Clarke Capital Management Update
It's been a very difficult beginning to 2009 here at Clarke to be sure, especially for our larger and less risk adverse Jupiter, Millennium and FXF programs. The major cause of this drawdown for us was due to the Fed's surprise announcement on March 17th. Specifically, that they would be buying 300Bln in various length Treasuries as a part of their plan to "use all the tools necessary to achieve economic stability and recovery."
This action resulted in an unprecedented rise of 8 full points in the 30yr long bond, 5 full points in the 10yr note, etc. At the time, we had (already in the market) resting interest rate buy orders above the (pre-fed announcement) market, which subsequently had to be filled at extremely inflated prices. Usually, our slippage in these contracts is no more than a few 32nds, but this time, it amounted to several full points. Not to mention we were also entering these trades at what later turned out to be the absolute "top" of this market move.
The Fed announcement included the fact that they were prepared to spend an additional 750Bln to buy troubled mortgage paper to try and stem the tide in that arena. The resulting total 1.25 trillion spending announcement had a devastating effect on the US dollar and as such, hammered all of our short commodity positions at the very same time that our interest rate trades were going south. It was, in a perverse way for us, the "perfect storm."
By virtue of their smaller account sizes, the GB and GM programs trading models are much more stringent about entry and exit signals, and as such were much better suited to ride out this event. Having only one position on at this time turned out to be a blessing in disguise. While there are certainly no guarantees, we would be hard-pressed to imagine the smaller programs sustaining similar loss percentages as our larger ones.
We hope there will be no future "game-changing" events such as the aforementioned Fed announcement anytime in the near future, but these are uncertain times. We have no way to predict what members of the current administration may do should the financial crisis deepen. Having said this, we have taken steps to modestly scale back the number of models in each of our programs, and we are also in the midst of a complete "model evaluation" designed to tweak individual models to be more efficient by reducing both trading and risk while substantially keeping most of the potential upside of the programs.