximately 1 per cent. Almost on cue, developed economies are experiencing 2 per cent instead of 3 per cent annual growth.

We at Pimco labelled this the “new normal” back in 2009, well before This Time is Different was published. It was a qualitative assessment instead of a historically validated model, based on our assumed effects of deleveraging and re-regulation bound to characterise the post-Lehman future. So far, so good for the forecasting.

What lies ahead, however, is a precarious “bumpy journey”, as my colleague Mohamed El-Erian describes it, in which growth moves slightly above and then frighteningly below this 2 per cent “new- normal” rate. The danger rests not so much on the 90 per cent debt-to-GDP ratio, high as it is, but on the 2 per cent real rate of growth, because that number approaches what is known as “stall speed.”

If the developed world was growing at 5 per cent like developing economies, the risks would be far less. At 2 per cent, however, “stall speed” connotes an inability to behave like the historical capitalistic model should. Corporations lose incentives to invest because profit growth stagnates, unemployed workers are not rehired and the standard cyclical model of seasonal rebirth is jeopardised.

These structural headwinds in turn confuse policymakers. Central banks apply a dose of liquidity and negative real interest rates that fail to stimulate investment, while fiscal authorities and political parties stagger from one election to another, recommending balanced budgets in one year and stimulus packages in another.

The burden of debt, however, which was the initial catalyst, is a slow-moving glacier in retreat. While the Rogoff/Reinhart research somewhat incompletely produced an analysis of sovereign debt instead of a debt analysis across the total economy, the past two years have produced negligible total debt deleveraging across almost all countries. Lower interest rates have relieved the burden somewhat and stimulus packages have reduced unemployment marginally. Now, however, as these policies reach mathematical and/or political limits, the developed economies stand at the mercy of unpredictable cross-currents: 1) the necessary continuation of Chinese growth; 2) the required and in some cases regulated moderation of commodity prices; and 3) the avoidance of systemic collapse in euroland.

These risks and the associated 2 per cent growth stall speed have several overall investment implications. For one, risk spreads will be constantly volatile as good and bad news hit the tape intermittently. Sovereign credit spreads will be subject to rather desperate policy endgames and equity and corporate bond risk spreads will follow in line, despite the overall health of the corporate sector in the current upturn. Secondly, investors should expect an extended period of “financial repression” during which policy rates are kept extraordinarily low. Picking the pockets of investors and savers is a historically validated manoeuvre to rebalance sovereign balance sheets. Instead of an inflation plus 1 per cent policy rate, which has characterised the past 30 years, we must get used to inflation minus 1 or 2 per cent, a dramatic reversal in the fortunes of financial markets.

The expected negative real-policy rate will influence much of the US Treasury curve as well. Like a black hole, 25 basis point interest rates suck 2- and 5-year rates down with them, producing shockingly low returns that cannot possibly cope with the higher inflation they produce. Alternatively, 30 year rates stay high for fear of inflationary consequences in future decades. The result is a dramatically steep yield curve that promotes roll-down strategies as bonds appreciate in value, as yields decline over time and, for banks and hedge funds, levered positions which take bets on duration, as opposed to on credit risk.

One thing, however, seems certain. The west will not thrive in this “new normal” economy. It can only hope to survive, so that in future years the lessons of too much leverage and debt are taught to a new generation of capitalists. Hopefully that future will be different, and the Rogoff/Reinhart title will be descriptive as opposed to a parody.

Bill Gross is founder and co-chief investment officer of Pimco

NAV Update - 18 July 2011

2011-07-18T21:37:00.000-07:00

NAV: $1.0396 (+4.27% week-on-week, +3.96% year to date)

Speech Transcript: Why Smoking is Good, by Daryl Chia

2011-07-13T00:16:00.000-07:00

Video at: http://www.youtube.com/watch?v=R_xVRHNWhzc

I didn’t know my speech would come right after one on health and fitness.

Good evening ladies and gentlemen, would you like a cigarette? Whether you smoke or not, it doesn’t matter – today, I hope my speech will help you make an informed decision on smoking. I will be explaining my theories on why smoking is good, and you may not have heard of them because they are quite novel, and I will spend the remaining time explaining caveat and of course – you guessed it – health warnings.

The first reason why smoking is good - smokers actually help the government by the taxes they pay. I am a finance guy so you can trust me on this. Currently, in the European Union and in Greece, there is a problem of a sovereign debt crisis that threatens to bring the world into another recession. However, they can alleviate this problem if they raise taxes, raise government revenue and decrease government expenditure (transfer payments like pensions). One way they can do that is by the sale of cigarettes. In the EU, 20% of adults smoke, but this 20% of people actually contribute 5% of tax revenue. Can you imagine? There are so many sorts of taxes - income tax where everybody contributes to, property tax, road tax and sometimes even death tax – but in fact cigarettes alone contribute to 5% of all these taxes. So if the Greek government can get everybody to smoke, they can easily increase tax revenue by 20%! And we’ll have no more crisis to worry about. On the other hand, the can reduce (omitted) government expenditure. Currently, in developed countries, there is the problem of an aging population. With an aging population, you actually have to pay the aged their pensions. In order to reduce the amount of money spent paying pensions, well, frequent smoking will solve the problem of an aging population.

My next theory is that smoking actually makes the roads safer. You see, in the U.S., the National Transportation and Safety Bureau states that every year, there are 100,000 accidents that occur on the road and 1,500 deaths because people fall asleep at the wheel. One thing – nicotine is a very strong stimulant, so it is almost impossible to fall asleep while smoking and driving. Smoking will easily prevent many unnecessary deaths on the road each year.

Number three. Smoking is good for mental health, especially in our fast paced urban culture. These days at work, the only real community left is smokers. Look at your workplace. People gossip, people backstab, people brownnose – office politics is everywhere. But if you go to street level just below your office, you will find a whole community – a tightly knit community – of smokers who are enjoying the fresh air together. No gossiping, no brownnosing, no backstabbing – they are just doing this *smoking action*. And sometimes they even share cigarettes and their lighters. Where today and at which workplace can you find such selflessness?

Ladies and gentlemen, I hope you have been bought over by the very convincing benefits of smoking. But before you start puffing, I wish to present some caveats and health warnings.

First, smoking is actually the leading cause of death and disease in the world. I am not kidding. In Britian, the number of people who died because of smoking is twelve times greater than the number of British people who died during World War II. The World Health Organisation says that every six seconds, somebody dies as a direct result of smoking. I am sure some of you personally know someone who as passed away as a direct result of smoking. I personally have a friend who passed away because of lung cancer caused by smoking. Therefore it is almost impossible to imagine the number of children left without parents or breadwinners because of smoking. And there is another thing. Being in the finance world, I would want to say this. In insurance, you pay higher premiums if you are a smoker, and some people actually do not state that they are smokers, so that they save on the premiums. But of course, if the doctor finds out after you pass away, the insurance contract would be void and the family members will not get the payout – and that could be as bad your death.

The second bad thing about smoking is that death might in fact be the end of suffering. 90% of all lung cancer cases are caused by smoking. That is caused by the carcinogens in cigarettes. Smoking also causes oral cancer, Sudden Infant Death Syndrome in pregnant ladies, heart disease and stroke because the nicotine in cigarettes increase cholesterol levels and clog the arteries. I am going to repeat this slowly in case you didn’t catch me just now: smoking causes heart disease, stroke and lung cancer. It also undermines the health of family members and friends who are subject to second hand smoke.

Lastly, smoking is highly addictive, and therefore it can be a torture when you want to quit. Only those who have been through cold turkey knows how difficult it is to quit. In fact, 5% of those who start out on cold turkey, only 5 % of them, end up being able to quit smoking. In other words, once one is hooked, he is on a slippery slope, and the pain of quitting can be as unbearable as the diseases [caused by smoking].

All said, ladies and gentlemen, would you still like a cigarette?

Thank you.

Disclaimer: The simplistic theories on why smoking is good is by not means thorough - it is merely for the purpose of entertainment. I shall not be held responsible for anyone who actually starts smoking because of this. However, if this caught your attention and the health warnings make you decide to quit, congratulations, and please do drop me a mail! :)

NAV Update - 11 July 2011

2011-07-11T22:42:00.000-07:00

NAV: $0.9970 (+3.77% week-on-week, -0.03% year to date)

Fund Performance Update - 30 June 2011

2011-07-08T22:48:00.000-07:00

Q2 2011 is turning out to be one of the toughest times for all Global Macro hedge funds since 2008 and 2009 when the Global Financial Crisis engulfed the world economy. Here are DC Global Macro's latest performance figures.

I am proud to say that I have performed relatively well and have minimized losses despite recent market volatility. Had I not factored heteroskedacity into my risk exposures and cut down on risk significatnly over the past 2 months, DC Global Macro would easily have lost more than 30% from its peak in late April.

As always, I would like to caution investors about the inherent risks in global macro investment and trading, and at the same time assure them that it is in the long run - over an entire economic cycle, or multiple economic cycles - that one will eventually reap the rewards of manager skill, tactical asset allocation, uncorrelated returns and diversification.

_____________________________________________________________________________

July 7, 2011 10:35 pm

Hedge funds feel pain over volatility

By Sam Jones
Financial Times

Some of the world’s largest hedge fund managers have been left nursing significant losses after two months of volatile markets amid growing fears over the state of the global economy.

Monthly performance numbers for the industry, tracked by Hedge Fund Research, due to be released on Friday are expected to confirm a lacklustre first half of the year with the average fund manager returning little more than 2 per cent.

Big-name losers over the past six months have included the giant Paulson & Co, the UK’s Lansdowne Partners and many of the world’s top commodity managers.

Even veterans of macroeconomic trading – those supposedly best-placed to navigate tough global markets – have been caught out. Among the worst hit over the past month was the MLM Macro fund, which had dropped 9.2 per cent for June as at June 24. Its clients have seen nearly a quarter of their capital wiped-out so far this year.

Veteran trader Paul Tudor Jones saw his flagship Tudor BVI fund down 2.83 per cent for the month as of June 24, bringing losses for clients to just over 3 per cent this year.

Moore Capital’s main fund was down 2.35 per cent as of June 23, giving a year-to-date loss of 4.79 per cent, while Caxton Associates saw its flagship drop 1.48 per cent, giving a year-to-date loss of 4.5 per cent.

Among big-name equity hedge fund managers, Highbridge Capital’s $2bn (£1.2bn) long/short equity fund dropped 6.37 per cent in June, according to an investor. The fund was down 3.47 per cent for the year as of June 24.

Paulson’s flagship Advantage Plus fund dropped 11.5 per cent in June, according to an investor. The $9bn fund is down 18.4 per cent so far this year.

Such losses are prompting many in the industry to scale back risk, with many managers now sitting on sizeable cash piles. “We’ve liquidated a significant portion of our book – things don’t look like they’re likely to improve until the end of the summer at the earliest,” the chief investment officer of one multibillion fund told the Financial Times.

