As the year 2010 draws to a close, lets see how am I going to remember this year. I want to document this because days will turn into months and months will turn into years and I can open up my diary and look back on the concluding year of the first decade in 21st century!

I will divide this post in couple of headers- Political, Economics, Finance, Technological, Entertainment, Geo Political and Climate. So let us get started:

Political- This was the year when we saw Obama slipping in approval ratings, Democrats losing Congress and the emergence of Tea Party in the national politics. What it means is , although Obama has done commendable work in dealing with this great recession, people in general are disillusioned with the pace of progress, particularly with unemployment still at 9.8%. Clearly Mr. Obama needs to get his act together and work with a vigor if he wants to get reelected in 2012 and seems like White House has already started a major overhaul in its administration.

Economics- This was the year which added a new word to our daily vocabulary – QE2 or the second coming of Quantitative Easing. So far it seems to have worked, as the stock markets close near 2 year highs. Does that mean economy is out of the wood? Not by a far shot, the unemployment is still close to 10%, the seven million jobs lost in recession have not been recovered and are probably not going to come back in near future either, the GDP although growing, it is pretty anemic like 1%. Corporate profit has registered some 20% year over year gain this year , but the outlook for 2011 is still murky. The deficit is only ballooning and with the recent extension of Bush era tax cuts, is only set to get worst. The extension of tax cut at a price tag of whopping $858 billion, although looks good short term, seems more like a sign of desperation in the fiscal policy think tank of the country.

Finance- This has been a crazy year for the markets and I would think the feds QE2 policy may have played a role. Here are some numbers in terms of price increases we saw this year(Source FT.com).
Silver : 72%, Gold:28%, Crude Oil:22%, Corn:52%, Wheat 48%, Cotton- 103%, Lumber- 46%, Coffee- 60%…the list goes on. Although the readers of this blog know that I am a Gold bull for a long time, but this rapid price increase in essential commodities is really worrying trends for the common man. I hope in 2011 Central Bankers around the world will stay guard for inflation to rear its ugly head.

Technology- Of course Mark Zuckerberg got Person of the Year recognition from Time magazine for his obscenely successful brainchild Facebook. The other notable trends are Cloud Computing really becoming main stream.Ebay, US department of Agriculture and other such big entities have moved to cloud services, picking Microsoft’s Azure as platform of choice. Read somewhere that the US Government is planning to consolidate its 800 data centers and moving to cloud. The iPad form Apple marked the arrival of tablets in a big way and the Smart Phone adoption continued its surge.

Entertainment- We broke some records this year in Hollywood and also the gaming industry. The epic tale “Avatar” really blew me away with its grandeur , extravaganza and the message itself by director James Cameron. I had truly never seen a movie quite like that in my life, the money spent on 3D IMAX seemed quite worth it. I later picked the Blue Ray disc as well just to find out what the Director had to say about his experiences making this film. There is something about these extraordinary successes, and it all starts with great thinking and here’s a quote from the genius Cameron himself “If you set your goals ridiculously high and it’s a failure, you will fail above everyone else’s successes”. Avatar has been the biggest grossing movie ever, with $4 billion in revenue and counting.The other notable success of the year was the video game- Call of Duty, black Ops, this may have set a new record in gaming too, with total sales already crossing the billion dollar mark!

Geo Political The year is closing with tension between North Korea and South Korea, we need to see what is in store for 2011. This year was also notable for leaking of sensitive US government document by Wikileaks. The founder of Wikileaks , Julian Assange , was the most popular choice for becoming person of the year online poll by Time magazine, he ended up becoming the runner up. The leaks have created embarrassing situation for US government which now has some explaining to do to its partner countries….and i know that’s an understatement…there’s lot more to it, probably deserves a separate blog post in itself.

Climate This year we saw devastating flooding in Pakistan, and the catastrophe in Haiti by the 7.0 magnitude earth quake which killed some quarter million people in minutes. Lessons, humans are but at the mercy of mother nature…let’s take good care of it otherwise the day of reckoning is not far away

>
As the year 2010 draws to a close, lets see how am I going to remember this year. I want to document this because days will turn into months and months will turn into years and I can open up my diary and look back on the concluding year of the first decade in 21st century!

