SGMT Capital Research Inc. SYSTEMATIC GLOBAL MARKETS TREND

OCTOBER, 2016

On the Spooky Trump Brexit Trail Investor Letter

The SGMT trading system had a gross return of -2.77% for Level II in the month of October, 2016 Source of Returns by Currency (October, 2016):

2016 Gross Returns by Month:

Starting in October, the attention of the markets went back to Brexit as the UK PM May announced the Article 50 process in the Q1 2017 without information of the plans. Who is to be in the plan formulation to trigger Article 50 is still in UK high court legal process and the fears of hard Brexit prevailed in the

Level II Month Ccy Change SGMT Gross Return

Australian Dollar (AUD) -0.68% 0.05%

Canadian Dollar (CAD) -2.18% -1.88%

Swiss Franc (CHF) -1.78% -1.64%

Euro (EUR) -2.29% -2.50%

Great Britain Pound (GDB) -5.68% 2.49%

Japanese Yen (JPY) -3.30% 0.77%

Total Level II -2.77%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct YTD

0.07%

12.80%

5.39%

5.38%

-6.22%

-1.54%

5.83%

-3.93%

3.17%

-2.77% 18.05%

markets. From a short term perspective, the global bond selloff in October was based on rising expecta-tions that the ultra-loose monetary policies will not be expanded and there would be instead ECB/BOJ QE tapering, FED tightening and other central banks standing by with growing concerns about the limita-tions of further monetary easing effectiveness. Of course, at the October ECB monetary policy confer-ence Draghi vigorously denied the Bloomberg story of Eurozone QE tapering and put a hardline defense of ECB’s QE decision authority regardless of the QE studies underway by a commission. Underlying Draghi’s hardline position on QE was the longer term issues of global economy with little inflation pres-sure, global savings glut and declining potential growth and rising risk in China. Currently, 15 economies that account for 55% of global GDP still have inflation rates below their central bank’s targets and com-fort zones. In October, we saw another subdued US job report and concern about Deutsche Bank survival continued from last month. We also evidenced the real market reactions to the US election on October 28 when Clinton’s email gate was opened again by the FBI. The first instinct reaction was the risk-off, the volatility increase and the vulnerability of high beta trading positions (high risk plus crowded positions) as the odds for a Trump win rose vs Clinton on concern of a trade war.

In October, SGMT continued to operate in an information void cycle where the economic outlooks were clouded by the mixed short and long term concerns (see the short and long term description in section above). SGMT positioning continued to win on the major economic data like the US job report that was in line with the long term economic concerns but fell out on the divergence of FED and other central banks that was the dominant short term concern in the markets, especially in the currency market. Clearly SGMT won on the long term concerns of the UK economy as a result of Brexit despite the UK inflation and short term economic activity pickups. In October, SGMT stayed in certain cross-over positions at medium high leverage.

Looking forward, the information void cycle will continue until FED decides to raise or not to raise the rate in November or December. If Trump wins, post-election reassessment will create some falloffs and opportunities that may or may not break the information void cycle. If Clinton wins, the post-election will most likely make the markets remain in the current information void cycle waiting for new information to develop from other sources. Again Yellen FED board is still sitting on the fence about raising rates that may cause the same market jittering if the economic data lacks a fair support and therefore they may pre-fer a market stability short term goal in a transitional environment. The pressure of Brexit has picked up and will continue to increase until the stance on the path of Brexit can be cleared up in coming days. Again SGMT will follow the markets as they further develop in coming months and ride on the turbu-lences of the information voids as well as the market adjustments.

SGMT is a systematic FX trading strategy, so it might be useful to compare our returns to our peers and similar competitors. The BTOP index is an index of other foreign exchange managers as provided by BarclayHedge.com. The following table shows the SGMT Capital vertical comparison statistics to the BTOP index components sourced from barclayhedge.com.

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