To paraphrase Mark Twain, rumors of volatility's demise are greatly exaggerated. Financial markets are being pushed and pulled by a variety of cross-currents. Much of the turbulence unfolding is the culmination of imbalances and tensions that have been building for years.
“We’ve seen volatility in FX and commodity markets pick up recently,” said Tom Rollinger, chief investment officer at Chicago-based Red Rock Capital, a commodity investment management firm. “There’s the possibility that their volatility is only the tip of the iceberg.” Red Rock Capital trades 70 globally diverse futures markets, including equities, bonds, interest rates, physical commodities, precious and base metals, and energy.
Rollinger will speak on a volatility panel at Markets Media's Chicago Trading & Investing Summit on Sept. 23.
Red Rock's flagship strategy, the Systematic Global Macro Program, is designed to capture the high-value payoff portion of globally trending markets by blending the benefits of both momentum and probability theory. Its Commodity Long-Short Program utilizes a quantitative pattern recognition strategy that is designed to capture long or short directional “volatility bursts” in physical commodity futures.
“We are quantitative and systematic,” said Rollinger. “We don't use opinions, weather, rumors, sentiment, and forecasts. We use information that's already in the market. We have tools that measure people and investors' behavior, which enables us to catch both short term and long term directional movement in the commodities futures markets.”
Change in the world economy -- from one driven by expansion of supply to one driven by expansion of demand -- may be causing an environment that is favorable to long/short commodities investing. Cross-commodity correlations have been falling since late 2011, and links between commodity sectors have weakened, noted Rollinger. Commodities such as natural gas, crude oil, coffee, gold, sugar, and lean hogs have all made major headlines during the past several months due to how U.S. and world events have affected their prices, he said.
“We've seen, in the past six to eight weeks, within the European Union the policy chiefs are beginning to differentiate themselves with the directions of which way they're taking their sovereign nations,” Rollinger said. “That's creating some dislocations, which has created beneficial directional volatility.”
Europe continues to surprise. “There was a lot of equilibrium for a while there,” said Rollinger. “If this is the beginning of the some of the unwinding of some of that temporary equilibrium, then that could be very good for us.”
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