I will divide this post in couple of headers- Political, Economics, Finance, Technological, Entertainment, Geo Political and Climate. So let us get started:

Political- This was the year when we saw Obama slipping in approval ratings, Democrats losing Congress and the emergence of Tea Party in the national politics. What it means is , although Obama has done commendable work in dealing with this great recession, people in general are disillusioned with the pace of progress, particularly with unemployment still at 9.8%. Clearly Mr. Obama needs to get his act together and work with a vigor if he wants to get reelected in 2012 and seems like White House has already started a major overhaul in its administration.

Economics- This was the year which added a new word to our daily vocabulary – QE2 or the second coming of Quantitative Easing. So far it seems to have worked, as the stock markets close near 2 year highs. Does that mean economy is out of the wood? Not by a far shot, the unemployment is still close to 10%, the seven million jobs lost in recession have not been recovered and are probably not going to come back in near future either, the GDP although growing, it is pretty anemic like 1%. Corporate profit has registered some 20% year over year gain this year , but the outlook for 2011 is still murky. The deficit is only ballooning and with the recent extension of Bush era tax cuts, is only set to get worst. The extension of tax cut at a price tag of whopping $858 billion, although looks good short term, seems more like a sign of desperation in the fiscal policy think tank of the country.

Finance- This has been a crazy year for the markets and I would think the feds QE2 policy may have played a role. Here are some numbers in terms of price increases we saw this year(Source FT.com).
Silver : 72%, Gold:28%, Crude Oil:22%, Corn:52%, Wheat 48%, Cotton- 103%, Lumber- 46%, Coffee- 60%…the list goes on. Although the readers of this blog know that I am a Gold bull for a long time, but this rapid price increase in essential commodities is really worrying trends for the common man. I hope in 2011 Central Bankers around the world will stay guard for inflation to rear its ugly head.

Technology- Of course Mark Zuckerberg got Person of the Year recognition from Time magazine for his obscenely successful brainchild Facebook. The other notable trends are Cloud Computing really becoming main stream.Ebay, US department of Agriculture and other such big entities have moved to cloud services, picking Microsoft’s Azure as platform of choice. Read somewhere that the US Government is planning to consolidate its 800 data centers and moving to cloud. The iPad form Apple marked the arrival of tablets in a big way and the Smart Phone adoption continued its surge.

Entertainment- We broke some records this year in Hollywood and also the gaming industry. The epic tale “Avatar” really blew me away with its grandeur , extravaganza and the message itself by director James Cameron. I had truly never seen a movie quite like that in my life, the money spent on 3D IMAX seemed quite worth it. I later picked the Blue Ray disc as well just to find out what the Director had to say about his experiences making this film. There is something about these extraordinary successes, and it all starts with great thinking and here’s a quote from the genius Cameron himself “If you set your goals ridiculously high and it’s a failure, you will fail above everyone else’s successes”. Avatar has been the biggest grossing movie ever, with $4 billion in revenue and counting.The other notable success of the year was the video game- Call of Duty, black Ops, this may have set a new record in gaming too, with total sales already crossing the billion dollar mark!

Geo Political The year is closing with tension between North Korea and South Korea, we need to see what is in store for 2011. This year was also notable for leaking of sensitive US government document by Wikileaks. The founder of Wikileaks , Julian Assange , was the most popular choice for becoming person of the year online poll by Time magazine, he ended up becoming the runner up. The leaks have created embarrassing situation for US government which now has some explaining to do to its partner countries….and i know that’s an understatement…there’s lot more to it, probably deserves a separate blog post in itself.

