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..

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