torsdag den 2. august 2007

Back from the cold...

Had my first three week holiday in my working life! Boy did I enjoy it! Despite being the coldest summer ever I had a relaxing time, but.... to the work at hand: The market.....

Mortgage impacting the rest of world it seems. I was, and still is, somewhat of the opinion that US is in a decoupling mode with the rest of the world. This argument ignores the often cited argument of the US being carrier of all good and bad in the financial markets, but as stated before in growth terms, the US impact is small and getting smaller, but..... the issue here is the SUPERSIZED LEVERAGE of the world, pretty much all of it originates from the US.

It is the US consumer and hit "friends" at the US investment banks, who have engineered a whole new financial structure and in the process taking the already overextended american Joe Six Pack away from ANY financial responsibility.

The US credit bubble was and still is the "Tulip mania" of this century, but that's old news....

My take is this is going to be slow and tidious process. Every time we get positive on the markets some news will hit the frontpages. Right now NO ONE in their right mind wants to be part of the leverage game of private equity funding and other risky projects where FUNDING is an issue.

Several European banks are clearly only lending to core clients and NOT looking to be part of any consortiums.

The usual end user/investor of credit, the Asset Managers of the world, got more than enough issues with explaining why their VaR and marked-to-market numbers are jumping around 25% per day!

So.... the positive credit cycle is could reignite but to do this the banks needs to reopen their credit lines which I believe is unlikely, with their own stocks trading at junk bond spreads.

Think about this:

The outstanding mortgage mess is approximately 750 bln. USD, the total value of the US banks is approximately 835 bln. USD. A kind of low ratio even though US banks are not alone in investing and obvisouly do not carry all of this on their books, but ultimately the US banks are fast becoming the biggest real estate investors in the private sector by virtue of their own greed in facilitating mortgages which should never has been used by the average American.

Everone I talk to, the ones much smarter than me, sees more of this coming. I remain focused on the SWF whom are puttting in more and more of their funds into the equity markets in order to increase their weight for stocks.

On the economy it seems more and more clear to me that the US economy is heading for trouble, the consumer added a negative 0.8% to the economy in Q2 and it looks like 1,5% growth for us in H2 so..... fixed income is looking more and more positive to me... and inflation....? Still there at least if you are consumer paying for food and energy, it is NOT there in terms of core-inflation but at a time where the US consumer is under attack;

1. His home value tanking and fast
2. His running cost in terms of interest rate, food and energy exploding...
3. His stock investments..... starting to trouble???

For now #1+2 is done deal, on #3 is more open question but there are signs which looks more and more like 1998, where Russia went bankrupt and so did LTCM.

Read interesting definion of difference between history and economics yesterday, while reading about JM Keynes. The study of history premise being every event is unique. The premise of economics: That historic events are repetitive. Quit interesting with the truth probably being somewhere in between.

2007 credit bubble is not 1998 but the end result has bigger and bigger probability of being similar.


Long JPY, short USD, short DAX..... looking to short EURCHF, GBP, buy US FI, sell Copper.

Good luck,


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