Climate This year we saw devastating flooding in Pakistan, and the catastrophe in Haiti by the 7.0 magnitude earth quake which killed some quarter million people in minutes. Lessons, humans are but at the mercy of mother nature…let’s take good care of it otherwise the day of reckoning is not far away

The market has been in turmoil lately, what with the fall of Investment Banking Giant Lehman Brothers, government takeover of Freddie Mac and Fennie Mae, government bailout of AIG, sale of Merry Lynch and the USD 700 billion bailout package to Wall Street! All the markets are in frenzy. As the European and British economy weakened, USD rallied initially and touched one year high against major currencies ( Euro peak of 1.61 to trough of 1.38), GBP ( peak of 2.12 to trough of 1.73) , Australian Dollar ( 98 cents to 77 cents) only to now give back sizable chunk of gains. For a period, I was thinking, bad days of USD are over and we can steadily improve from here. I hoped with a new President elected in November, who can presumably reign in deficit and bring our troops home, USD can get some of its shine back. Guess not! Seems like we are in for some more pain! Euro is now back to 1.48 after rallying some 4 cents in one single day! GBP is back to 1.85 and Australian Dollar is nearing 84 cents, go figure!
Currency Markets are not the only one undergoing price swings, same deal with the precious metal markets. Silver sold off from a peak of $21/oz earlier this year to $10.20/oz recently destroying many commodity long funds in the process only to rally back to $13.75/oz in few sessions. Similarly Gold Nosedived from 1025/oz to $730/oz and back to $915/oz in few sessions. Same deal with crude oil, from $147/ barrel to $90 / barrel and back to $122/barrel.
In bonds market, long bonds ( 30 year treasury) rallied almost up to 124.00 and 10 year notes to 119.5 before selling off fiercely to 116 on long bond (a move of approximately 80 basis points in terms of the yield curve) and 114 on the 10 year notes. Same deal with stock market, one day up 400 points DJIA (Dow Jones industrial Average) on bailout news, next day 400 sell off on Democratic party hurdle to bailout efforts. In this atmosphere it is very easy to get whipped both ways, and cash seems like the best position to have. I interact with other professional Money Managers and talking to them it seems like this market has amazed every one! To quote one of my Mentors in the field – she looks at the volatility and says, gosh in this business, never say never, no one could have foreseen such a wild volatility! well said, as a testimony to that I saw HSI ( Hong Kong) sell off to 16.5k from 19.5K in 2 days and then back again to 19.5k. Some of this volatility is going to take its toll and I am thinking some of the weaker hands in fund management business will close their door. You need ultimate risk management to survive in this environment! Additionally one needs to adjust position sizing to account for this increased volatility. As the volatility goes up, options premium shoots up ( a good measure of option premium is the VIX index, also called the fear index which has spiked from a low of 10 in beginning of 2007 to north of 30 today), ATR (Average True Range) shoots up. A good risk management strategy in such an environment would require reducing position sizing proportionately ( in other words reduce the leverage) so that total amount at risk stays constant. The money spent to manage risk should be treated as an investment in long term financial health and not to be fretted upon. It is OK to get whipsawed in this market every once in a while, you can still survive, but not OK to let go of risk control and ride the volatility all the way up and down! Hope this volatility, as it enters the history books, will serve as an eye opener for the money managers and we all can learn a lesson or two in risk management!!

