Montague Gains In Nov., Blames Hedge Funds For Artificial Rallies

Dec 11 2006 | 2:28pm ET

Englewood, Colorado-based Montague Financial’s P100 and P50 programs were up 0.8% and 8.96%, respectively in November, bringing their year-to-date returns to -28.16% and -5.24%.

Montague’s founder Pascal Guessas wrote in his monthly letter to investors that the P50 and P100 programs started the month “really well with a good rate of return the first couple of weeks.” However, both programs “got wiped out the last five days of trading,” which considerably reduced their returns.  In his view, hedge fund managers were the main culprits of the market’s “artificial liquidity.”

“We had the last few days of November a succession of abysmal numbers such as Chicago manufacturing PMI and the following day the National ISM manufacturing numbers,” said Guessas. “Both numbers printed below 50 although expected above 50… Nothing unusual or surprising with that, however each of these days within the last 45 minutes of trading the markets started shooting up triggering the short to run for cover. This, in turn, had a snowball effect and markets rallied above prices before the release of the numbers.”
“Hedge funds managers have started this move in August, they control over $1 trillion worth of assets, they are paid bonuses based on performance and they are about to get a big fat check at year end,” stated Guessas. “It does not matter how bad the economic numbers come out as, on that day, they will wait and get in within the last hour with large orders, which in turn trigger short covering resulting in a rally that shouldn't be.”

Both P50 and P100 programs trade stock index futures including but not limited to the S&P, the NASDAQ composite index. They also trade the Russell index futures and financial and currency futures on domestic exchanges. The P100 and P50 programs charge fees of 1.5/25 with a $100,000 minimum investment requirement for P100 and a $50,000 requirement for P50.

Montague Financial is managing some $4.2 million in assets as of the end of November.

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