torsdag den 15. november 2007

Carry basket to change?

Full report later or tomorrow, but here is an interesting note on something I gor inspired on from HSBC;

he below is 1 month deposit rates in the different currencies ranked from low yield to high yield. Most G-10 generic carry basket takes three lowest yields versus the three highest, as the below shows, there has been some recent changes, and one likely one pretty soon.

Curr yield

JPY 0.605
CHF 2.075
EUR 4.12

SEK now higher 1 mth deposit than EUR!!!!

SEK 4.22
USD 4.645
CAD 4.65
NOK 5.193

GBP is only one cut away from leaving long basket!!!

GBP 5.875
AUD 6.615
NZD 8.295

Last time EUR was funding currency was funny enough, yes... year 2000, the low of the EUR value. HSBC has shown that being in or out of basket does explain
over- underperformance over time... Rgds Steen

tirsdag den 6. november 2007

For all the write-downs, this is the reaction?

I am beginning to get fed up with my sales people "feeding" me one sub-prime story after the other. I understand they are merely trying to do their best, but they are hit by "home bias". The fact we rarely are able to put perspective on too much data when it deals with something close to us.

I often find people who should be expert on their own country, or stock, tend to over-analyse the situation ending up with a negative bias.

As for the banks sales people, they are tired of the outlook for their bonus' being cut due to lousy business models and lack of risk control. The American banks being the worst, and US investment banks the pit of the pits.

I must also admit my good friends in the investment banks have been able to keep myself in the "dark corner". I have listen, I am positioned, and I have done my research, but... what the investment banks and certainly the media forget is that for the deficiencies of the investment banks, the CORPORATES are full of cash, so much that dividends and buy-back programs are on full speed ahead -

The private equity guys are full of cash, but having to reload their model, as 25% cash down is a little to cheap for the banks, so they will regenerate by doing smaller and more capitalised buying, and finally my good friends in SWF will ALWAYS be willing to listen to new investments, in particular if its NONE US dollar, equity-or commodity related.

Yes, Dr. Watson, it is that elementary. To asses the picture you nedd ALL the information, as important as the bank are, the corporate are the NERVE of the system presently.

I will have to admit that the darker sides ofme are seriously concerned about the day the consumers UNITE and stops spending money, but looking at brands like Puma, BMW reporting this morning, it AINT happening right now, as their numbers continue to perform on the upside.

I guess the good news overall here is; The exodus of good traders and managers from the banks have left, the banking industry with extremely weak top management, look how hard it is to find someone who will run Merrill or Citigroup!, and have put the hedge fund industry in place as the REAL bankers of the 21st century.

That's good news as banks should facilitate not take risk - the new banking model will be one of simplicity unlike the present status of the BoA, Citigroup and Barclays today.

On to the markets;

There are two very likely new developments in the markets which needs to be confirmed but let me take a stap at it>

Fixed Income, the US 2-10 continues to rise, now trading 66 bps, indicating the world is joining me in being concerned about the reflation of the US economy. It also seems that the almost perfect mean-reversion in 10y yield continues to unfold as nice little sinus- function.

If I am right we should move towards 4.7000 yield inside the next 1 to 1.5 month. How could can I think the US yield is going up when media is talking about further cuts?

Well, I think the concern of the weak US dollar is beginning to dawn on even the crazy Central Bankers, I would not be surprised in Bernanke, the central bank, not the alias for the US dollar, begins taking back some of the downside concern.

The Fed is clearly trying to please the market but setting a rate which will continue status qou. That's a discipline he learned from the tosser Greenspan, but what we really need is a dose of Volcker. To earn credibility not only with Wall Street, but with central bankers and investors a like, they should RAISE rates, making the US dollar more attractive as portfolio currency and securing that long-term rates in the US remain in "range" rather than drift between RECESSION and INFLATION.

My point being, the market now will have to change theme to INFLATION. The CPI exl and incl. all the crap they play with means nothing. Gold is at 27 year high, Crude at all time high, food prices continues higher, so much that Mexico's Central banker claims he can not control his inflation due to food prices going up!

China owns the key to the future financial path;

If... they continue to support their currency being "weak" the spill over into the domestic economy will be one of HYPER INFLATION ultimately. The can control the prices and the reporting of those, but keeping a current account surplus in the size they do its a NEGATIVE unless the currency is allowed to appreciate.

So the only way to "safe" this semi Ponzi scheme of bartering, will be for one off Chinese revaluation, which will make the transition period longer.....

Simply put; Gold, crude, commodities, the US dollar is telling me and the US Fed that, either you increase the ATTRACTIVENESS of owning US dollar NOW or we will devalue you into the ground ( i.e REAL US dollar crisis).

The 1st reaction before final collapse of the US dollar must be the market taking the long-end of the US higher, based on inflation and weak US dollar. Hence my surprisingly negative view on 10y notes (prices)....

We are positioned through big 109.50 and 110.50 puts....

The equity market on the other hand, needs one of two days of consolidation, above these levels< 1510 for S&P and 7.859 for DAX. If they manage that I see final 5th wave blow off, as the market is postioned for CRISIS and negative year end.