NAV Update - 4 July 2011

2011-07-04T23:15:00.000-07:00

NAV: $0.9608 (-1.72% week-on-week, -3.92% year to date)

NAV Update - 27 June 2011

2011-06-27T23:30:00.000-07:00

NAV: $0.9776 (+0.65% week-on-week, -2.24% year to date)

NAV Update - 20 June 2011

2011-06-21T00:42:00.000-07:00

NAV: $0.9713 (+0.19% on the week)

Investors shaken by the fear factor

2011-06-17T21:46:00.000-07:00

By James Mackintosh

Published: June 17 2011 18:35 | Last updated: June 17 2011 18:35

For students of psychology, this week’s cold sweat over Greece was an opportune moment to gauge the sentiment of investors.

One closely watched measure suggested that pessimism about shares had reached its highest since the start of 2009. Another, a Merrill Lynch survey of cash held by investors – a sign of how wary they are – showed them at their most cautious since mid-2010.

“Risk appetite is well below average,” says Gary Baker, head of European equity strategy research at Merrill. “What is interesting is how dramatic has been the change in risk appetite in just a few months.”

Trading on this information is harder. The most convincing risk indicator of the week was the US equity put-call ratio, which tests options market sentiment. It measures the relative number of buyers of put options (used to protect a portfolio from loss) against buyers of calls (which offer gains if shares rise). It jumped to 1.11, the highest since November 2008.

The simple interpretation was that investors were scared about Greece, something backed up by credit default swap markets, where the cost of insuring $10m of Greek debt for five years passed $2m a year – more than the total being insured (if there is a default, buyers could still make money as premiums stop being paid).

Profiting from the spreading fear required following the advice of Warren Buffett, being fearful when others are greedy and greedy when others are fearful.

In other words, it was time to go out and take risk. Using merely the fact that the put/call ratio jumped above 1.1 on Wednesday would have caught the small bounce in US equities on Thursday and the end-of-week

That happened to work this week. In general, though, it is risky to rely on one indicator alone, particularly since options volumes did not suggest a mad rush to buy protection.

“Each individual indicator is very noisy,” says Sushil Wadhwani, founder of the eponymous hedge fund and a former member of the Bank of England’s rate-setting monetary policy committee. “Not that much weight should be placed on any one on its own.”

There are plenty of different ways of measuring sentiment, and all show it is souring. Popular surveys of investors include those by the American Association of Individual Investors (see chart) and the daily sentiment index, which ask how bullish or bearish people are.

Market-based measures include the put/call ratio, the gold/silver ratio and weekly positioning data published by US futures regulators, showing the scale of speculative bets.

Investment newsletters are also analysed and turned into an index, and, like the other measures, it is watched for when it hits extremes. Those extremes are used by behavioural investors to try to time when to go in the opposite direction to the crowd.

Now “we have high pessimism, but not excessive”, says David McBain, technical strategist at Absolute Strategy Research in London. “But I don’t think we are terribly far off it getting excessive.”

A handful of hedge funds are trying to go beyond the standard indicators, measuring sentiment in real time using social media.

Paul Hawtin’s Derwent Capital, a new London-based hedge fund, is due to start trading in two weeks’ time on data from Twitter. He has teamed up with a professor from Indiana University who built an algorithm to take the mood of Twitter’s tens of millions of active users, and found it led the Dow Jones Industrial Average by three days.

“We are measuring raw emotion,” says Mr Hawtin, who accepts that much of the Twitterverse is made up of teenagers discussing Justin Bieber. “Every single tweet is of significance to us.”

Plenty of investors doubt that a correlation between the young Twitterati and the markets can be meaningful, but Mr Hawtin says he has raised £25m to back the idea so far.

Many investors watch sentiment merely for when it hits extremes – when they do the opposite – rather than caring about day-to-day moves close to long-term averages. Even there, though, it can be tricky to make money.

“When sentiment reaches extremes it is more likely to be contrarian,” Mr Wadhwani says. “But it can sometimes take a long time [for the market to reverse] so you have to allow for the losses while you are waiting.”

Those can be very painful. Back in the late 1990s, for example, sentiment was elevated for a long time, so contrarian investors would have sold long before the dotcom bubble burst.

In hindsight that was the right thing to do, but many investors found it hard to stick with a decision to stay out of the market as it soared at the end of 1999 and into early 2000, before finally crashing down.

For now, excessive optimism is not something anyone has to worry about. And excessive pessimism is easier to trade on: it tends to reverse more quickly.

Still, Mr Wadhwani cautions on the risk of using sentiment on its own, which he does not think works. “A lot of the effort [of his fund] is really about how you combine sentiment with other pieces of information.”

NAV Update - 13 June 2011

2011-06-13T21:24:00.001-07:00

NAV: $0.9695 (-3.49% on the week)

Breakdown of Portfolio VaR (8 June 2011)

2011-06-08T03:30:00.000-07:00

Portfolio VaR assumes perfect correlations between positions for utmost conservativeness

NAV Update - 6 Jun 2011

2011-06-06T20:08:00.000-07:00

Portfolio leverage and number of positions held is currently at a low point due to the lack of compelling investment opportunities and exceptionally uncertain market conditions

'Making money in this environment is about timing the bumps and the dips, which is famously difficult'

2011-06-06T04:17:00.000-07:00

Feeling the pinch in the Age of the Crab

By John Authers

Published: June 3 2011 23:22 | Last updated: June 3 2011 23:22

We have been here before. For a second summer in succession, economic data have deteriorated sharply as summer approaches. And for a second summer, financial markets are recoiling.

It is disappointing for all those who are hoping to restore their family’s fortunes after the savage recession of 2008-09. It is also frustrating for investors. After the clear outlines of the great crash from 2007 to 2009, and the rally that followed it, markets have trundled nowhere for the better part of 18 months.

The pattern is clear. The crisis continues to define the economy and the markets. After a severe financial crisis, the historical market sequence has seen a crash, followed by a partial recovery, and then years of sideways movement as the economy and financial system try to regain traction (with plenty of hope and disappointment along the way).

This is the second year of the Age of the Crab. We can expect it to last for many years yet.

The decades after the Great Crash of 1929, and the Tokyo market’s crash of New Year’s day 1990, look very similar to each other. This time, stock markets bottomed out at a slightly higher level, and managed a more convincing initial recovery, but the emerging pattern of recoveries and disappointments now looks very similar.

This is easily explained economically. The debt overhang from the crisis, along with negative equity in the housing market, and weakened financial institutions, push downwards. Attempts to revive activity with low interest rates, the natural effects of the business cycle, and growing demand from emerging economies, led by China, push upwards. The forces cancel out, creating stalemate.

What results is a crab-like move sideways. The cocktail that has slowed things down this year is identical to last year’s mixture: concern about sovereign default in Greece (the continuing manifestation of the crisis); worries about a hard landing in China (which is now pulling back its crisis-time stimulus); and worries about looming rising rates in the western world. There is enough life in the economy to stir with low rates, but not enough for it to withstand a hint of higher rates, or of new financial trouble.

Making money in this environment is about timing the bumps and the dips, which is famously difficult. At least part of this latest slowdown was triggered by an event beyond market screens: the Japanese earthquake in March. Research by New York’s Bespoke Investment shows that the sharp uptick in US unemployment claims, and downturn in the ISM survey of manufacturers, of the past few months are almost identical to the downturn in these measures seen after the 1995 Kobe earthquake.

But there were other warning signals from within markets themselves.

In the US, the Case-Shiller house price indices turned down some months ago, and this week confirmed a double dip. This adds pressure to the banks sitting on mortgage-backed securities, and weakens the consumer.

Then, note patterns within stock markets. Emerging markets started underperforming the developed world last autumn. This was hugely significant. It showed there were doubts over whether emerging markets really could pull the rest of the world in their wake.

Cyclical stocks have lagged more defensive stocks, according to Morgan Stanley’s indices, by about 7.7 per cent since they peaked in February (having previously performed almost exactly twice as well since the market bottom in March 2009). This is a classic indicator that investors are turning cautious.

And financial stocks are far underperforming the market as a whole. So far this year, the KBW banks index in the US has underperformed the S&P 500 by almost 12 per cent – and the banks have underperformed by more than 20 per cent since the Greek sovereign crisis began to take shape last spring. Again, this reverses what was seen during the great relief rally. It betrays growing nerves about another financial crisis.

All of these were indicators of trouble ahead, and may prove useful again in the years that come. Meanwhile, with 10-year US bond yields back around the historically very low level of 3 per cent, normally indicating great bearishness by investors, equities are remarkable chiefly for their resilience.

Last year’s correction saw the FTSE All-World stock index fall more than 16 per cent, peak to trough. At the time of writing, it is at present down less than 5 per cent from its recent peak. It remains about double its low from March 2009, and up about 30 per cent from last year’s low (all in dollar terms).

This is because earnings have held up well – but expectations are beginning to look stretched. Investors are also somewhat starved for somewhere to go, so equities win by a process of elimination. But for the short term, the forces pushing them downwards look strong.

Crabs should be plentiful around the markets for the next few years – more so than bulls or bears. To keep scampering sideways, it may be wise to sidestep equities for a while, as the chances of a true correction, like last summer’s, look strong.

Bond dealers lick wounds after Treasuries turnround

By Michael Mackenzie and Dan McCrum in New York

Published: June 2 2011 20:21 | Last updated: June 2 2011 20:21

Few expected to see this. Yields on benchmark US Treasury bonds have tumbled below 3 per cent for the first time since December amid growing fears for America’s recovery. Some of the world’s biggest bond traders have missed out on an impressive rally.

Only weeks ago, investors were focused on the prospect of rising yields. Bill Gross at Pimco has been among those arguing that the forthcoming end of the Federal Reserve’s second round of quantitative easing, dubbed “QE2”, is bearish for bonds. Who, after all, will step in to buy the debt when the biggest buyer, the Fed, steps back?

The game changer has been the steady stream of disappointing economic data that, since late April, has raised questions over the strength of the US recovery. After a lacklustre first quarter, some believe the economy has run out of steam and, as a result, expectations for future Fed tightening have been pushed back.

Bond yields, which move inversely to prices, have fallen sharply as dealers have priced in the receding likelihood of interest rate rises.

This week’s data alone have shown the US housing market sliding and poor job creation in the private sector. Closely watched surveys suggest global manufacturing activity is weakening. A weak May employment report on Friday would add to fears, reminiscent of last year, that America faces a possible “double dip” recession.

“People are really getting surprised by the data and are now ratcheting down their forecasts for the second quarter,” says Rick Klingman, managing director at BNP Paribas. “The general feeling in the bond market is that the economy has stalled.”

Money managers and traders who expected yields on 10-year Treasuries to hold above 3 per cent, and who have been “short” US debt, are hurting. Some, it appears, are moving to stem further losses.

