tirsdag den 4. marts 2008

Where is the recession in commodities?

A much smarter hedge fund manager, and a true friend, from New York, in early January told me: "the issue this year is that no one wants to include the big black hole called recession into there investment outlook".

He was so right, and probably more than we both realised at the time, as this market continues to fail to embrace a recession, the more it goes down. Few managers have been around long enough to understand the true implications of recession on investments decisions, sure everyone, even Bernanke is an expert on Japan deflation/recession, but as all Americans tells me: we are different!

Sure you are, more indebted for one thing, and probably less realistic.

US dollar FX fwd fwd rates are moving higher again, as they did in August and November 2007, some of it to do with SIV's refunding, some of it to do with quarter end funding, and Japanese fiscal year end (End of March)

It seems the Japanese investors/banks rather keep the money at Bank of Japan, than lend it out to the American consumer and banks alike! This is critical sign of more stress coming. Whether you like it or not, the Japanese recycling of savings is one of the most important fuels in this market.

Right now it reminds me of the car free sundays we had in Denmark in the 1970s during the last major energy crisis. I love those days as a very young man!

The 1970s is coming back - back then it was; Big government, central banks thinking slower growth would curtail inflation, and this is going to be like the roaring 1960s - seems to remind me of text being preached by the teacher from Princeton aka Bernanke.

Someone had the nerve to ask me what would you in a situation like this? I was surprised for several reasons; normally no one in their right mind would ask me for advice, secondly this coming from market professional was shock, but.....nervously I said:

So here comes;

Raise rates - the US dollar is cheap enough, now it needs to stabilise and foreigners need some sort of guarantee that the US administration is NOT going to continue the useless Bernanke policy of talking down the US dollar. No one can devalue themselves out of trouble, not even the Chinese!

Let the banks fail. There are way too many banks in the world - make sure the SUPPLY of homes stops by making them obsolete and cheap enough to raise interest.

Open US borders again for H1B1 visa instead of closing down for smart people.

Make sure Bernanke goes back to Princeton.

That's just for startes, in the meantime think about US real rates are negative 150 bps! Bernanke is close to reaching ZERO interest rates what happens then? What's his plan?

Well enough on the good old BB - strategywise we are:

Short the US dollar, although looking to scale down if we get blip to 1.5300 ish
Long JPY
Long T-bonds calls out-of-the-money
Long 80 Aug. put in Crude (new position as of today)

We closed short S&P and DAX position today, but looking for break of 1310-1300 to confirm 5th down wave in place - still in hit-and-run-mode although the negatives seems to rule for now.

Goood luck


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