The earnings have come in better than expected, the write down bigger than expected, but if Citibanks writing of 4, 10, 14, 20 bln. can not get this market into negative what can then?

I think there is growing believe that the US is not as bad as market fears, and also remember, the 1st almost the most difficult (Yes, it is, for everything in life!! ;-)) 2nd time we adopt quicker and better as we got reference frame.

I know I risk looking like the idiot I am but going out talking about major move in November and December, but I have spend considerable time on this and in the end, compounding the divind yield, the buy backs, the SWF's and the corporate and prviate equity people being FULL of cash, the market is not ready yet.... WHEN and that's when unemployment start to rise, you got your signal.....


Short 10 y notes.
Long GBP p USD c, 2 weeks
Long Dax
Long DBA (Agriculture ETF)
Long 2/10 US

Performance> still -185 bps since 1st draft.. getting no where.

Good luck and.... be careful out there..

mandag den 5. november 2007

If even super models shun the US dollar then...??

If even Supermodels are fading the US dollar then something is about to
change.... :-)

This week could be interesting because there is actually some key events and data; I am keeping firm eye on US trade, I expect massive improvement based on freight data....Non ISM today also interesting...bottom line; I m turning my main themes towards INFLATION, yes inflation:

If we use Phildelphia Feds Survey as gauge the inflation is rising and fast..... add to this gold + crude and something got to give...

Bernanke speaks on Thursday, and as dumb a.. as he is, even he has to understand that DEVALUING the US dollar endlessly will distort faith in US financial system, we are in my opinion on the EDGE of MAJOR US dollar crisis - I believe even the central banks starting to realise this when Dubai cant get workers due to peg vs US dollar, when China decides to STOP implementation of domestic Chinese investing into HK, when India needs to let their currency strengthen....

The bottom line; This Ponzi scheme is dependent on China stance on their currency, if they maintain weak Yuan we will hape hyperinflation in China & Asia, if they let currency go, there will be "wash out" of equity investors.... but a revaluation of Yuan ONLY way to keep the game going.. but as always mere Farmers son... steen

fredag den 2. november 2007

A little more confusing action post Non-farm?

Well, the numbers came in better than expected +166 k with revisions being minimal......!.. The reaction is slightly surprising it seems the market is now TOTALLY focused on financial system being at risk again. Some meaker report from Canafa broker on Citigroup got everyone to dump the market or is it merely time for a correction?

It is tough there are a number of reasons why this market should be ok:

1. Sovereign Wealth Fund buying below in every dip. The portfolio shift from fixed income to equity is work in progress.
2. Valuation, hmm.. everything is relative, but with 100% guarantee that Fed will cut rates at any sign of trouble it is highly likely the Ponzi scheme will continue.
3. Seasonals. November-December normally makes for excellent return in stock market, however as this past October showed, history is no predictor.

On then negative side:

1. High overvaluations in the 25% of the stocks in the NASDAQ which consitutes 75% of all trading volume.
2. Technincal pattern - there is clear break-down here in German Dax index. IF we close below 7.859-00 my model is short 1 unit.
3. An overdependence on Fed coming to the rescue. God forbid they actually own up to their responsibility and stay away from "directing" the markets.

I am none committed on the equity side - but letting the models take the positions.... The US dollar no one seems to be short based on todays action... Fixed income I hope Fed cuts otherwise these low rates appeals to shorting...

Overall, very small risk, and running smaller than normal allocation per trade, as we need better signal generation.....

On the positions side:

EURUSD - we tried short EURUSD on the numbers as there is major divergence on the daily chart above the top... seems we were joining the wrong crowd as we were stopped out inside 5 min of taking the position at the new high...

EURSEK - Bought EURSEK. The move is properbly more technical than fundmental, but note how the Swedish stock index being lagging the STOXX50 recently, seems that underperformance is taking its fight to the FX cross. We are long from 9.2620, w. 1 ATR stop on the position.

EURNOK - Norges Bank is getting fed up with the strong NOK. The economy still amazingly strong, but we have broken some significant levels, and the strength of the NOK will work its way as monetary tightning shortly - we are long 7.8420, w. 1 ATR stop on the position for now.

DAX - Short 7.863 -00 on our initial posiiton, we need close below 7.859-00 tonight to keep the position, but not a full conviction trade.

USDNOK - Long 7.6000 USD c NOK p - its pretty much the same trade as EURNOK, but USDNOK is trading a extreme low levels, I may be early on this but...5.35/5.40 now versus 6.4000 in the beginning of the year!!!! Clearly USD weakness part of it, but....

Long 109.50 10y Notes puts December - ouch, this one hurts thought I would have support from numbers but little did it help....The position is based on, so far, profitable trading of the mean-reversion of the 10y rate, which follows close to Sinus function, maybe this time its wrong, but still plenty of time.... Everything the Fed does is inflationary, but as of today markets seems more focused on recession than inflation!!!

Results: - 161 bps since I restarted log.

Nice week-end

Full steam ahead for next weeks logs.