Rick Rieder, chief investment officer of fixed income for BlackRock, says: “We’ve moved a tremendous amount in terms of where the Treasury market is and we could move a bit more with all the shorts in the market.”

Indeed, further weak data could pull yields much lower and spark additional bond buying by investors who need to match their benchmark, the Barclays Aggregate index, but who have been underweight Treasuries in favour of corporate bonds.

Last month, the Barclays index rose 1.3 per cent as Treasuries rallied, accounting for more than two-fifths of its 3 per cent year-to-date gain.

In a world where basis points matter – where 0.4 of a percentage point of annual performance equates to about 60 places in fund manager rankings – Pimco’s public bet against Treasuries appears to be costing it dearly. The $243bn Total Return fund run by Mr Gross added just 56 basis points last month. It faces a difficult period if Treasuries rally further.

Pimco, moreover, is not alone. “No one is really long the bond market, they are either short or neutral,” says William O’Donnell, strategist at RBS Securities. “Macro funds and big investors have been fighting the steady decline in yields all the way, distracted by QE2 ending.”

Treasury bears could enjoy a short-term reprieve if Friday’s payroll figures are better than the expected 135,000 new jobs created in May. “The bond market has priced in a lot of bad news and yields are vulnerable if the economy picks up,” says Mr Klingman.

And many economists, including the Fed, still expect a rebound in the economy later this summer. They suspect the current “soft patch” of being no more than that. For his part, Mr Rieder believes bond dealers may have swung from over-optimism on growth to excessive pessimism. A drop towards a yield of 2.50 per cent to 2.75 per cent on 10-year paper could well prompt BlackRock to take a bearish view on Treasuries, he says.

For now, 2.50 per cent is seen as the likely extent of any further rally, a scenario that is conditional on data showing stagnant annualised growth of about 1.5 per cent, a pace of expansion that is unlikely to lead to substantial employment gains.

While further Fed easing in the form of “QE3” looks a long shot given core inflation is rising, the longer the central bank indicates it will keep short-term rates anchored near zero, the more room there is for longer dated yields to compress lower.

The prospect of tighter fiscal policy at state and federal level limits the scope for any rebound, too.

“We continue to believe that the Street’s optimistic second-half growth forecasts will be the next casualty,” says Steven Ricchiuto, chief economist at Mizuho Securities. For yields to fall to 2.50 per cent, he suggests investors would need to downgrade their assessments of growth in the second half of 2011.

Given the disbelief among investors at persistent strength of the Treasury rally, a test of October’s low cannot be ruled out. “The hallmark of a rally ending is when everyone is long and there is no one left to buy,” says Mr O’Donnell.

Paulson $9bn hedge fund falls 6% in May

By Sam Jones in London
Published: June 5 2011 22:33 | Last updated: June 5 2011 22:33

Paulson & Co, the world’s third-largest hedge fund, saw the value of its flagship fund drop close to 6 per cent in May, echoing losses across the industry.

The loss tops negative returns in the first quarter at the $37bn New York-based money manager, famed for the spectacular returns gained by shorting the US mortgage market in 2007, and will again raise questions over its portfolio’s volatility.

John Paulson, Paulson & Co’s founder, has maintained his bullish view on the US economy and equity markets, even though many of his peers have recently begun to lower their market exposure levels.

May’s loss means that in the year to date, the $9bn Paulson & Co Advantage Plus fund is down 7.6 per cent. The average hedge fund lost 1.39 per cent over the month according to preliminary data from Hedge Fund Research, with “event-driven” strategies such as that operated by Paulson & Co’s main fund down on average 0.62 per cent.

May was also a painful month for Mr Paulson’s other big investment call: gold.

The Paulson & Co Gold fund dropped 6.39 per cent in May, erasing much of its 8.5 per cent April gain. The fund is up 0.9 per cent in the year. Paulson & Co is the world’s largest non-sovereign gold investor.

Performance was better for the firm’s other funds. Its Credit fund was down 0.05 per cent for May, while the Recovery fund, which is geared to the prospects of the US economy, dropped 0.69 per cent. Paulson & Co declined to comment.

In the firm’s most recent correspondence with investors Mr Paulson said difficulties for US banks had been a particular drag on his portfolios but that he remained optimistic.

The US stock market could rally as much as 40 per cent from its first quarter level this year, he said.

Other hedge fund managers have become less bold. George Soros has cut his holdings of gold, leaving Mr Paulson as one of only a few top-tier managers with a significant position in the metal.

June is also shaping up to be a difficult month. Paulson & Co is the largest investor in Sino Forest, the Canadian-listed forestry group that has been accused by short seller Carson Block of fraud, charges that the company disputes.

The collapse in Sino Forest’s share price on Friday handed a $460m paper loss to Paulson & Co.

Mr Paulson is no stranger to volatile returns. Last year saw several months of significant performance swings but the firm ended 2010 with double-digit returns for all its funds.

The Advantage Plus fund returned 17 per cent in 2010. It returned 21.5 per cent in 2009, 37.6 per cent in 2008 and 158.5 per cent in 2007.

Watch out for a short, sharp end to the business cycle

2011-05-25T23:41:00.000-07:00

By Richard Milne
Financial Times

Published: May 25 2011 19:07 | Last updated: May 25 2011 19:07

When is the next recession going to start? It might seem like a particularly doom-laden question, particularly as the economic recovery after the financial crisis is still insipid in much of the developed world.

But knowing whether we are at the start, middle or end of a cycle is crucial for investors globally as equity

Listen to some politicians and central bankers and it can seem as if we are only at the beginning of this cycle with economies still recovering from the effects of the financial crisis. The dominant view among investors is probably that we are mid-cycle with equity markets stagnating as leading economic indicators start to peak and corporate earnings stop surprising positively as much as they did earlier in the cycle.

But, as is often the case, the most thought-provoking contribution comes from the bears who fret that the next recession could be just around the corner. Perhaps the most powerful contribution comes from Jim Reid of Deutsche Bank in his excellent Long Term Asset Return Study.

He analysed the average length of the 33 US expansions since 1854 and his findings provide salutary reading for anyone expecting markets to recover after their recent stumble. Of the four scenarios he studies, the most optimistic is that the next recession will start in August 2012 based on the average duration of these 33 business cycles. However, if one takes the median length instead, the start date jumps forward a year to this August.

Even scarier is if one excludes the three most recent cycles from 1982, three of the five longest expansions recorded. Reid argues, convincingly, that the debt supercycle since that date has caused expansions to be particularly extended. So taking the average length of pre-1982 cycles instead, the next recession should start in March next year. Worse, the median means a US downturn would begin next month. Bracing stuff indeed.

An obvious retort could be that there is little that is average about this current cycle with extraordinary action by central banks pumping liquidity into the system by means of quantitative easing. One possibility is that, by a combination of QE and QE2 in the US and an extended period of record low rates, policymakers have managed to inflate another expansion in the rolling debt supercycle. The worry then is that, given ultra-low rates, the power of authorities to have impact on the business cycle is restricted.

It also raises the pressure on the slow normalisation of policy being undertaken by western central banks. The chances of a policy error are very high. Much of the market focus has been on the finish of QE2 in the US next month but quite as important will be the end of the zero interest rate policy. If growth were to weaken, some investors reckon QE3 could be a possibility.

One of these, Neil Williams, chief economist of Hermes in the UK, thinks western economies will stagnate until 2013. He worries that markets are failing to price in that stagnation properly as they have been more focused on inflation risk. But government bond markets have been sending out distress signals. Since mid-April, benchmark US, German and UK bond yields have all fallen by 13 per cent. By contrast, equity markets have barely budged with the S&P 500 down by less than 1 per cent in the same period. The signals may reflect the divide between bond market pessimists and equity optimists. But they also highlight how investors have conflicting views about the potential length of this cycle. To get it wrong could prove costly.

The Deutsche Bank study shows how correctly timing asset allocation decisions at about the start and end of business cycles could lead to strong outperformance for investors. Unsurprisingly, equities fell in 29 of the 33 recessions studied while US Treasuries enjoyed positive returns in 32 of them. Reid calculated that to get the best returns investors should switch out of equities and corporate credit 4.7 and 4.3 months respectively before the downturn and move into Treasuries 4.2 months ahead.

All that suggests that anybody thinking business cycles are likely to be shorter after the financial crisis might soon need to back away from the consensus long equities and short government bonds trades.

The effect could be even more dramatic on one of the newest asset classes: junk bonds. Junk bonds have only existed in a world of extended business cycles, coinciding with the debt supercycle of the past two decades. High-yield – because of its sensitivity to corporate default rates – is even more affected than other assets by turns in the business cycle.

None of this means the business cycle is about to turn. The determination of authorities to avoid a meltdown is still powerful. But investors need to be alert to the risk that the cycle could be shorter than many expect.

NAV Update - 30 May 2011

2011-05-16T23:26:00.000-07:00

S$1.0061 (- 5.80%*)

*for the 7-day period ending 30 May 2011

The NAV table, monthly NAV chart and table of investors' holdings will be published here on the first Tuesday of each month.

Warwick: A Word with Keegan and Haikal

2011-05-14T22:34:00.000-07:00

Four months to my matriculation at Warwick to read a four year integrated masters on Mathematics, Operations Research, Statistics and Economics (MMORSE), 2 very kind Singaporean seniors introduced themselves and offered their very kind help in answering any questions I might have! So, quetions I had, and here are their very comprehensive answers!

__________________________________________________________________________

Haikal Yeo

Year 1 Student

Warwick Mathematics

Daryl: What’s the work-life balance like as a student at Warwick?

Haikal: Work-life balance as a Math student is entirely dependent on you. Of course, the Math assignments here are not like the ones you get for A levels. It's not about practice, it's about understanding. So an example sheet/problem sheet takes about 4-5 hours to be done properly and they all get counted towards your final degree even in the first year. You may think this isn't good but it keeps you on your toes and in preparation for future Math modules that you may have to take. But of course, I know of people who decide that they should just forego all of this and are not mugging ferociously to catch up with what they lost.

Will I be pretty busy studying, or will there be time for societies (CCAs) and eight hours of sleep? For instance, I plan to read economic research and pursue other interests for about 2 hours/day on weekdays and 6 hours/day on my weekends.

I don't say that you would be 'pretty busy studying' because that's the point of being a student in the first place! Nonetheless, there will always be a lot of time to do things that you want to do outside of studying. I'm a sports person so I'm in hockey and rock climbing and I do have time for these activities. Additionally, I've made frequent weekend and Wednesday trips (because I didn't have lessons on Wednesdays in term 1) to London and other places in the UK. There's so much things to do here that if you get bored of Warwick (which most definitely happens to everyone), travelling seems to be the best cure!

Don't fret about joining societies and clubs. It's about how much time you want to and can commit. You may want to commit earlier and more if you want to be considered for an Exco position in the next year, but otherwise, being a general member, it's really whenever you're free that you choose to go down. It's university and nobody hounds you for not turning up! But they still do if you don't pay up for stuff though.

