Paul D. Ki m | 136 E. 55th Street | New York, NY 10022 | T. 954-296-4546 E flatpeak@gmail.

com


Macro Cross-Asset 1rad|ng S|mu|at|on
August 18, 2014 (Monday)

S|nce Iune 18
,
2014:
LqulLy/luLures AccounL: +2.3S¼
lorex AccounL: +S.82¼

8enchmark: S&Þ 300: +0.71¼












Paul D. Ki m | 136 E. 55th Street | New York, NY 10022 | T. 954-296-4546 E flatpeak@gmail.com


8/18/14 – Commentary

Being on the wrong side of the trade cost 70-basis points, bringing down the two-month return (since inception)
to 2.35%. As I was being humbled by the market this morning (might as well forever get used to it), it has
allowed me to be more introspective and notice things that I would’ve otherwise ignored if I had been on the right
side of the trade.

What I noticed was how scarce the liquidity was in the equity market. SPY (probably the most liquid ETF) was
almost 40% below 3-month avg. Sure, it’s August and volume is at a seasonal low-point, but the low-volume
environment has been a multi-year trend.

But today’s 150-pt gap-up open in the Dow made me wonder how illiquidity could become the main driver of
price in both ways. In other words, illiquidity can drive prices up to extremes and, vice versa, drive prices down.

This is not to say that there’s an outright sell sign flashing for the equity market. But it does make you wonder
what will happen to the market if the neon light on the sell sign does light up one day – when there are no buyers
to be seen.

I was a sophomore at Duke when the real heavy selling took place during the financial crisis of 2009. At the time,
I was mesmerized by how quickly liquidity dried up overnight even in the most liquid markets. In the period
leading up to the crisis, compared to today, there were far more participants and ample liquidity. Therefore, it
does make me wonder what will happen to the market if the complexions were to quickly change.

Up until last week, I’d been very constructive about risk assets. But such thoughts make me apprehensive about
that perspective. What scares me more is that I can find little reason to want to sell or be net-short - I’m guessing
that’s how many feel about the market as well.




Paul D. Ki m | 136 E. 55th Street | New York, NY 10022 | T. 954-296-4546 E flatpeak@gmail.com


But if I were to reframe the market narrative to reflect my mindset that is increasingly becoming conflicted and
view it with renewed cynicism, perhaps the global growth story may not become as rosy as I pictured. Europe for
sure and possibly Japan and China may become a drag on growth. The U.S. may look like the rock star for now
but given how fickle data points have been in the past five years of the recovery, it can change very quickly.

Thus, to reflect the growing uneasiness, I’ve decided to trim my positions down to a few (from 14 positions to 5)
that I have the most conviction in and so that I could be more nimble and more mindful of risk.

1) Short EUR/USD – it has been the most highly concentrated position since I began this trading simulation. The
position has always been large, but it has certainly grown in size with each technical level and data point hurdle
that it cleared that has made me comfortable enough to add more to the trade.

The short EUR/USD trade is one of the few macro trades where all elements of the trade (historical analysis,
policy analysis, economic data, trends/technicals and etc) all line up favorably to be short.

2) Long US Treasury – continuing with the deteriorating Eurozone macro theme, in which the ECB will be
expanding its LTRO for the second time in three years, the difference in yield between the German Bund and a
lack of alternative for global investors has created a force large enough to push U.S. yields lower. Also,
emerging market central banks have bought U.S. treasuries in concert to keep their own economies stable by
keeping U.S. rates low. And finally, there’s the likelihood that the U.S Federal Reserve will be dovish for a longer
period than people expect.

3) Short Gold – gold’s reputation/status as a safe haven asset has suffered in recent years. I’ve been bearish
when it broke the major support of $1600 in early 2013 and I believe gold still hasn’t proved its purpose or worth.

For one, it fails to be insurance when there’s a geopolitical issue. Two, the U.S. dollar’s ascent on the backdrop
of the declining Euro will continue to be a headwind for gold. Third, gold doesn't yield anything – thus in a
search-for-yield environment, gold is not attractive – especially if Europe and other parts of the world show signs
of deflation. Fourth, on the other hand, if rates do normalize and Fed policy becomes more hawkish, gold once

Paul D. Ki m | 136 E. 55th Street | New York, NY 10022 | T. 954-296-4546 E flatpeak@gmail.com



again won’t have a leg to stand because it doesn't yield anything.

4) Short German DAX (EWG) – I flipped my position and shorted the DAX as insurance against Putin (a peace
deal where Putin washes his hands clean of Ukraine goes against all that I know about Russian history and the
man I studied in college) and against continuing deterioration in economic conditions in the Eurozone. The bet is
that it is more likely for the DAX to break 9000 than it is likely to hold the line.

5) US Equities (SPY) – “????” I wrote a question mark because I don't have the answer, and am rather confused
about risk/reward nature of U.S. equity market. With my mind leaning more on the negative side, I have initiated
a small short position on the S&P 500. But overall, my view on equities as of today is a work-in-progress.


Positions:

1) Short Euro against U.S. Dollar

2) Short Gold (via ETF: GLD)

3) Short equities via S&P 500 (ETF: SPY)

4) Long treasuries (via ETF: TLT)

5) Short German DAX (via ETF: EWG)




Paul D. Ki m | 136 E. 55th Street | New York, NY 10022 | T. 954-296-4546 E flatpeak@gmail.com

8/18/14


Paul D. Ki m | 136 E. 55th Street | New York, NY 10022 | T. 954-296-4546 E flatpeak@gmail.com


1rad|ng Account ku|es:
1) SLarLlng AccounL Slze:
a. Cash equlLles/fuLures/opLlon: $10mllllon
b. lorex: $10mllllon

2) lor Lhe cash accounL (non-forex), macro vlews wlll be reflecLed uslng llsLed equlLy L1ls wlLh deep llquldlLy/volume and neL asseLs of $1
bllllon or greaLer ln order Lo besL represenL Lhe odds of Lhe sLraLegy belng scalable.

3) MosL of Lhe speculaLlve poslLlons can also be accuraLely expressed uslng fuLures, buL because Lhe volume ls more consLralned aL
dlfferenL Llmes and because Lhe plaLform falls Lo Lake volume lnLo conslderaLlon (hence Lhe Lrades' lmpacL on Lhe acLual prlce), Lhe use
of fuLures wlll be llmlLed. ÞoslLlons LhaL l deem Lo be my core longer-Lerm would be beLLer expressed vla equlLles. 8uL for commodlLles
such as crude oll, sllver, copper, eLc., Lhey wlll solely be expressed Lhrough Lhe fuLures conLracL markeL due Lo conLango/decay lssues
LhaL mosL commodlLles L1ls suffer.

4) 1he overall goal ls Lo ldenLlfy aLLracLlve opporLunlLles wlLh goals of holdlng Lhe poslLlons for mulLl-week/monLh perlods. lmporLance wlll
always be puL on llquldlLy and rlsk exposure. Also, belng able Lo reallsLlcally llquldaLe all poslLlons by end of Lradlng day or vlce versa,
scale up rlsk, wlll be an advanLage of Lhe sLraLegy.

3) ually updaLes wlll be slmple and shorL, as you'll recelve a Llme-sLamped screenshoL of Lhe accounL summary where deLalled poslLlons
and Þ/L wlll be all wlLhln a slngle lmage.

6) Leverage for spoL currency poslLlon wlll be llmlLed 2.3x Lhe underlylng cash value - wlLh sLrlngenL rlsk managemenL ln mlnd.