>
The market has been in turmoil lately, what with the fall of Investment Banking Giant Lehman Brothers, government takeover of Freddie Mac and Fennie Mae, government bailout of AIG, sale of Merry Lynch and the USD 700 billion bailout package to Wall Street! All the markets are in frenzy. As the European and British economy weakened, USD rallied initially and touched one year high against major currencies ( Euro peak of 1.61 to trough of 1.38), GBP ( peak of 2.12 to trough of 1.73) , Australian Dollar ( 98 cents to 77 cents) only to now give back sizable chunk of gains. For a period, I was thinking, bad days of USD are over and we can steadily improve from here. I hoped with a new President elected in November, who can presumably reign in deficit and bring our troops home, USD can get some of its shine back. Guess not! Seems like we are in for some more pain! Euro is now back to 1.48 after rallying some 4 cents in one single day! GBP is back to 1.85 and Australian Dollar is nearing 84 cents, go figure!
Currency Markets are not the only one undergoing price swings, same deal with the precious metal markets. Silver sold off from a peak of $21/oz earlier this year to $10.20/oz recently destroying many commodity long funds in the process only to rally back to $13.75/oz in few sessions. Similarly Gold Nosedived from 1025/oz to $730/oz and back to $915/oz in few sessions. Same deal with crude oil, from $147/ barrel to $90 / barrel and back to $122/barrel.
In bonds market, long bonds ( 30 year treasury) rallied almost up to 124.00 and 10 year notes to 119.5 before selling off fiercely to 116 on long bond (a move of approximately 80 basis points in terms of the yield curve) and 114 on the 10 year notes. Same deal with stock market, one day up 400 points DJIA (Dow Jones industrial Average) on bailout news, next day 400 sell off on Democratic party hurdle to bailout efforts. In this atmosphere it is very easy to get whipped both ways, and cash seems like the best position to have. I interact with other professional Money Managers and talking to them it seems like this market has amazed every one! To quote one of my Mentors in the field – she looks at the volatility and says, gosh in this business, never say never, no one could have foreseen such a wild volatility! well said, as a testimony to that I saw HSI ( Hong Kong) sell off to 16.5k from 19.5K in 2 days and then back again to 19.5k. Some of this volatility is going to take its toll and I am thinking some of the weaker hands in fund management business will close their door. You need ultimate risk management to survive in this environment! Additionally one needs to adjust position sizing to account for this increased volatility. As the volatility goes up, options premium shoots up ( a good measure of option premium is the VIX index, also called the fear index which has spiked from a low of 10 in beginning of 2007 to north of 30 today), ATR (Average True Range) shoots up. A good risk management strategy in such an environment would require reducing position sizing proportionately ( in other words reduce the leverage) so that total amount at risk stays constant. The money spent to manage risk should be treated as an investment in long term financial health and not to be fretted upon. It is OK to get whipsawed in this market every once in a while, you can still survive, but not OK to let go of risk control and ride the volatility all the way up and down! Hope this volatility, as it enters the history books, will serve as an eye opener for the money managers and we all can learn a lesson or two in risk management!!

You would think game theory has something to do with sports..you are close…but not exactly. It is much more than that. Game theory is a lot about applied mathematics, lot about probability, lot about how two monopolistic competitor out smart each other ( decide on winning strategies)in an effort to win market share.

Why am I talking about game theory here, because I am passionate about technical analysis of the financial markets and game theory is used in this area as well. Here’s how to look at it. A hedge fund manager knows that good trades doesn’t always work out. A good trade is one that has higher probability of success,but that doesn’t mean that it will always be profitable. Those of us who have background in game theory understand this well. To quote one of my mentors in this area and a successful hedge fund manager “The statistics are only meaningful when looking at a string of numbers. For example, in professional football, not every play is going to gain yardage. What percentage of games do you need to win in order to make the playoffs? It’s a number much smaller than most of us are willing to accept in our own win/loss ratios!” I couldn’t have said it any better, I leave it to the market wizard to sum it up for me!

>
You would think game theory has something to do with sports..you are close…but not exactly. It is much more than that. Game theory is a lot about applied mathematics, lot about probability, lot about how two monopolistic competitor out smart each other ( decide on winning strategies)in an effort to win market share.

Why am I talking about game theory here, because I am passionate about technical analysis of the financial markets and game theory is used in this area as well. Here’s how to look at it. A hedge fund manager knows that good trades doesn’t always work out. A good trade is one that has higher probability of success,but that doesn’t mean that it will always be profitable. Those of us who have background in game theory understand this well. To quote one of my mentors in this area and a successful hedge fund manager “The statistics are only meaningful when looking at a string of numbers. For example, in professional football, not every play is going to gain yardage. What percentage of games do you need to win in order to make the playoffs? It’s a number much smaller than most of us are willing to accept in our own win/loss ratios!” I couldn’t have said it any better, I leave it to the market wizard to sum it up for me!