8 hours of sleep is generally not possible. Our professors always say that in university, university students can only properly accomplish 2 of the 3 things: 1. study 2. drink (UK equivalent of social life) and 3. sleep. Then again, having said that, at the busiest part of my university life so far, I've returned from a rehearsal at 11pm after a full day of classes, settled down to do my work till about 3am and then wake up at 9am for a 9am lecture the next day (because I stay 5 mins away from Maths/Stats building) so that's still about 6 hours of sleep! - more than what most NUS/NTU students get anyway.

Would I be able to switch to a different degree course – say, Economics – now that I’ve already accepted my MORSE offer? I’m still largely enthusiastic on MORSE, but I was thinking of my other options.

I think it's possible to do course switches. I don't know how to do it and how it's done but I think you can go through Mavis (Singapore’s Warwick liaison officer). I personally know of a current MORSE Singaporean who changed from Psychology to MORSE after getting Warwick's offer. But still, MORSE is one of a kind in the entire UK! So why change? You will definitely get to do your fair bit of Econs. It's very flexible if you are still part of the Maths/Stats department as opposed to being in the Econs department. You can take ANY module from ANY other department if they are in your interest. (That's how it works for me but I'm not quite sure about MORSE, do check please) For instance, I'm doing Physics modules (part of my MOE scholarship requirement), some Stats modules, a philosophy module and some computer science modules. Then again, I'm quite usual in the sense that my CATs are maxed out at 150. So if I can manage, so can you!

(On help and advice I might need during my time at Warwick)

There are only a handful of Singaporean mathematicians here. Having said that, Warwick is only behind Oxbridge for Mathematics so I presume there will be a growing number of Singaporeans coming over soon enough. Anyways, Warwick is a pretty young university (about the age of Singapore) so it does not have as much international recognition as compared to universities such as UCL and Imperial.

Oh and I forgot to add. If you want to try finding out the 'real' life of a Warwick student, try visiting my blog: www.worldofwarwick.blogspot.com. Warning though. It's more about my travel life but I'm sure you can pick up some moments of frustration and joy that come as being a university student - though not specifically just related to Warwick.

You maxed out your CATs (academic points)?! What’s the benefit of doing that?

The benefit of maxing out my CATs while being part of the Maths department also has to do with the calculation leading up to the degree awarded. With a higher CAT, the calculation will imply that I require a lower percentage on average as compared to those will a lower CAT on how much I require to get a First. The calculation is called the Seymour percentage. However, it may backfire on you if you cannot cope with the amount of work given because the calculation will cause your overall average to drop if you don't perform well enough. As a general guideline, given that you can perform X% for all your core modules, so long as you do not perform less than X/2% for your optional modules, you are guaranteed a slight improvement in your overall CAT. The opposite effort works when you do perform less than X/2%. I don't know if the same applies to MORSE students.

You mentioned that Warwick was just behind Oxford in standings – what about Cambridge (I misread – he actually said Oxbridge)?

By Oxbridge, I was referring to both Cambridge and Oxford. Anyways, there's a new up and coming name - Woxbridge, which jointly represents Warwick, Oxford and Cambridge. So yes, Warwick is very well-known in the UK and high up there in many league tables. So you don't have to worry about the teaching standards and quality here. Hopefully this trickles through the rest of the world and Warwick will gain more international recognition as a result.

My girlfriend is actually choosing between offers from Warwick MMORSE and LSE Actuarial Science as we speak - any advice for her? I know Warwick has the top rated Math department after Oxbridge, but unfortunately her parents (being the typical parent) only knows about big names like LSE, Imperial…

OK, I was stumped between Imperial College London and Warwick University as well. I think there is not much difference in terms of standard between either university. But I would like to highlight that generally the people who come to Warwick to do economics consider themselves as second-rate in comparison to the economists at UCL or LSE. I understand that Warwick was mostly people's second choices.

Now that is a different story for MORSE; it is a one-of-a-kind course. I have to emphasize that MORSE is in no way just pure economics. Yes, you learn economics because that's what the E stand for, but there is so much more Math in MORSE and that's why it's part of the Statistics Department rather than the Economics department. Speaking of which, the Maths/Stats department has been a major factor in pulling up Warwick's ranking so you can tell how good the standard is here.

But I must attach the warning that if you're the kind that prefers economics without the mathematics (I don't know how that's possible and this is compounded by the fact that I never took economics because I'm a mathematical purist), then perhaps MORSE might not be as suitable. This is because the first year courses have quite a lot of core modules within them such as Analysis, Differential Equations and Probability. These are full-blown Mathematics modules that employ mathematical techniques and hence involve the entire mathematical framework, starting from axioms and writing proofs that lead up to lemmas, theorems and corollaries and then proceeding from there. I'm pretty sure you have greater degree of freedom in the later years but the first year is a killer for many MORSE students who are not at all mathematically-inclined. Having said that, as mentioned, there are always the optional modules that you can depend on to pull up your score and so you can take things that interest you or may contribute towards you taking them at a higher level in the later years such as business modules or economics modules.

On another note, perhaps something of a statistic might help to make a decision. A very large percentage of MORSE students already get confirmed placements and jobs by the time way before their finals, so the finals in the third year are more like a ritual than anything. MORSE students are so high demand in the UK that it is unlikely to find an unemployed MORSE student after graduation. I don't know about LSE but I think this track record can't be said the same for LSE, not that they aren't outstanding in their own way.

In fact, if it's to do with prestige, I think there shouldn't be any worry. From the way things are, Warwick is surely to get very much more recognised internationally. There are about 80 of us Singaporeans coming to Warwick for my batch, an increase from 60 the year before and 20 before that. So yes, Warwick is really the best go-to place outside of London and Oxbridge. I must stress that most of them are studying Law and Economics here.

However, for me, my personal decision was made on two counts.

1. I wanted a campus based university as opposed to a university not defined with any boundaries and settled in the middle of the city with various campuses. Here, I literally treat the university as my home. As it is, I'm walking to classes and lectures in sandals. (Not possible in winter!) So yup, I'm very appreciative of that because I'm not one who likes to dress up to go to school! That definitely cannot be said the same for any London universities. This translates into the fact that everything is very much centralised here in Warwick. Sports centres (3 of them) are at most 10 minutes walk from the central campus and all the facilities are in fact within walking distance. I understand that if you're in London, the nearest amenities require you take a 45 minute bus journey or something like that. Basically, you don't waste any time on travelling. If you're worried about whether Warwick is ulu-fied, it isn't! There are enough public transport here to get you to London within an hour or two. I've been to London like close to 10 times already and I don't ever find it a hassle.

2. I wanted a cheaper education. Even though I'm on a scholarship, I have future plans that rely on how much I save for now - which at the current rate is pretty bad given how much I'm spending on holidays. But yup, it's much better spending on holidays than on shoebox size accommodation! Anything less than a 100 quid a week in London is unheard of. Mine at Tocil goes for 89 quid a week and I'm very, very satisfied with my place. A somewhat equivalent accommodation in London would be in the range of 150 quid a week. And of course, everything else is more expensive in London - tuition fees, public transport, food, etc. The other thing is the fact that London has too much distraction. I'm a Warwick Open Day tour guide and I always try to put it nicely to incoming students about how boring Warwick can be - it is the best place to be if you don't want to get distracted by all the musicals, plays and etc.

This is my fair analysis between the two choices. I wouldn't say either is better than the other in terms of educational standards and I'd think reputation isn't a fair reason to choose LSE over Warwick. Being a Warwick student, this would definitely be biased to some extent, so maybe you can get the opinion of a current LSE student to see what he/she says.

__________________________________________________________________________

Keegan Kang

Year 3 Student

Statistics Stream

Warwick MMORSE

Daryl: Given my interest in global macro (macroeconomic) fund management, I was considering switching to an Economics course – yet I enjoy mathematics and might plan to work in the risk management industry too. Should I make the switch?

Keegan: You'll have enough time in MORSE to do the Economics modules you want - starting from second year, you can pick quite a fair bit of Economics modules, and in the third and fourth year, you can pick and choose any modules you like.

As for whether doing an Economics degree would be more practical - here's a comparison: You'll learn more theory and 'simple' mathematics in your first year doing Economics, whereas you'll learn the hard mathematics needed in your first year to deal with proprietary trading / risk management industry in your first year doing MORSE.

So this is up to you! Of course, being in MORSE, I suppose I would recommend doing MORSE, only because you can read up on theory on your own, but you can't necessarily be guaranteed that you can learn the math required on your own.

What are jobs most MORSE students end up doing?

I'm not very sure about most of the jobs the students end up doing, but it's quite varied, especially when employed in the UK. Part of it could possibly be attributed to the fact of the MORSE brand name (and part of the affliation to WBS as well).

Yes, I’ve constantly heard about Warwick’s MORSE being a ‘brand name’ course. What about that?

MORSE is quite recognized by many firms in the UK - as to the degree of recognition, I can't say off-hand, though the information is somewhere on the University website (http://www2.warwick.ac.uk/fac/sci/statistics/courses/morse/ and http://www2.warwick.ac.uk/fac/sci/statistics). Of course, there are anecdotes about employers employing MORSE students, and then asking the University to send them more MORSE students in the next year. There's probably a grain of truth in that somewhere.

My girlfriend is actually choosing between offers from Warwick MMORSE and LSE Actuarial Science - any advice for her? She and her parents are bent on LSE but I’m trying to convince her to go to Warwick with me J

I think this is up to your girlfriend to decide, as a University experience, academics or otherwise, is the next major event in life. Besides, London is only a train ride away, and there are couples in Warwick who go over to each significant other's places over during the weekend.

However, I can share my experiences on why I eventually chose MORSE.

I was very interested in mathematics back then, and thought that being an actuary would be an ideal job for me. I had an offer between Actuarial Science in LSE, and a MORSE offer. While LSE offers eight exemptions for Actuarial papers, and Warwick offers seven, I chose MORSE eventually because of a greater math content, flexibility of choosing modules, as well as preparing for the possibility that I may not find being an actuary an ideal job (since there are other streams as a fall-back option.

NAV Update - 9 May 2011

2011-05-09T20:54:00.000-07:00

In what might be the most challenging week for DCGM since the 2007-2009 global financial crisis, and the most challenging week for commodity markets since 2008*, the CRB Commodity Index fell more than 8% - one of the largest weekly falls on record. Though the savage moves affected FICC instruments across the board, oil and silver contributed most to this fund's losses this week, with oil making a record fall in absolute terms and silver plunging (-30%) the most since the Hunt Brothers episode in the 1970s.

The unexpected and almost unprecedented speed of market capitulation led many professional managers to give back their profits for the entier year (just in the span of this week!), and I am sure many individual investors were totally wiped out.

