September 29, 2014 (Monday)

Since Inception June 2014:

Equity/Futures Account: +8.28%
FX Currency Account: +33.35%

Benchmark: S&P 500: +1.02%









Positions (listed in reverse chronological order):

1) Long Gold Futures (December contract) and Junior Gold Miner ETF:GDXJ) Futures position initiated on 9/29/14
and GDXJ position on 9/30/14

Flipping the Gold Trade
Most of the trades so far for the simulation have been made with the intent to hold them for multiple
weeks/months, anticipating the larger moves and turns in the market place. The short gold thesis is something that
I've held since 2013 and it's been a core position since the simulation first went live.

But I believe there is a possibility of a real sentiment shift regarding the price of gold or at least that the asset class
would stop experiencing net outflows given the development in Hong Kong. The unrest coincides with a period of
slowing economic growth and structural reform under new leadership in Beijing. This raises the chance that the
protest may be met with a rash political response rather than a measured one.

Gold has performed horribly despite the significant rise in geopolitical tensions and accommodative monetary
policies around the world. But what I've learned as a student of the markets is that often correlations or
divergences don't happen in an expected way or within an expected time frame and simply that the market
doesn't care until it wants to. This is why gold has been a frustrating geopolitical trade.

Likely Choppier Seas Ahead
It may not feel like it in the last few years, but the world has become a more dangerous and fragmented place. As
I wrote in my analysis on the future of the European integration & geopolitics (8/28), since the financial crisis in 2008,
there has been a reversal in the grand march toward globalization/integration since the fall of the iron curtain two
decades ago. Nationalism is starting to rear its ugly head again in global hotspots, states are preoccupied with
domestic issues and increasingly going back into their shell when it comes to broader international issues, and
finally, the unilateral framework of the world order established by the U.S. post-Soviet Union exhibits serious signs of
falling apart under the current structure without further restructuring or strengthened commitment by the western
world (for which there is no appetite).


Analysis of the Hong Kong protests event today has largely concluded that this is another one of the many riots
that Hong Kong has experienced since 1997 under the Chinese regime. But as a student of history, I like to step
back further and look at the confluence of events and all the developments across various themes and regions
and tie them altogether. Even if the riots in Hong Kong end peacefully or Putin respects sovereignty of Ukraine,
none of it dispels the tensions that are cumulatively underneath the surface on a macro level across multiple
regions or its overall trajectory - posing a severe risk to the existing/familiar paradigm. On the monetary side, the
world is about to double the size of its sovereign debt load from 2007 supported by little more than half the growth
when the debt load was half the size. And the final word has yet to be written on the unprecedented monetary
policies in U.S., Europe, and Japan and whether the world's largest economies are in fact playing musical chairs. In
the end, the conclusion or expectation reached is nothing but a hunch or intuition based on a philosophical bent
or imagination, but sometimes, that's all there is to go on.

Structuring the Trade
Technically and price action-wise, this does seem like a rather low-risk/high-reward trade given that gold is at the
lower end of the trading range with strong support between $1180-$1200 level and the asset currently trading near
that at $1215. Given that positioning in gold is at extreme lows on the long-side, there's significant upside to this
trade.

The way I plan to structure the trade is through December gold futures contract and through ETF: GDXJ. The junior
gold miners were punished more severely during the downdraft in the price of gold (appropriately so) for taking on
less feasible projects based on lofty future assumptions on the price of gold. If the gold price rises, juniors should see
more relief than the majors.

The trade will constitute about $2 million in exposure on the futures side and additional $1 million through equity
position in GDXJ. Altogether, it will makeup roughly about a quarter of all positioning (out of a net liquid value of
about $12.5 million).

2) Long/short trade: Short Russell 2000 (ETF: IWM) / Long S&P 500 (ETF: SPY) initiated 9/22/14

Since August 18
th
, I had cited that my views on U.S. equities were largely a work in progress as I had lackluster
confidence about their direction based on the largely confusing risk/reward nature with S&P 500 already being
fully valued at a PE of 17 based on 2014s earnings of $119.

