BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Sept. 13 (Bloomberg) -- Goldman Sachs Group Inc.'s Global Alpha hedge fund fell 22.5 percent in August, its biggest monthly decline, on losses from currency and stock trades. The fund, managed by Mark Carhart and Raymond Iwanowski, lost a third of its value in 2007, according to an update sent to investors. Investors last month notified New York-based Goldman, the most profitable securities firm, that they plan to withdraw $1.6 billion, or almost a fifth of the fund's assets as of July 31. Carhart and Iwanowski, who use mathematical formulas to select trades, may get more redemption notices as Global Alpha falls further behind quantitative managers such as James Simons's Renaissance Technologies Corp. Global Alpha generated $700 million in fees after an almost 40 percent gain in 2005. The fund has fallen 44 percent since its March 2006 peak. 'With losses this large, typically you have to look at the return potential going forward,' said Gregory Dowling, vice president for alternative investments at Cincinnati-based Fund Evaluation Group LLC, which doesn't have money in the Goldman fund. 'If there isn't a possibility of a snap-back, you have to examine where else you can put that capital.' Global Alpha's biggest loss in the month stemmed from the managers' decision to sell Japanese yen and buy Australian dollars. The so-called carry trade unraveled when the Australian dollar fell 6 percent against the yen in August. Equities holdings, including stocks in the U. S., Norway and Finland, declined 4.7 percent. 'We still hold our fundamental investment beliefs that sound economic investment principles coupled with a disciplined quantitative approach can provide strong uncorrelated returns over time,' Goldman said in the unsigned report. Goldman blamed its losses on too many quantitative funds making the same trades, and said in mid-August it would have to develop new strategies. 4) Goldman has not identified conditions in which it can determine if too many other Quant funds are executing the same strategy. Perhaps Goldman should start an anti-quant fund. In other words figure out what other quant funds are doing and bet against them. That would make as much sense as what they are saying. Perhaps even more so. Certainly the Alpha Fund would be up enormously if it bet against its own model. We still hold our fundamental investment beliefs that sound economic investment principles coupled with a disciplined quantitative approach can provide strong uncorrelated returns over time Global Alpha's biggest loss in the month stemmed from the managers' decision to sell Japanese yen and buy Australian dollars. The so-called carry trade unraveled when the Australian dollar fell 6 percent against the yen in August. Equities holdings, including stocks in the U. S., Norway and Finland, declined 4.7 percent. 1) Global Alpha is a Quant fund. It trades according to mathematical models. If it trades according to mathematical models exactly what was a manager doing by deciding to sell the Yen and buy Australian dollars? Or was the ' Here is my take. There is no real analysis or brilliant programming going on in any of these quant funds. Every damn one of them is trained to but the dip in anything and everything (with enormous leverage). They are all trend followers that will fail spectacularly when the trend changes. Leverage guarantees it. Buying the dip works until it doesn't. When it doesn't it results in a tremendous number of blowups. Given that Global Alpha is down 44 percent since its March 2006, and given that too many other funds are doing what it is doing inquiring minds just might be asking 'How can Goldman get out of this mess?' Since the problem is 'too many doing the same thing' (and now every one of them is wrong) as soon as one Quant fund sells to get out, it will further depress prices for the remainder still in. In this situation, the first to liquidate could be the first to reduce losses. But they all fear the snapback rally so no fund wants to take action. Thus all the Quant funds including Goldman are likely to hold on, hoping and praying for a reversal. In Goldman's case they need a reversal in the Yen. If a 6% decline led to a 22.5% loss it will not take long at that rate for Goldman's Alpha Fund to be worthless. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. 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