I must say the fund was fortunate to come through with only a 7.27% loss. Though this figure is somewhat large, it in fact is something I am particularly proud of - it is on par with multi- billion dollar global macro hedge funds aka "Masters of the Universe", and because of the healthy returns in April, DCGM is still on target for its goal of a 30% annualised return. Without cutting down down on risk positions last week and the week before (see older posts), I would easily be down 25-30%, a horrendous and unacceptable weekly loss.

Going forward, I will be looking to further cut down on leverage while diversifying into Emerging Market debt and Latin American equities.

DC Global Macro (SGD) NAV Table
Date	Equity	NAV	Target NAV (30% p.a.)	Shares	Weekly Profit/Loss
28-Mar-11	$97,000	$1.0000	$1.0000	97,000	-
4-Apr-11	$107,206	$1.0434	$1.0058	102,751	+ 4.34%
11-Apr-11	$132,767	$1.0391	$1.0115	127,773	- 0.41%
18-Apr-11	$136,246	$1.0663	$1.0173	127,773	+ 2.62%
25-Apr-11	$146,430	$1.1460	$1.0231	127,773	+ 7.47%
2-May-11	$149,504	$1.1544	$1.0288	129,505	+ 0.73%
9-May-11	$167,741	$1.0704	$1.0346	156,702	- 7.27%*

DC Global Macro (SGD) Investors
Date Invested	Investor	Amount Invested	Price Paid	Shares Owned	Current Price	Current Value	Since Inception
28-Mar-11	DC	$117,000	$1.0000	117,000.00	$1.0704	$125,242	+ 7.04%
28-Mar-11	PK	$2,000	$1.0000	2,000.00	$1.0704	$2,141	+ 7.04%
4-Apr-11	IC	$1,000	$1.0434	958.45	$1.0704	$1,026	+ 2.60%
4-Apr-11	BT	$5,000	$1.0434	4,792.23	$1.0704	$5,130	+ 2.60%
11-Apr-11	KH	$10,000	$1.0391	9,623.83	$1.0704	$10,302	+ 3.02%
11-Apr-11	KH	$10,000	$1.0391	9,623.83	$1.0704	$10,302	+ 3.02%
11-Apr-11	SM	$5,000	$1.0391	4,811.91	$1.0704	$5,151	+ 3.02%
11-Apr-11	ZZ	$1,000	$1.0391	962.38	$1.0704	$1,030	+ 3.02%
2-May-11	YX	$2,000	$1.1544	1,732.46	$1.0704	$1,855	- 7.27%
2-May-11	RX	$2,000	$1.1544	1,732.46	$1.0704	$1,855	- 7.27%
2-May-11	WC	$1,500	$1.1544	1,299.35	$1.0704	$1,391	- 7.27%
2-May-11	YJ	$1,000	$1.1544	866.23	$1.0704	$927	- 7.27%
2-May-11	MM	$1,000	$1.1544	866.23	$1.0704	$927	- 7.27%
2-May-11	KN	$500	$1.1544	433.12	$1.0704	$464	- 7.27%

	Total	$159,000		156,702.48		$167,741

_______________________________________________________________________________

*Financial Times: Commodity hedge fund loses $400m in oil slide

By Sam Jones in London

Published: May 8 2011 23:00 | Last updated: May 8 2011 23:00

Clive Capital, the world’s largest commodity hedge fund, has been left nursing losses of more than $400m as a result of the collapse in the price of oil last week.

London-based Clive – which manages an estimated $5bn of client money – is the biggest of several large hedge funds believed to be reeling after the unexpected sell-off hit markets late last week.

Others, including Astenbeck Capital, the Phibro-owned fund run by Andrew Hall, are thought to have taken double-digit percentage point losses to their portfolios, according to investors.

The scale of the losses demonstrates that even the savviest investors in commodities were wrongfooted by the correction, one of the sharpest one-day falls on record.

In a letter sent to investors on Friday and seen by the Financial Times, Clive said it was down 8.9 per cent on the week after what it called “extraordinary” price movements on Thursday. Clive’s management said it was at a loss to explain what had caused crude oil markets to be “annihilated”.

Clive’s letter said: “The move in Brent represented about a 5 standard deviation move, while WTI was a 4 standard deviation move”. A five standard deviation daily move is an exceptionally rare event. (Assuming normally distributed daily returns, a 5 standard deviation move should occur once in less than 1,744,278 days.)

“Economic data were soft early in the week though micro news for oil continued to be bullish. Indeed there was news out earlier in the week of further supply disruptions in Yemen and a substantial technical supply outage in the UAE,” the fund said.

While several fund managers had been slowly positioning themselves for a correction, the speed and scale of the event caught most – including Clive – off guard. At its low of $105.15 a barrel on Friday, benchmark Brent crude oil had dropped more than $16 in two days.

Thursday’s sell-off was started by retail and non-traditional investors taking profits; this triggered automatic selling from quantitative funds and precipitated a rout. The correction means Clive is now slightly down on the year, after strong performance over the first four months to April.

Most managers remain bullish, however, and expect commodity prices to continue to rise. “Physical markets are quite strong,” said Clive in its letter. “We remain positioned in a number of markets.”

Commodity hedge funds are used to volatile portfolio moves. In spite of similar historical setbacks, Clive has a record of returning, on average, 27 per cent on investors’ capital a year.

The fund was set up in 2007 by Chris Levett, a former trader at Moore Capital, the global-macro hedge fund run by Louis Bacon.

Financial Times: Risk Shunned as Commodities Slide

By Stephen Smith

5 May 2011

Risk aversion gripped markets as precious metals and oil tumbled, igniting further gains for Treasury bonds and the dollar against the euro after European Central Bank president Jean-Claude Trichet struck a less hawkish tone than expected.

Crude prices plunged to their biggest percentage fall since 2008 as investors refocused attention on fears over global growth. Stocks slid to a third day of falls, but their losses paled in comparison to the scale of selling seen in gold, silver, oil and commodity-linked currencies such as the Australian dollar.

“It’s been a day dominated by a general dash for the exit,” Divyang Shah, of IFR Markets, said. “What started out as a correction in silver has now given way to a more general bout of paper profit protection.

“The current ‘risk off’ phase should be seen as a healthy correction, with those markets that had the most froth seeing the sharpest moves.”

Ed Yardeni, of Yardeni Research, said: “The break in commodity prices over the past few days suggests that inflationary pressures on food, fuel and clothing prices could abate in coming months.

“The behaviour of the bond market certainly suggests that fixed-income investors are less concerned about inflation and expect slower growth in real economic activity.”

Mr Trichet surprised many European Central Bank watchers at Thursday’s policy meeting by omitting the phrase “strong vigilance” from his comments on price stability after interest rates were left on hold at 1.25 per cent.

“This is a phrase that has frequently in the past been used by the ECB to signal that an interest rate hike will occur in the next month,” Howard Archer, of IHS Global Insight, said.

“We believe that the ECB will be wary about raising interest rates aggressively due to the growth headwinds facing the eurozone and the problems higher rates will cause for Greece, Ireland, Portugal and Spain.”

The Reuters-Jefferies CRB index, the benchmark measure of commodities prices, retreated 5 per cent, one of the steepest falls on record.

Silver, the asset that heralded the wider sell-off after its bear market fall of 30 per cent from a 31-year high in late April, declined 12.9 per cent on Thursday. Gold dropped 3.6 per cent, while copper retreated to a five-month trough. Brent crude sank more than $10 a barrel.

Unease over growth was partly reflected in the government bond markets as 10-year US Treasury yields dropped 7 basis points to 3.16 per cent, just above its year low of 3.15 per cent set after the Japan earthquake. A disappointing surge in initial jobless claims left investors fearing a weak April jobs report on Friday.

Mr Trichet’s comments led to a surge in demand for Bunds with 10-year yields falling 8bp to 3.22 per cent, while the yield on the two-year Schatz, which is more sensitive to shifts in interest rate expectations, slid 15bp to 1.76 per cent.

Spanish 10-year yields fell 2bp and largely shrugged off a €3.4bn auction of five-year bonds that saw demand fall and borrowing costs rise compared with an equivalent sale by Spain two months ago.

In the currency markets, euro bulls were forced onto the back foot as the single currency sank 2.1 per cent against the dollar while haven demand led to the yen climbing to its strongest level for six weeks against the greenback.

The pound slipped 0.7 per cent against the dollar after the Bank of England kept interest rates on hold as expected at its policy meeting on Thursday with sterling more affected by a downbeat survey of UK services activity in April.

In the equity markets, the FTSE All World index fell 1.3 per cent for a third day of losses. But the FTSE Eurofirst 300 index recovered from a two-week low in intraday trading to close down just 0.3 per cent. The S&P 500 fell 0.9 per cent.

"Maintain a probabilistic view of things; take risks, but only calculated ones."

2011-05-09T03:52:00.000-07:00

My friend who's about to matriculate at Yale recently wrote this note, which I must say is quite elegantly written. I though I'd share it with those of you who visit my blog. Enjoy!

An Education
by David Yin

Asymmetry of information - don't invest or believe in things you don't understand about. The people who created them know them best and probably benefit at your expense. Options and derivatives were not invented with altruistic goals in mind.

Don't follow the crowd blindly - in politics, finance, gossips, anything. Most of what is said out there is noise and unless you want to be part of the unthinking crowd, it's more rewarding to be more independent in your thoughts. Similar to the rat race theory - even if you win, you're still a rat.

Be aware of the element of luck in daily "successes" you see. If you give a billion monkeys a typewriter each, someone will eventually write the First Amendment. Similarly, if you give a billion people money to gamble in a casino that's rigged against them (say, 70-30), a few will consistently make money (0.3^ ...) over an extended period. You think they're successful because you don't see the many others who have failed and dropped out. Some people have gotten lucky, but they might well crash and burn tomorrow.

Maintain a probabilistic view of things; take risks, but only calculated ones.

Do things for a purpose. Achieving success is a gradual process, although we might be misled to think otherwise through the sensationalistic appeal of breakthrough events. Although all roads lead to Rome, you'll never get there if you walk in circles aimlessly.

Be a first class version of yourself, not a second class imitation of someone else. Behind every successful man and woman is an unique set of circumstances and skills. What worked for George Soros or Mark Zukerberg will not work for you. Identify and leverage on what makes you special, and this is probably your best chance of beating the crowd.

Be humble and willing to learn. Learning more things can never hurt.

