CTA Hurt By Subprime Meltdown

Sep 10 2007 | 1:59pm ET

The subprime debacle is making its presence felt not only on Wall Street, but in the heartland as well. Lincoln, Neb.-based DEC Capital, a commodity trading advisor, suffered a 12.4% drawdown last month in its $18 million Commodity Alternatives program, leaving it down 2.32% year-to-date.

The agricultural futures trader cited problems in the housing and credit markets and implied volatility affecting its positions in soybeans futures. “August was another volatile month for traditional investments,” said the firm, in its latest monthly investor letter. 

“The problems in the housing and credit markets are well documented, with some worried that this is a tipping point for the U.S. economy. DEC's portfolio was affected by these outside developments—the subprime Wall Street volatility adversely affected our core length in soybeans futures and an expansion in implied volatility hurt our option premium positions.”

The firm also said favorable weather conditions coupled with “very efficient production of U.S. growers” and heightened biofuel demand for corn adversely affected its forecast for soybeans and feed grain. “DEC had built up an inter-market Kansas City vs. Chicago wheat strategy, but heightened volatility pushed it outside of DEC's risk parameters, which forced us to close it out at a loss.”


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The U.S. Commodity Futures Trading Commission (CFTC) ordered The Goldman Sachs Group Inc., and Goldman, Sachs & Co. to pay a $120 million penalty for attempted manipulation and false reporting of ISDAFIX Benchmark Rates, a global benchmark for interest rate products.