Allocation Games - April to June

It’s the first of the month, so here are my game-playing tactical allocations for the following three months.

• Developed currency markets: Long Euro, Short Yen. (Previous month was Long Yen, Short Dollar, was up 1.2% on the month)
• Developed equity markets: Long US, Short Europe.  (Previous month, I was up 1.3% MoM, or 1.9% MoM with 50% currency hedge). For the year, the 50:50 l/s strategies are up 5.6% YoY, or  7.1% with currency hedge)
• NE Asia equity markets: Long Hong Kong, Short, Japan.  The previous month’s success - the l/s portfolio was up 4.4% MoM - was entirely fortuitous, since I was fully short Japan on March 11.  The model remains so.
• I have no l/s allocations for SE Asia, since the models are stalemated, zeroing in with conviction on Indonesia for both long and short selections. It happens sometimes.
• In BRICs equity markets, last month I dipped back into India for the month – which turned out well (up 8.5% for the month) - but am back to Russia this month.  I make no short recommendations in BRICs.

For those of you to whom this is new, it’s important that you know and fully digest the following: this is a game only. The game is that these positions are determined/suggested on the first working day of the month, and are kept unchanged and untraded for fully three months.

The allocations suggested here are found solely on the basis of testing an assumption. That assumption is that relative changes in the prices of financial assets in different markets bear some explicable and reasonably regular relationship to changes in relative monetary conditions in those financial markets.  In the case of currencies, the allocations are made purely by identifying patterns of daily performance over the past three months which in mathematical terms, look unlikely to be purely random-walks (according to Shapiro-Wilks tests) – and then assuming there’s still value for the next month in that pattern.  There is nothing here of judgement - everything is determined by numbers.

I have been playing this game on the first working day of every month for a number of years now, publishing both allocations and results.  But this is not the way I manage my own money. Nor is it the way any fund associated with me manages money. Indeed, any similarity between positions suggested here and positions adopted by any funds associated with me would be purely coincidental.  I make no claims that the allocations will work, or are likely even to help.  If you’re going to use this as anything other than just another way of thinking about markets, I advise you very seriously to seek competent advice from someone who isn’t just playing. If you follow these selections and it all goes wrong, you only have yourself to blame.  

That said, I'd be interested to hear of alternative views or arguments about the positions. Good luck.