* Feel free to help me in my education

DC Global Macro NAV Update - 2 May 2011

2011-05-03T08:12:00.000-07:00

DC Global Macro NAV Table
Week Of	Equity (SGD)	NAV	Target NAV	Shares	Profit
28-Mar-11	$97,000	$1.0000	$1.0000	97,000	NIL
4-Apr-11	$107,206	$1.0434	$1.0077	102,751	4.34%
11-Apr-11	$132,767	$1.0391	$1.0154	127,773	-0.41%
18-Apr-11	$136,246	$1.0663	$1.0231	127,773	2.62%
25-Apr-11	$146,430	$1.1460	$1.0308	127,773	7.47%
2-May-11	$149,504	$1.1544	$1.0385	129,505	0.73%

DC Global Macro Investors (2 May 2011)
Date Invested	Investor	Amount Invested	Price Paid	Shares Owned	Current Price	Current Value	P/L Since Inception
28-Mar-11	Daryl	$90,000	$1.0000	90,000.00	$1.1544	$103,898	15.44%
28-Mar-11	PK	$2,000	$1.0000	2,000.00	$1.1544	$2,309	15.44%
4-Apr-11	IC	$1,000	$1.0434	958.45	$1.1544	$1,106	10.65%
4-Apr-11	BT	$5,000	$1.0434	4,792.23	$1.1544	$5,532	10.65%
11-Apr-11	KH	$10,000	$1.0391	9,623.83	$1.1544	$11,110	11.10%
11-Apr-11	KH	$10,000	$1.0391	9,623.83	$1.1544	$11,110	11.10%
11-Apr-11	SM	$5,000	$1.0391	4,811.91	$1.1544	$5,555	11.10%
11-Apr-11	ZZ	$1,000	$1.0391	962.38	$1.1544	$1,111	11.10%
2-May-11	YX	$2,000	$1.1544	1,732.46	$1.1544	$2,000	0.00%
2-May-11	RX	$2,000	$1.1544	1,732.46	$1.1544	$2,000	0.00%
2-May-11	WC	$1,500	$1.1544	1,299.35	$1.1544	$1,500	0.00%
2-May-11	YJ	$1,000	$1.1544	866.23	$1.1544	$1,000	0.00%
2-May-11	MM	$1,000	$1.1544	866.23	$1.1544	$1,000	0.00%
2-May-11	KN	$500	$1.1544	433.12	$1.1544	$500	0.00%

Assets Under Management (DC Global Macro + Private Fund): $663,512

Months of Private Investor Experience: 46

About DC Global Macro

I recently typed out a note to one of my friends who was interested in investing in my fund and wanted to know more. If you're looking to invest or find out more too, then this is for you!

Well, unlike many mainstream mutual funds that simply buy stocks and have their investors' holdings merely track the stock market's returns and roller-coaster along with the economy, my fund is an absolute return fund which aims is to achieve capital appreciation regardless of stock market conditions or the state of the world economy. I do that by taking long, short and non-directional positions in futures and options in the fixed income, currency, commodity and equity indices complex. In short, my fund follows a Global Macro investment strategy and the portfolio is pretty large and well diversified. You can find it on my website, darylchiaruiming.blogspot.com.

1. Returns:

After 4 years of managing my FICC portfolio, I finally decided to keep a proper record of my returns starting Jan 2010, and in 2010 I achieved a 48% return on investment with a Sharpe Ratio of 1.46 (extremely high by the standards of professional managers). The return profile was incredibly smooth too - I only had 1 losing month out of 12. As of today, 21 April 2011, I am up 13.65% year to date, and am on track to meeting my 2011 target returns of 20-ought percent this year.

Equally important as the magnitude of returns is the correlation of returns with respect to the general stock market. Many a times, retail investors are heavily weighted in stocks and property. Most, unfortunately, only learn about the importance of diversification the hard way when a recession strikes. Diversification plays a central role in in risk mitigation and my fund plays a part in a retail investor's portfolio by acting as a portfolio diversifier. It invests across all asset classes - currencies, commodities, rates, equity indices - that span across the globe, offering absolute returns with low (sometimes even negative) correlation to stock prices, general economic conditions and most of all, local property values. Still, of course, high potential returns only comes with significant risk.

2. Risk:

In order to keep track of and put a cap on my risk exposure, I use a conservative statistical Value at Risk (VaR) model while ensuring that the portfolio can handle large market stress events. The VaR model is conservative in a sense that I assume perfect correlation between the my portfolio positions, and by that I mean that I ensure that I will be able to take the hit when all of my positions goes against me in the worst possible manner all at once - an extremely unlikely scenario. Using this model, the position limits I set and amount of risk I take allow the portfolio to fall 25% yet be still able to have enough equity to take advantage of the adverse moves against my portfolio. So far in the past 5 years, my fund has experienced and recovered from draw downs - losses from peak to trough - of up to 25% at the very worst. A large loss of significantly greater than 25% is possible though, and as improbable as it is, you should still be sure that you will be able to stomach losses of such magnitude. Again, such big losses did not occur even through the global financial crisis, but it is important to always be prepared for the worst.

Hence, the amount you invest in the fund should not be too large relative to the size of your current portfolio, income and net-worth, and the capital invested must be risk capital which you can afford to lose somewhat are able to set aside for the long run.

3. My advice:

Whether you already hold a diversified portfolio of stocks and bonds or are just putting your cash under your bed, my advice is to invest only a 'small' portion of your personal funds / net worth - perhaps 25% for yourself, since you're still in the capital accumulation phase of life, and not more than 3 to 5% for your dad, since he should be taking on less risk as retirement approaches. These funds should also be considered 'risk capital' - money that you can afford to not just set aside for the long term to ride out the ups and downs, but also suffer significant losses (25%+) on without affecting your financial position drastically.

4. Performance Bonus:

I've recently abolished the front end investment fee on my fund for all investors past and present such that the only fee is the 20% performance bonus, which I am considering revising downwards (and to be applied retroactively) in the future. Since this is a friends' find, it just makes me happy that I don't charge market rates. The 20% performance bonus involves keeping the first 20% of profits made each quarter, subject to a high watermark (i.e. only if the fund is higher than it was at the end of the previous quarter).

Unlike at many hedge funds (of which the managers aren't your friends), I the majority of the $146,000 in this fund and $662,000 of assets under management are my personal and family's funds, and hence you can expect that I will be prudent in managing the portfolio, and not take on risks just so that I can earn more performance bonus. This is one huge plus point apart from my track record!

5. How it'll work:

Simple! Since this is a friends' fund I am proud to say that I maintain zero legal fees. Also, you will be able to invest and liquidate any time you want to. That's right, any time, and you will receive your funds within a week tops. Furthermore, there is not minimum investment period, though I suggest that as a long term investment, you aim to stay invested for at least a year. Also, I suggest you invest a minimum of $1,000 - my minimum investment amount. As for the maximum, the sky is the limit, and I have friends offering me 5 to 30, even 50 times the minimum, but really, how much you decide to invest will depend on where you are with reference to retirement age, your risk appetite and the size of your current portfolio / savings. I will discuss that with you in depth when you decide to invest.

Once I have received and invested your funds, I will send you the number of shares in my fund which you own and the price (NAV) you paid for each share. After that, finding the value of your holdings is simply multiplying shares by the most recent NAV.

Daryl

Risk Management Failures, Rene M. Stulz

2011-05-02T03:48:00.000-07:00

"Ex post, just knowing that LTCM lost 70% would not be sufficient to conclude that LTCM missed the counterparty risk in its risk models because it could have made a similar loss without issing that risk. Consequently, to assess whether LTCM made mistakes, one would have to look at the information it had when it made decisions, whether that information was flawed, and whether its use of that information was wrong."

"Paradoxically, the introduction of mark-to-market accounting makes it even harder for risk
managers to estimate risk and put on adequate hedges.9 In many ways, mark-to-market has
introduced the Heisenberg Principle into financial markets: For large organizations, observing the
value of a complex security affects the value of that security. The reason for this is
straightforward: As mark-to-market losses become known, they start a chain reaction of
adjustments at other institutions and affect prices of possible trades as the market understands the
capital positions of institutions better."

- http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1278073 (download PDF)

Gamesmanship that can put you in the running

2011-05-01T03:22:00.001-07:00

Gamesmanship that can put you in the running

By John Authers, Financial Times

Published: April 29 2011 20:53 | Last updated: April 29 2011 20:53

Ignore game theory at your peril. A discipline designed to model how people will behave when forced to play economic games with others, it is more relevant than you might realise.

Its key insight is that you should often behave differently once you take into account how others will behave. The Prisoner’s Dilemma is the classic of the genre; two prisoners are being held separately and urged to confess. Individually, they would have no incentive to do so; once there is another prisoner involved, and the inquisitors are able to load them with incentives, it makes sense for both of them to confess.

In more common fields of endeavour, accounting for the actions of your fellow humans is often necessary, and forces decisions you would never make acting on your own.

Take the system for applying for London Olympic tickets. Everyone in Britain had the same window of about a month in which to apply. The sales period has now ended and the organisers are allocating tickets to applicants.

In aggregate, the games were oversubscribed, but about half of all tickets remain unsold. Who would have guessed that the sold-out events would include the triathlon and rhythmic gymnastics but not athletics? The secondary market should over time find a home for many of these tickets.

But the initial wave is a classic game theory problem. Apply for more tickets and you have more of a chance of getting some. But if you miscalculated and applied for lots of athletics sessions in the belief they would be oversubscribed, you could be left with a huge bill. Similarly, those who made just one application, to fulfil a dream of seeing the rhythmic gymnastics final, might miss out on the Olympic party altogether.

This week, ticket strategies came second only to the royal wedding as a conversation point in London. Recriminations once applicants get their tickets next month should be entertaining.

Then there is the property market. Families’ housing needs are specific and idiosyncratic. Choosing a home should be a personal decision. But if you want to try to sell the house later, it cannot be. You have a favoured house, it is cheaper than many houses like it, and it seems perfect for you. And yet it has been on the market for more than six months and nobody else has bid. Houses that seem to you inferior have come and gone in the interim for higher prices.

This may conceivably be because you have a unique eye for a bargain. But, almost certainly, it means there is something unimportant to you about that house that makes it worth far less to the rest of humanity than it is to you. Apply game theory correctly and you should probably steer clear.

Then there is voting. In the privacy of a voting booth, you should be free to vote for your first choice. But in a first-past-the-post system, it is not that simple.

If you only have one vote, it may be unwise to bestow it on your favourite fringe candidate, who gets 5 per cent in the polls, when your second preference appears to have a real shot at being elected.

One of the central arguments for the alternative vote system, which will be offered to the UK’s voters in a referendum next week, is that it removes all need for game theory. Under this system, voters rank their preferences in order. If their first choice is eliminated, their vote passes to the second.

Unfortunately, even under AV you need to use some game theory. If you have a strong preference, maybe you should only put your first choice, for example – or you might go out of your way to “bury” the most plausible candidate you dislike, even if that involves putting them below candidates you consider far worse.

And, finally, there is investing. Following the herd is one of the best ways to make money. If everyone else is going to invest in a stock, it becomes a self-fulfilling prophecy that its price will rise. Trend-followers in investing do very well.

Particularly for professional investors, who are selling funds to the public, deviating from the herd can be dangerous. Sitting out the internet bubble in 1999 and 2000 was disastrous for the fund managers who did so, as they lost clients – although in the long term it was the right thing to do.

All of this suggests that the classic investment advice to be contrarian, and to zag when the market zigs, is wrong. That is not the case, but it does need an asterisk.