Over the last week or so, I saw that U.S. small cap performance was diverging from the large caps. After giving it
some thought over the weekend, I realized that a long/short trade would best capture not just my personal
reservations that I have of the market but the widening spread between two indexes with rather limited risk and as
a self-funding trade (I expect small caps to underperform their larger brethren in a broader market rally and
experience far more severe declines in a sell-off).

Currently the consensus is that U.S. equities would rally into the end of the year. Im a bit in the other camp and this
trade lets me hide in the safety of the small cap stocks. If the consensus turns out to be wrong, then the
deteriorating breadth and internals makes this an ideal trade to take advantage of the deficiency without being
too exposed in one direction or another. The position should profit from either direction offering more directional
exposure without actually increasing leverage or violating risk parameters of the simulation.


3) Short Emerging Markets (short ETF: EEM initiated 9/18/14)
The Japanese Yens continued descent is a negative for emerging markets. I still fervently believe that the
breakout we saw in USD/JPY (which now has been confirmed) is part of the larger macro move that has occurred
since late 2011. By getting in front of the technical move and also understanding the powerful/over-arching macro
forces at play, the trade was able to capture the move in the Yen since the 102.60-level since August.

As the trade continues to bear fruit and with each weakness in the Yen providing a margin of safety, that has
allowed for more creative derivative trades that would further add to the outperformance. Thus, based on a similar
prognostication of the effects of a declining Yen, and looking beyond the trade that was made regarding South
Korea (see below - position #3), the Emerging Markets ETF presents another opportunity to play the paradigm shift
in both rates and currencies.


As the position below regarding U.S. treasuries highlights, the 10-Yr has moved nearly 30 basis points in the past two
weeks. Despite the dovish tone of Ms. Yellen yesterday at the Fed meeting (9/17), the yield still managed to close
higher. Last year when the same 10-Yr note reached a yield of 3%, emerging markets saw a mass exodus of
capital. And although emerging market governments may perhaps be better prepared this time around, the rise in
U.S. rates combined with continued weakness in Europe, slowdown in China and pace of the Japanese Yens
decline makes ETF:EEM an attractive risk/reward short position.

4) Short MSCI South Korea (initiated 9/4/14) Three major headwinds for the country: 1) weaker yen 2) over-
reliance on chaebol and the subsequent lack of diversification, and 3) demographic time-bomb.

Korea is a trading powerhouse. It derives 55% of its GDP from exports and is the seventh largest exporter in the
world. The majority of goods that fall into that export figure are electronic & electric equipment and automobile
and transportation equipment. That puts South Korea in direct competition with Japanese multi-nationals that play
in a similar field (the likes of Sony, Toyota, and Honda) who are again getting a renewed boost from the yens
weakness, likely to come at the expense of Korean rivals.

This exposes a structural issue within the South Korean economy. The chaebol system (chaebol refers to a family-
controlled conglomerate) has made South Korea the 12
th
largest economy in the world but its also its biggest
threat. In order to bring about quick modernization and economic growth, since the 1960s, the South Korean
government has groomed companies within certain sectors of the economy via protectionist policies and state
subsidies. This path has helped bring rapid growth to South Korea and allowed companies like Samsung, Hyundai,
and LG to become giants on the world stage.

The economy that was ultimately created was one dominated by very few players. Thus, the countrys reliance on
too few companies to be its drivers of growth gambles its economic fate in their hands. Subsequently, the over
dominance by the chaebols stifles competition, creativity, innovation and entrepreneurship (which is
excruciatingly low for a country of its size) and although the effect of, lets say, lower creativity is difficult to
quantify, without a doubt the longer-term implications are negative.


To grasp how sorely the Korean economy is in need of diversity, one just needs to look at the components that
make up the weighting of the KOSPI Index. By industry, Electronic & Electric Equipment accounts for 29%, and
KOSPI Transport Equipment accounts for 16%. In total thats 45%. The top 20 companies with the largest market cap
amount to 49% of the KOSPI Index (Samsung alone accounts for 18%). If you break it down further by chaebol
ownership, for example, Samsungs Lee family controls 3 out of the 20. More comprehensively, 4chaebol families
(Samsung, Hyundai, LG, and SK) control 12 of the 20 largest companies, or roughly 40%.

