Managed futures tend tofocus on commodities and currencies,but there are many ways to gainexposure to stocks. Globally there arequite a few stock indexes that haveassociated futures contracts. For theaccounts I manage, choosing which oneis quite simple. I have spent thousandsof hours on research and the datashows unequivocally that whenmanaging an aggressive portfolio for thelong run, relative strength is of utmostimportance. If somebody wants to buystocks, why buy anything but thestrongest stocks or the strongestindexes? If any market is significantlyoutperforming its peers, there areclearly reasons for that. I am referring tosustained strength, not merely a oneweek thrust in price. MKC GlobalInvestments manages accounts in amanner that follows the long-termtrend and therefore watches for long-term sustained strength andoutperformance. For example, in theglobal stock markets I currently likeChina, Taiwan and South Korea. Thistranslates to the Hang Seng, MSCITaiwan, and KOSPI 200 indexes. WithU.S. stocks rallying 30% the Asian oneshave rallied about 45%. It is my belief that China and Taiwan will be some of the first countries to emerge from theglobal financial situation.
Commodity and currencymarkets are two markets that will offerthe largest opportunities over the nextdecade. Unfortunately these marketsare the least understood by mostinvestors. I say unfortunately becausethese markets genuinely offerdiversification to one’s portfolio, theway that simply buying stocks indifferent sectors cannot.Commodities suffered amassive bear market from 1982 to 1999which resulted from huge suppliescreated from the historic prices of the1970s. The current bull market beganfrom an imbalance in supply anddemand (think China’s demand coupledwith low supply from almost 20 years of depressed prices). This new bull marketreceived an additional boost from theinflationary effects of the FederalReserve’s dramatic lowering of interestrates in the early 2000s. Last yearcommodities peaked and corrected withthe rest of the global markets. A largecorrection after an 8 year run-up is tobe expected, although this one wasscary. There was a forced liquidation inall markets. Commodities were ripe fora correction and the forced liquidationfrom the “credit crisis” merelyaccentuated the decline. Investors,forced to withdraw assets from wellperforming funds merely to cover lossesfrom poorly performing ones, furtherdepressed markets across the board. Atpresent, the supply and demand pictureis still quite promising for higher pricesover the next several years. This factcoupled with government inducedinflation will create exciting moves inthe near future. The wildcard at presentis
inflation will begin, currently itis unclear if it has reemerged or if thetrue upward swing in inflation is a yearor more down the road.2008 was a strong year forManaged Futures funds. This would stillbe true even without the opportunity toshort stock indices because the pricemoves in the commodity and currencymarkets were so large. For example, myaccounts had long positions in gold,corn, sugar and natural gas in the firsthalf of ‘09 and my short positions incopper, soybean oil and crude oil in thesecond half of ’08 worked quite well.The currency markets also contributedto our performance as the British Poundsuffered and the Euro and Japanese Yengained. Consequently, early 2009 sawthese markets consolidate and slowdown, this is expected after highlyvolatile periods.Precious metals have been agood example of an opportunitypresented to us in the markets recently.The stars seemed to be aligning for anupward move in precious metals, theseinclude: gold, silver, platinum andpalladium. When equity prices were stillbreaking down, investors were lookingfor a safe haven for their money. Sincegold has long been a store of value (orat least perceived that way), it seemedlike a logical place for scared investors.Also, the fear of a drop in the U.S. Dollarand the threat of inflation from the U.S.government bailouts provided anotherfundamental driver. From a technicalstandpoint, gold kept its strength overthe last year compared to most other