If you know of a catalyst that will bring all the other players to their senses, then buy what they are avoiding. And if you have a long time horizon, and you are playing with money you can afford to lose, then bet against the market and wait for wisdom slowly to change.

Most of us have no choice but to look to the shorter term. And that means that when faced with some of our biggest investment decisions, we often feel like a prisoner trapped in a dilemma.

Fears of Return to the 1970s are Overdone, Spencer Jakab, Financial Times

2011-04-30T03:36:00.000-07:00

Fears of return to the 1970s are overdone

By Spencer Jakab, Financial Times

Published: April 29 2011 18:42 | Last updated: April 29 2011 18:49

Here’s something to send shivers down the spine of nearly anyone middle aged or older – a repeat of the 1970s.

As unpleasant as the thought of disco, polyester and bell-bottoms making a comeback might be though, the real spectres of that decade lie in the realms of economics and politics, not fashion. Certainly for those who toil on Wall Street, this is nearly as worrying as a repeat of 2008.

Of course, one sees few actual veterans of that era on a visit to any Manhattan trading floor as most “masters of the universe” are below the age of 50.

Even that now familiar moniker was not coined until seven years after the decade ended in Tom Wolfe’s Bonfire of the Vanities. But institutional memory runs deep and the unease is real. Google, as reliable a barometer of the zeitgeist as any, indicates as much.

Search “worse than the seventies” or variations on that phrase and, with the exception of several pessimistic (and inaccurate) predictions in 1980, there is an explosion of references in just the past two years, most of them having to do with the economy.

In a speech this month to the Economic Club of New York, Federal Reserve vice- chairman Janet Yellen felt the need to address the issue by refuting the notion that the errors of that decade will be repeated.

Back then, she said, the Fed’s “monetary policy framework was opaque, its measures of resource utilisation were flawed and its policy actions generally followed a stop-start pattern that undermined public confidence in [its] commitment to keep inflation under control”.

But there are parallels galore. As if surging food and oil prices, Middle East turmoil and a Democratic president with a fondness for regulatory overkill were not enough, there is suspicion that the Fed is playing with fire by continuing with quantitative easing.

Fed chief Ben Bernanke is a far cry from G. William Miller, the Carter appointee who held the post briefly during the stagflationary late 1970s and was perhaps the least-respected person ever to do so. Still, the measures being taken today are to the Fed’s policy tools in that simpler era as fissionable material is to TNT. Mistakes will be costly.

By all accounts, the 1970s were a dark time for New York’s brokers and bankers. After wrenching ups and downs, stock prices essentially were unchanged between 1968 and 1982 while stagflation led bonds to be dubbed “certificates of confiscation”.

The infamous 1979 Business Week cover “The Death of Equities” did its part to persuade that generation’s brightest to steer clear of Wall Street. Barely a quarter of the number of Harvard Business School graduates who went into finance in 2008 did so in 1980.

And it wasn’t just profits that were awful – so was the quality of life for those lucky enough to remain employed. New York City lost 1m residents, crime surged and hundreds of thousands of finance jobs vanished.

The city nearly went bankrupt and palatial apartments on Park Avenue that fetch millions of dollars today could barely be given away for the cost of a suburban tract home in unfashionable New Jersey.

Of course the actual situation on the ground seems fairly rosy today. New York’s daunting budget woes have not impacted the quality of life yet, banks are hiring and dealmakers are busier than they have been since before the crisis.

But the smart money – people like hedge fund manager John Paulson, who profited so handsomely from the housing crash – are hedging themselves by buying gold. A weak dollar and surging commodity prices suggest plenty of others feel likewise.

There is a silver lining though. The awful 1970s sparked the wonderful 1980s. Loose money begat Paul Volcker, the Age of Aquarius begat the “me” generation and Jimmy Carter begat The Gipper.

Once the 1970s were over, a new crop of innovators such as Lewie Ranieri, Michael Milken and the cast of Nobel laureates who would later give us LTCM helped usher in a financial renaissance. The longest and strongest bull market in history ensued.

No matter how dark the boogie night, dawn always follows.

DC Global Macro NAV Update - Kicking off FY 2011

2011-04-25T21:45:00.000-07:00

NAV Table

     Date        /   Fund Size   /      NAV     /   Profit/Loss for the Week

28-Mar-11        $97,000           $1.0000                        -

4-Apr-11         $107,206          $1.0434                   +4.34%

11-Apr-11       $132,767          $1.0391                    -0.41%

18-Apr-11       $136,246          $1.0663                  +2.62%

25-Apr-11       $146,430          $1.1460                   +7.47%

Investor Breakdown

Investor / Date Invested* / Amount Invested / Current Value / Profit Since Inception

Daryl           28-Mar-11              $95,000               $117,413                23.59%

P                 28-Mar-11            $2,000                   $2,472                   23.59%

I                 4-Apr-11                $1,000                  $1,185                    18.46%

B                 4-Apr-11                $5,000                   $5,923                    18.46%

K                11-Apr-11              $10,000                 $11,894                  18.94%

K                11-Apr-11              $10,000                 $11,894                  18.94%

Q                11-Apr-11              $5,000                 $5,947                    18.94%

Z                 11-Apr-11              $1,000                   $1,189                    18.94%

*date of initial investment does not represent further investment/divestment at later points in time, even though 'amount invested' does



Note from the manager:

Given the much better than expected run up in prices across the Fixed Income, Currency and Commodity complex and the high volatility of late, I have decided to shift the fund to a more conservative stance going forward, and to cut down on risk exposure by approximately 40% as of 26 April versus the week before (risk as measured by means of statistical parametric VaR). A 23.59% profit in 1 month is by far too much, too fast.

Given the huge run up in the first month since fund restructuring and 'reopening' in March 2011, target returns for the year will be increased to 30-40% from 20-30%. 2010's return was 48%, but I do not plan to take on significant risk to achieve that outsized figure.



Assets Under Management (DC Global Macro + Private Fund): $664,236

Months of Private Investor Experience: 45

For a preview of my diversified portfolio and 2010 preformance figures, please scroll down to the entry dated 21 April 2011.

Daryl

How Unchivalrous of Me (at the Ion Orchard Coffee Bean)

2011-04-22T02:59:00.000-07:00

I'd like to conduct a mini-social experiment.

After meeting friends over lunch for a small chit chat about a Real Estate Investment Trust (REIT), I spent Good Friday reading the Financial Times (Thursday and Friday's Online Edition) at the Coffee Bean & Tea Leaf at Ion Orchard. Not long after, I ended my afternoon feeling like an Idiot.

I thought a pretty girl who sat and studied at the sofa just diagonally next to mine had a nice smile, was nice and erm, I don't know how but I thought we actually had a connection and perhaps could be friends. But darn it, I didn't even have the courage to exchange contact and what the heck, I didn't even accept her offer for sweets. Hahaha. I absolutely detest being so typical-shy-Singaporean-male and if you're her and happen to find this, I AM SO SORRY. HOW UNCHIVALROUS OF ME. BOO.

And just to make it possible for you to find this in the first place here are some search terms. Google please help me hahahaha.

Ion Orchard Coffee Bean & Tea Leaf
Coffee Bean & Tea Leaf Ion Orchard
Financial Times Newspaper / Orange Newspaper
Polo Ralph Lauren polo tee (Green & White), G-star Raw Jeans, Cartier Wallet, Vertu Catalogue, Christian Louboutin Studded shoes/Riveted shoes, Tag Heuer Spectacles, Rolex GMT Watch
Shy person who did not accept sweets. Lousy.

If you'd let me reconsider your offer for sweets, please contact me at (65) 8233 2122. TY :D

Daryl

About DC Global Macro

2011-04-21T07:49:00.000-07:00

Portfolio: 20 April 2011

2011-04-20T01:18:00.001-07:00

Positions as of 6 April 2011

2011-04-06T02:59:00.000-07:00

Wanting to be as transparent as possible, here are my medium to long term positions as of 6 April 2011.

This here does not include positions in FX day-trading though, of which volume is not large anyway - about US$20m per month.

Btw, try spotting the (2) mistakes. They're inconsequential to the final important result though (i.e. DCRC / Equity)

A back of the envelop note on Japan, by me!

2011-04-02T10:38:00.000-07:00

(written a few days after the quake)

In replying to a friend's question, I thought I'd write a brief, "back of the envelope" analysis of the Japanese Quake and the Nikkei. I ended up getting a little carried away, though I still did this from my head and in my pyjamas; it's not often that such an investment opportunity presents itself and hence I've really been doing my research. :) Please enjoy, and I hope you'll find this useful!

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While, as for Japan's calamity, there are many ways to trade it - via the Nikkei, Japanese Government Bonds, the Yen, Natural Gas, and all other assets highly correlated to what's happening in Japan, like the USD, Gold, Oil, Dow, etc.

A good parallel would be the 1995 Kobe earthquake. In terms of economic impact, these 2 disasters are very much alike - the damage done are both approximately 3% of Japanese GDP. If you're asking about the Nikkei, so far the sell-off has been, in my opinion, a little too brutal. As of now though, being 15% down since before the quake, it seems pretty fairly valued. Just as a recap, it fell 25% in the 2 trading days after the quake before rising 10%. 25% was the same fall the Nikkei had over the 6 months after the 1995 Kobe earthquake (it was just down 5% or so a week after the Kobe quake) and actually I would say that 25% so quickly is quite overdone - hence I actually went long June Nikkei 225 futures at an average of approximately 20% down.

I see the Nikkei having further potential downside of 10-15%, especially if the Dow completes its much needed and due correction of a further 5%, but in the long term - approximately a year - I am of the opinion that it would be higher than what it is today. Among others, here are the primary reasons why:

1. The number one headwind for equities and economic growth in Japan would be the Yen's strength. Back in 1995, we saw a 20% appreciation of the Yen in the months after Kobe due to repatriation flows and insurance payouts in Yen. I do not expect Yen appreciation to be as severe as it was in 1995 as institutions are holding to much larger cash reserves of Yen this time. Also, the Yen is already "strong enough". Even before this, the BOJ had a tough stance against Yen strength, and more than ever, they will be prepared to take bold action now. Exporters mentioned to the BOJ that they require a USD/JPY rate of 84 to be profitable. Today, this stands at 79, and this time, it is highly likely that the BOJ and G7 will take very bold action to intervene and ensure that the USD/JPY rate stays above 80. This is even though the real, trade weighted value of the yen is no where near its Kobe high - yen volatility, the lack of "currency wars" going on like how it was with the Chinese Yuan a few months back and the general consensus among the G7 that the Yen is "too strong" will make it likely that there will be intervention to hold the nominal Dollar/Yen exchange rate up.

