tirsdag den 24. april 2007

Destruction of Capital !

Well, nothing much changed since my last blog, expect for me being down 100 bps for the month! There are a number of reasons to be on the alert the next few days:
  • Bank of England goes in front of the Parliament to explain why inflation exceeded 3 pct. What a fr....... joke!

  • Spanish property stocks are not only falling but in almost free-fall this morning and unlike market commentaries that's nothing new.....

  • The market have changed again! Gone is the US data focus, no one believes in the US data anyway but more importantly everyone with non-American passport is watching China and Japan for next move. The US centric financial markets is about to be gone! The King is dead, long live the new King

  • Watch for 'positive' surprise in GDP from the US on Friday

Bank of England is coming to Parliament with the tail between their legs as they have exceeded the 2.0 plus 1.0 pct error margin on inflation. What a sad day for my beloved UK. Let me ask you: When in history has involving politicians in monetary matters ever been successful? The clear lesson of history, the less you involve politicians the better it goes for the economy.

That used to be the tenant for the US until 9-11 since... the US has become a better version of the old Soviet. Central planning, no room for foreigners, no room for freedom. It's sad as the US is still my favourite place and where I count my most friends (which honestly does not say much with my social skills! :-)

Point with the UK. Bank of England will now be forced to hike rates 25 bps even 50 bps on their next meeting at a time where they should be standing aside, the growth cycle is almost certainly pass it peak, but being 'behind the curve' will force Bank of England to move counter on monetary policy to cyclical peak in growth! Nice set-up. Years of hard work lost on the grounds of being too defensive.

The lesson here: Central bank underestimates the inflation by tweaking it 100 different ways to fit their political games. Fact: The strong GBP has kept the inflation more in check than expected and hence soon when GBP starts to fall then inflation will go even higher. Please say hallo to our new 'friend' the vicious circle of ever higher inflation based on monetary mistakes of BOE, Fed, BOJ and others.

Spanish property prices in free fall? I will never ever claim to be expert of anything, let alone Spanish property prices, but to think today's sell-off is random would be to complacent.

Madrid Real Estate Index (Click on chart to get full picture)

Spanish real-estate starting selling of with the late February sell-off. It never recovered and shows that even markets where all the good reasons for continued growth are in place: demographics (Europeans wants sun and water when old), cheap funding (ready available funding at almost historic low rates), infrastructure etc..... the story does end at the extremes.....

Could this have ramification into other markets? The optimist will state this is isolated to Spain, but one thing a long life, too long, in trading taught me; at extremes EVERYTHING is correlated, if you do not believe me read about LTCM (which by the way also got saved on central bank mistake!)

The hegemonic power of the US is gone? On my recent visit to New York I came back confused. Let me for the record state that: 1. I lived in New York 2. I am biggest fan of the US, but......gone is the drive, gone is the aggressive intellectual searching for better ways. Its placements? Compliance, anti-business legislation, and lack of understanding of the new financial orders. Yes, the US companies making record earnings, but are they investing in new business? Are they building new capacities? No, they do buy-backs, some M&A business, all financial transactions.

Inflow to US mutual funds who invest in US stocks had NET-outflow last year, funds investing overseas had NET-inflow! The fund managers of the world now more concerned about China's reaction to over-heating Chinese economy than to US data (which is anyway manipulated). The rising sun of Japan could become real surprise later this week if BOJ's monthly report indicates stronger consumer demand.....

In other words, the timezone to watch for direction is now early European morning when Shanghai and Asia closes - that's our lead indicators. Learn it or lose money like me!

Strategic views

I have been adding risk for reversal of carry trading to my portfolio over the last 3-4 trading days:

FX: Long JPY vs USD and EUR, long GBP put USD call x. 1.9700 (done today), Long NOK vs EUR (stop close by)..

FI: Took of 2-10 spread with small profit. Tried short 10y with small loss, now neutral, but bought some Bund Calls for surprise....ticket..

EQ: Short DAX from yday - tight stop.

Commodities: short Crude and long Wheat.

Good luck,


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