Dear Investor,
We hope that this message finds you all well as we enter into the month of November and winter begins to come upon many of us in the northern parts of the globe. We will keep this update short and to the point. This month we are glad to post our numbers as we have a full deck of positive numbers which is a nice sight to see in the current economic environment. We have stopped trading at Inovatrade brokerage half way through the month (more details below) which is why you see the discrepancy in returns, but still ended up with a positive posting. Our numbers for the month of October are as follows…
| SYSTEM | OFM | INOVA | Broker Average |
| Precision FX | 16.91% | 6.82% | 11.87% |
| McLaren FX | 19.40% | 4.66% | 12.03% |
| Vega FX | 8.04% | 4.37% | 6.21% |
| August Average | 14.78% | 5.28% | 10.03% |
* Account Discrepancies – Once again, please remember that if your returns for a given month do not match our posted returns take note that our numbers are from the 1st of each calendar month, to the last trading day of the calendar month. If you have invested in the middle of the month, your numbers may not match ours and could vary significantly. In addition to this, if we have open trades at month-end, we calculate our return on the current balance that day at midnight server time, NOT the floating equity. So open trades which have not realized their PnLs yet will be carried into the next month.
* Please keep in mind that we are now trading some of our systems at more than one broker. We will always have discrepancies between different brokers no matter who they are. For certain systems we have also noticed small discrepancies between larger investor’s accounts (100K+) and smaller investor’s accounts (<5K). This often has to do with the broker’s min position sizes and how smaller trades are distributed or rounded with the allocation software in our MAM/PAMM. Please take note that while our returns are calculated from 1st of each calendar month to the last trading day of the month, our performance fee period (the period in which high water mark performance fees are calculated on), is from NFP to NFP. NFP is the non-farm payroll and is the first Friday of each month.
Our complete Performance Tables will also be updated with the following statistics of interest (broken down by brokerages) on this following page: http://cayoflow.com/performance.html
MARKET NEWS
Without a doubt the biggest news this past month has been the Greece saga (surprise). This has in our view been dragging on for way way to long. There is something new changing every day, and even multiple times per day (such as today). While this has been dragging on for a long time, many are describing the current state it’s at today (in all it’s severity) as “Greece holding a loaded pistol to the temple of the global economy”. The constant back and forth has been wreaking havoc on the most liquid FX pair (EURUSD). There have been some crazy sell-offs and whiplashes, and nearly all of them have stemmed down to the Greece saga and the Euro zone in general. We are not going to get into the whole politics of it as we think its ridiculous. We think that the Greece episode is just the beginning of Europe’s problems. Greece is just going to pave the way to what will happen to the other vulnerable Eurozone economies like Italy and Spain and Portugal for example.
The ironic thing about governments going bust is that it has been happening for centuries. Default is nearly as old as the monetary system itself, and history is ripe with examples of it. For example, Spain has defaulted 15 times since the 16th century. Greece has defaulted 6 times since the 19th century. Portugal has defaulted 8 times since the 16th century. This crisis however is much more severe in that many countries are all connected at the hip this time around. It’s basically just a big game of musical chairs that won’t end, and once the music stops, a country is left standing in the dark. We believe this is only the start. When Spain, Italy, Portugal, and even Ireland's debt crises’ speedily arrive, it will be dealt with just the same way: Print -> Lie -> Borrow -> Deceive -> Deny! We of course hope that that isn’t the case but cannot see it otherwise.
On other notes, the G20 meetings are under way, and while there were to be many agendas, it really has turned into a G-Europe conference. The western governments and other nations are likely sitting on the sidelines with their jaws on the floor. While this is supposed to address global issues, reports say it has a large focus on the Greek crisis and other Euro troubles. We are keeping a close eye on how all of it has been and is affecting the markets.
MONTH-END TRADING RECAP
Without getting into to many details, we had for the first time in a while a rather smooth sailing month of trading. Everything worked. We had no technical problems. And markets were friendly to us. This month we are seeing volatility pick up a little again, but it’s still early. Our guess is that this Euro saga is going to cause some roller coasters. We are up already with PFX and MFX, and down slightly with VFX. Again, we cannot stress enough to traders to diversify their funds across more than one system. Diversification always keeps the ship afloat. In month’s where we are positive across the board, its not much of a concern but during periods where drawdown is encountered it usually smooth’s the ride a little. DST has went into effect in Europe, and goes into effect for most of North American markets this Sunday. This usually has an impact on our trading, especially our scalping which is time dependant. We usually see a little turbulence at the start, and then settling out after that. We will again be keeping a close eye on things.
BROKERS
We are now officially down to our last man standing – OFM brokerage. We trade some private accounts at CITI and Swiss Quote, but for the most part we are keeping everything at OFM. We officially stopped trading at Inovatrade this past month. This has been a troublesome and crazy time for brokers. One of the largest Brokers in the USA (MF Global) has just went bankrupt! The company filed for bankruptcy, just days after posting a $192 million quarterly loss and disclosing $6.3 billion in bets on European government bonds. There are some heads rolling due to this, and it ranks up there one of the larger bankruptcies in the history of the US. We know quite a few people who invested there. As many of you know we have also stopped trading at Sparen FX and are taking the appropriate measures there. We have also just this week decided to stop trading at Inovatrade. We do not know what to expect in this situation, but we cannot continue to trade at a brokerage which does not communicate with us. It’s like flying an airplane with a blindfold on. We have heard various different suggestions and rumors as to what is happening here. We have heard that communication cannot be resumed until the Panama securities commission has completed an internal audit on the company. We have also heard that they have folded shop. We do not know much more at this point, only that we cannot continue to trade there without having full communication and accountability. Our primary point of contact Mr. Michael Alcocer has not been responsive to any of our attempts to speak to him about the status of the brokerage. We will continue to press for information on this, but in the interim have ceased all trading activity there, and highly recommend other parties trading there to follow suit. The brokerage industry has been an absolute mess in 2011. No doubt some of the global economy has been responsible for much of it, but we also believe there has been some terrible mismanagement with some of these other firms. We are doing what we can to get some resolve and filter out any more potential problems from arising in the future.
SUMMARY
To re-iterate from last month, the best news we have lately is that we are for certain setting up our own brokerage. It will be done right. It will be good. And it will be everything we ever wanted in a brokerage. For years brokers have been our biggest obstacle, hurdle, source of frustration, and root cause of lost funds. We are following the rule of “if you want something don’t right, you need to do it yourself”. We will provide more details as we near completion. This is a time consuming and costly endeavor. But we are making some good strides on this front, and are getting rather close to completion and believe we will have something very special when all is said and done. This will be our “in house” setup where we will not be reliant on other FCMs ever again. In the meantime we are working on bringing some resolve and fixing the problems with the current ones, and implementing better longer-term and sustainable solutions. Our trading programs are running as they should and we have stopped the constant tweaking of them. This is a very tough market at present, but we will keep the battle going strong on our end. We will continue to monitor our systems and take what the markets give us.
Please visit our website and blog (http://cayoflow.blogspot.com/) for frequent updates and newsletters and do not hesitate to contact us at any time should you have any inquires or concerns you would like to discuss with us.
Warm Regards,
The CayoFlow Team
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