2. Some might say that the crisis is likely to have a very large and negative wealth effect on the Japanese people and hence hurt asset values. The estimated cost of rebuilding is $200b while the insurable assets only add up to $35b. Also, Japan is in a horrible fiscal position - it's national debt is 200% of GDP, double that of the USA. These, however, should not have a big impact on GDP growth or equity prices in the 1 year term. The small amount of insurance payouts may in fact limit appreciation of the Yen (at the benefit of exporters) and the BOJ has no qualms about extending large amounts of loans, asset repurchase agreements and in printing more money - they, after all, are facing a problem with deflation rather than inflation. Furthermore, reconstruction has been shown to actually be a boost to GDP, and along with monetary expension, could very well be the spark for long term rates to finally move higher.

3. One reason why the Nikkei fell so much the days after the quake was because of the large foreign institutional and retail investor portfolio capital inflows during the past 3 months. It was the best performer of all G8 markets for 2011 up till the quake! The crisis doesn't change the long term fundamental picture significantly. Japanese equities still have strong fundamentals and reasonable valuations, and this crisis, though having a large human impact, actually only puts a small dent in the Japanese economy - not even a half a percentage point of GDP. Furthermore, speaking of valuations, the Kobe quake occurred at a time where valuations where trailing P/Es were 50+! Today, they are just about 15.

4. Lastly, here's something John Authers of the Financial Times had to say. I thank him for crystallising my exact throughts regarding this issue into words [added to this note on a later date]:

...As humans, we are affected by visible human suffering, and that this clouds our judgment. It is therefore plausible that the market might predictably overreact to events with a high human cost and assume that the economic cost is also high. That proposition has some truth to it.
Garry Evans, of HSBC, researched stock market reactions to catastrophes that were to some extent similar to last week’s Japanese disaster: the Kobe earthquake of 1995; the terrorist attacks of 2001; last year’s Chilean earthquake; and the Taiwan earthquake of 1999.
In each case, the local stock market fell between 6 and 8 per cent in the days after the disaster and remained weak and volatile for about a month. But it resumed its pre-catastrophe level in between 23 and 78 days, after which the factors that had preoccupied the market before the disaster took over. A hundred days after disaster, the affected market was always up and in one case by almost a third relative to its pre-disaster level. So disasters do, it seems, present buying opportunities.
But that is just the stock market. This disaster also hit the currency market, leading on Friday to the first co-ordinated currency intervention by central banks in more than a decade. Counter-intuitively, the earthquake caused the yen to strengthen against the dollar as traders worked on the assumption that Japanese savers (who mostly have their money stashed overseas) would have to bring money home, while international insurance groups would have to make big pay-outs in Japan – which would mean selling dollars and buying yen.
Before central banks intervened, the yen gained 8 per cent against the dollar – salving the pain of the fall in Japanese stocks for international investors but also opening any bargain-hunters to a nasty loss when and if the yen returns to previous levels.
The experience of Kobe, which also required big insurance pay-outs, is instructive. The stock market had serious losses in yen terms but, as the chart shows, a surge in the yen virtually cancelled them out for international investors within three months. This time around, the forex market seems to be ahead of itself and working on the assumption that those repatriation flows are a certainty.
So international investors should not buy when there is blood in the streets without thinking of the counterbalance that often comes from foreign exchange.
A final question remains. There is a predictable immediate psychological response to a catastrophe but those who seek to profit long-term want to buy assets when they are truly cheap. Does that apply to Japan today?
Japan’s litany of problems is well known. Its economy has stagnated for two decades, there is no room for stimulation from easier money, the government has the developed world’s most serious deficit and its population is ageing, suggesting that things are destined to get worse. If you want to live in a country enjoying fast economic growth, you might do better than move to Japan. But none of this precludes the chance that the market is pricing Japan’s stocks too cheaply.
If we assess value relative to other countries, Japan has been cheap for ages and looks infeasibly so. Judged as a multiple of book value (assets minus liabilities on their balance sheets) Japanese companies are half as expensive as US companies.
Judged by cyclical price/earnings multiples (comparing share prices to the average earnings over the past 10 years), Dylan Grice of Société Générale shows Japanese stocks, at a multiple of 16 for the Topix index, are as cheap as they have been since the late 1960s. (Adjusting for inflation, they were slightly cheaper in 1978.)
Doubtless there are caveats. Disasters can have political effects. In recent history, for example, President George W. Bush never regained his political capital after hurricane Katrina. So there is a layer of uncertainty there. The nuclear incident adds a toxic layer of uncertainty that was not present after Kobe (although, by the same token, neither the Three Mile Island nor the Chernobyl nuclear accidents had any discernible impact on stock markets). In this case, it does look as though the old dictum is right. A predictable psychological response to a disaster has turned an already cheap market into a compelling buying opportunity.

Yup! Actually I just read your message and here's my back of the envelope reply without preparation. Haha! I've really been on top of this crisis since 15 minutes after the first tremor near Japan. I know it's a long 'essay' but I hope you enjoyed it and found it useful! If you didn't have the time to read everything, then here's my Japan-Quake-positions based on the above analysis:

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Nikkei: Short for the short term, Overweight Long for the long term

JGBs: Short for the long term

Yen: Long for the short term, Short for the mid and long term (but short during the G7 meeting the french called)

By short term I mean a week to a month and long term 6 months to a year

Daryl

My UCAS Personal Statement - Warwick MMORSE (Actuarial Science)

2011-03-23T09:34:00.001-07:00

Attending the Warwick offer holders' reception today put me back into the college-app mood I so missed (yeah, sure). And so I thought that now that I've landed a place to study Actuarial Science, I shall share with everyone the personal statement I submitted and another one which someone wrote - of which I shall not say who but if you know me you'd probably be able to guess :) Enjoy! And I hope it helps.

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What drives my passion in Physics and Finance, a passion that has underscored my success in Physics and Economics? Without a doubt, it is my inexorable interest in Mathematics and a relentless drive to understand the physical world with Mathematics.

I have always found personal satisfaction in studying Mathematics - a satisfaction that emanates from acquiring mathematical tools that honed my proficiency as a quantitative thinker. In this respect, I was able to apply my innate numeracy passion in Physics, a subject which I was selected as among the best in Singapore. One recognition came from the selection by the Singapore Science Centre and the Ministry of Education to represent Singapore at the International Space Camp in the USA. Another was winning a Gold award at the Singapore Youth Science Fair. Upon reflection, it is clear to me that the rigorous quantitative aspect of Physics and the underlying mathematics appeal to me most and underpin my passion for the subject.

On my own initiative, I completed preparations for ‘A’ level and Special Paper Physics by the first term of JC1, and devoted the remaining terms to H3 Physics and self-studying Physics at university level. The heavy mathematical content of the latter stood me in good stead for the Singapore Physics Olympiad, where I won a silver medal, and the subsequent Asian/International Physics Olympiad training at the National University of Singapore for selected top students. There, I relished solving problems and understanding phenomena with mathematical rigour. Further whetting my interest in Mathematics was a 4-week mentorship at the Agency for Science, Technology and Research, where I dwelt into fluid dynamics and Maple software. Subsequently, I initiated a research project to study the feasibility of harnessing sound energy from jet planes, which mathematically approximated the energy that could be harnessed along runways.

In sports, I am very active at the national and international level. Since age 13, I had committed myself to a demanding 6-day week training regime with the men’s national archery team. Upon completing JC1, I took a gap year to devote myself to full-time training and to represent Singapore at international competitions. The experience has strengthened my perseverance and time management skills.

Since JC, it was clear to me that I wanted to pursue further studies in subjects of a highly quantitative nature. Eventually, what convinced me to set my academic foundation in Mathematics was a growing interest in finance and economics. During the gap year, I sought to satisfy my curiosity of the financial markets. I independently self-studied a plethora of books on financial instruments and the workings of the financial markets, and read copiously on financial analyses as the global financial crisis unfolded. In JC2, I was tasked by my JC to prepare 21 students for the National Economics and Financial Management Quiz. I lectured on time value of money, modern portfolio theory, financial instruments and the Greeks, which incorporated mathematics and statistics. In JC2, I also led a team at the Inter-JC “Virtual Business Challenge”, in which I developed mathematical spreadsheet models crucial to decision making; I formed and coordinated an alliance of more than 20 people I had not known previously - an experience that enhanced my analytical and leadership skills. After JC2, I completed self-studies of Chartered Financial Analyst Level 1 to gain background knowledge on a career in quantitative finance.

All said, learning the qualitative aspects of finance has brought out in me a great desire to expand my arsenal of mathematical and statistical tools, and to apply them to quantitative financial models, in much the same way I thoroughly enjoyed applying Mathematics to Physics. In the final analysis, I am confident and steadfast that my chosen path of Mathematics and Statistics studies will pave the way for me to pursue my passions and future career.

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My passion for Mathematics and Economics can never be understated.

Mathematics, to me, is what I like to call my favourite language – and a very exacting, unbiased one at that. From the rigorous proofs and impeccable logic of Pythagoras and Euclid to the chaos of Bayesian statistics and Mandelbrot sets, mathematics, statistics and its applications never fail to intrigue me.

Speaking of intrigue, I never fail to feel so on a daily basis when I pick up the Financial Times and The Economist – what I have been doing religiously for two years now. How can the Efficient Market Hypothesis, Black-Scholes Models and Value at Risk calculations be taught to the world’s future financiers when these theories are so far from perfect? They do not have to be as sound in logic as Euclid would have wanted them, but it baffles me that so much financial turmoil and unfettered risk taking could have manifested itself over the past few years despite the advances in econometrics and financial modelling. Alas, it is my passion and goal in life to gain a mastery of econometrics and the mathematics of risk. It is my burning desire to model economies and financial markets with mathematical models, and – as Isaac Newton said – stand on the shoulder of giants and improve on existing models.

The pursuit of my interests in mathematics and economics, however, has not disallowed me from ensuring that I keep an open mind and receive a broad education. For that reason, ... ... That experience taught me the value of self-discipline and independence, which I am fortunate to have picked up quickly. Seven years on, at the age of seventeen, I graduated with eight A1 grades at the GCE ‘O’ levels and ... ... I mixed with other high achieving and very smart people from Singapore and around the globe. That pushed me to manage my time better, and manage my time I did. Apart from scoring well academically, I trained from scratch to become the top ... participated in a wide range of community involvement programmes, extra-curricular activities including the Middle East Enrichment Programme and obtain an 8th grade in piano from the Associated Board of the Royal Schools of Music (ABRSM) all at the same time. While doing that, I also managed to expand my network and socialise among different nationalities of people – a skill in itself – mostly by offering help to my peers in my areas of strengths – mathematics, economics...

Alas, on a personal level, my deep attachment towards mathematics could be traced to my first years in... Till this day, I like to call it a universal language as at ... years of age, I had almost zero command of the English language, but I was fond of mathematics and in fact topped my class on many occasions. That fondness for mathematics carries on till this day.

It is this great yearning to study and master the mathematics behind economics and finance, my well honed independence and my diverse, foreign background that leads me to believe that I will both do well studying in and be an asset to the United Kingdom and my peers in university.