Samsung Electronics recently reported disappointing shipment numbers for its flagship Galaxy smartphone. Q2
earnings were disappointing due to declining smartphone sales (revenue declined from 57.46 trillion won to 52.35
trillion won) and the outlook for the second year is likely to be worse. With the expected launch of the iPhone 6 in
September Apple going after the category of larger screens' turf that Samsung has dominated since the launch
of its Galaxy flagship line and other trinkets such as Apple iWallet theres a chance that Samsung will lose a
tremendous amount of market share.

That should serve as a reminder of how vulnerable South Korea is in terms of how concentrated its economy is
around a few companies. Technology is an extremely competitive space where an advantage or leadership can
quickly turn on its head within a single cycle. Margin compression is the name of the game since all devices quickly
become commoditized through competition and saturation. It's scary that Samsung Electronics alone makes up
17.5% of the KOSPI or 21% of the assets in the ETF: EWY (Samsung as a holding company roughly accounts for one
quarter of South Koreas GDP).

As for the auto industry, South Korean companies such as Hyundai and Kia (Hyundai Motors and Hyundai Mobis
account for 7% of the weighting in the index) have been able to gain market share in the last decade from their
Japanese rivals through aggressive pricing that was partly aided by the strengthening yen. But now the situations
have reversed and Japanese carmakers should be able to compete better on price (every 1% weakening in the
yen boosts Japanese automakers operating profits by 2-6% - which is significant given that Toyota exports roughly
2 million vehicles that it produces domestically).

As a society, the intense focus Koreans put on education produces far more negative outcomes for quality of life

and demographics. It props up the inexcusably high suicide rate (the highest in the world 38.3 per 100,000) and
fuels the corruption in its educational system. The intense competition and structural education issues focused on
entrance exams for its prestigious SKY universities have created an arms race where parents are forced to spend
additional disposable income on hours of private lessons outside of normal school hours. Its normal for Korean
students starting from 12 years of age to have an additional 6 hours of tutoring after school.

All of this fuels additional downward pressure on the birth rate on top of the usual pressures that take place in
developed/developing countries. The cost of raising a child in such a competitive environment is astronomical.
Thus, South Koreas birthrate is actually lower than Japan and equally South Koreas working age population is
falling by 1.2% annually (the fastest decline among OECD) and it will see the biggest jump in its elderly population
compared to any other developed nations (61% of the population versus 10% today). In essence, South Korea sees
Japan when it looks into the mirror in fact, one could make the case that the demographic issues of Korea are
worse.

The breakdown of the weighting in the Korean indices and within what the instrument I have access to ETF:EWY (I
hope to explore other ways of expressing this bet), makes it a compelling longer-term short. But what makes the
trade more attractive is that the country as a whole seems to be oblivious to its problems and the image it sees in
the mirror is eerily similar to Japan.

5) Short US Treasury (short ETF: TLT initiated 9/4/14) The deteriorating Euro zone macro theme, likelihood of ABS
purchase program, the difference in yield between the German Bund, and the general lack of alternative for
global investors creating a force large enough to push U.S. yields lower have been the cornerstone of the previous
thesis.

But now the pretension of expected stabilization in the Eurozone economy may end this relationship and if so, the
money flow into U.S. treasuries will likely abate. With rate hike in the U.S. possible next year, that has made me
reconsider the position. On Wednesday (9/3/14), it felt as if momentum had shifted in the trade (a move of nearly
10 basis-point in less than 72-hours). As I write this note (9/4), the yield on the 10-Yr is trading above 2.45%, and that's
why I decided to short treasuries and also as part of a longer-term thesis. Equally, I added more to the long-held

short gold position because if this is the rise in yields that the market has finally been waiting for, then gold will
continue to severely underperform.

Finally, the S&P 500 has had an inverse relationship with treasury yield. I suspect that the relationship would reverse
if rates were to rise quickly which may encourage me to increase the short position on the S&P 500. Longer-term,
higher rates bring worries over the size of sovereign debt. Overall, the 70% increase in global sovereign debt (from
$30 trillion to $52 trillion) is supported by little more than half the growth when the debt load was much lower.

This may become a serious headwind as the presumption of progress on the fiscal side in this country in the last few
years is built on artificially suppressed rates and short-term measures. The CBO estimates that every 1% rate
increase would cost an additional $100 billion a year in interest payments on the outstanding debt of $17 trillion.
Thus, each incremental increase in rates going forward will claim a larger share of cash flow for debt servicing.
With GDP heavily dependent on government spending (with recent GDP numbers benefiting from an uptick in
government spending as well), national debt in a higher interest rate environment is likely to be another headwind.


6) Long USD/JPY (initiated 8/20/14) - it was only a matter of time before the yen moved lower on the backdrop of
dollar strength as well as the divergence in central banks' policies -- they've been in different stages of easing for
quite some time now. The prospect of additional easing seems more likely to combat the continued lukewarm
data points in Japan. Kuroda may be publicly positive and appear to be excited about Japans growth prospects,
but inspiring confidence is part of his job as he is trying to amplify the effect of his policy being downbeat would
have the opposite impact.

USD/JPY cross has been on the radar for a while as it's been in a tight trading range since February of this year. The
position was initiated as it broke out of consolidation and given how long it has consolidated, it will retest and likely
close higher above the previous high of 105.43.

It is likely that this move might be the next leg lower for the yen part of the larger macro move that has occurred
since late 2011.


7) Short German DAX (short ETF:EWG initiated 8/18/14) Flipped the position from being long 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 an extended analysis on this was written for 8/27
update and have been archived on scribd) 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.

Finally, to reference George R. Martins Game of Thrones, Winter is coming and Putin will likely play one of his
trump cards with his most prized weapon natural gas.

8) Short EUR/USD (initiated 6/17/14) The short euro trade has been the most highly concentrated (and the longest
held) position since I began this trading simulation. The divergence in central banks policies (Fed vs. ECB) and the
growing divergence in economic data points have been the main reasons for holding a negative view on the
euro against the U.S. dollar since May of this year.

I believe short EUR/USD trade has been 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.

Now that the ECB is on this unprecedented path, the path of least resistance to fix the European malaise will
continue to disproportionately fall on monetary policy and not on government policy/structural reform.

As I wrote in the detailed commentary about the changing political winds in Europe (8/27/14 update), the end
game for the Euro zone continues to look bleak and, frankly, even in the absence of the ABS announcement, in
the long-run, shorting the Euro against the dollar certainly is a great way to reflect the long-term negative prospect
for the currencys future.












9/29/14 Platform Snapshot (Optimized for viewing on iPhone, iPad, or Android)




Trading Account Rules:

1) Starting Account Size:
a. Cash equities/futures/option: $10million
b. Forex: $10million

2) For the cash account (non-forex), macro views will be reflected using listed equity indexed ETFs with deep liquidity/volume and
net assets of $1 billion or greater in order to best represent the odds of the strategy being scalable (single-stock, company
specific stocks will not be traded).

3) Most of the speculative positions can also be accurately expressed using futures, but because the volume is more constrained at
different times and because the platform fails to take volume into consideration (hence the trades' impact on the actual price),
the use of futures will be limited. Positions that I deem to be core/longer-term would be better expressed via equities. But for
commodities such as crude oil, silver, copper, etc., they will solely be expressed through the futures contract market due to
contango/decay issues that most commodities ETFs suffer.

4) The overall goal is to identify attractive opportunities with goals of holding the positions for multi-week/month periods.
Importance will always be put on liquidity and risk exposure. Also, being able to realistically liquidate all positions by end of
trading day or vice versa, scale up risk, will be an advantage of the strategy.

5) Daily updates will be simple and short, as youll receive a time-stamped screenshot of the account summary where detailed
positions and P/L will be all within a single image.

6) Leverage for spot currency position will be limited to 2.5x the underlying cash

Leverage for equity/futures account will be limited to 1.3x the underlying cash with net aggregate overnight risk exposure (net
liquid value) often falling well below that limit.