The Chinese use two brush strokes to write the word 'crisis

The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger - but recognize the opportunity. John F. Kennedy




This morning CRISIS version 1.0 hit european newspapers and media - for the first time every single media got SPECIAL EDITION on the crisis -
I find that somewhat positive as they so far have been talking about this AS IF... the crisis comes...

Second observation; what u dont die from you get stronger from?

The fact the market didnt total collapse this am in europe is good sign, same as asia... is there temp. lows in S&P in ?

Clearly the big losers are Paulson, Bush, and Washington, but cud the winner be "capitalisme" and the markets... ? I think so.. the plan would have been disaster.....


Other news:

• Ireland guarantees ALL bank deposits - wow, thats interesting.....
• Danish Nationalbank except all forms of collateral including old bicycles(i.e: non-traded stocks)
• O/N USD rates in 8-10% as we have turn money (September into October) - showing not enough collateral in the system for some of the banks.....
• This will be one of the worst month on record for hedge funds - we expect redemptions to exceed 10% of AUM at least , i.e more than 200 bln. US Dollars....

Strategy

We are trying to defend an excellent month by taking very small risk into the month-end - our primary focus has been stocks this month, next chapter in this story could very well the major move in the US dollar. Which way? Still unclear, the path of least resistance should be weaker US dollar based on their extreme need for funding from overseas, but for now it seems there is considerable repatriation going on from US based investors away from EMG back into the US, but to me this is merely matter of time, but tide is turning.

The issue as my good friend Lars keeps pointing out; the EUR is major disaster in every aspect, economically, cyclically, and policy-wise. Trichet will once again be forced to move away from his dogmatic views and into the REAL WORLD, as the Eruopean banks are collapsing one-by-one.

Left? CHF and JPY, I guess, if anyone can tell me what the Japanese investors will do the next three month, having savings exceeeding ALL THE SWF-funds in the world, I will tell you where the JPY (and US dollar goes)... keep me posted.

Moving into Q4 we could have potential for big positive return if the policy makers can stay away......Mind you the starting is low - the real deal though will be whether or not the REAL NEEDY, the US consumer with mortgages gets help or not - with the failure of the deal yesterday we are one step closer to proper solution - maybe?

Positions

Small long S&P from this morning, short T-bonds, long front-end US rates, long CHF vs GBP & EUR...

Good luck, and be safe

Tip of the Iceberg.....

Wikipedia on Iceberg:

Because the density of pure ice is about 920 kg/m³, and that of sea water about 1025 kg/m³, typically only one-tenth of the volume of an iceberg is above water. The shape of the remainder under the water can be difficult to surmise from looking at what is visible above the surface. This has led to the expression "tip of the iceberg", generally applied to a problem or difficulty, meaning that the visible trouble is only a small manifestation of a larger problem.


Listen that is the problem right now! Before Lehman went broke no one could even see the Iceberg on the horizon! Now everyone sees it, but very few are willing to acknowledge the fact what they see is only 10 pct of the real issue!

Lehman Senior Debt trades @ 12 cents on the US dollar from 95 cents! The only way it could happen would be fraud? Would it not? I am afraid anyone expecting money back from Lehman is going to have a hard time - but the issue with Lehman and why it still "plays" as a problem is the legal- and regulatory issues which Lehman showed the world.

Your Prime broker deal has no segregation of funds(unless you ask for it), investment banking as a supermarket model has died to be replaced by boutique-like-advice shops, there is no legal precedence on 80% of all issues related to Bear Stearn's and Lehman, the recovery rates used for modelling impact is clearly too low (again Leh senior debt pretty much worthless shows this!)... want me to go on ?

This is before we talk about European banks and their total lack of transparency! I am no longer allowed to mention names but there are major UK banks who are "hopers" - going to church on the week-end praying market will be up on the Monday!

The ECB changes of hair-cut on collateral will start off in February - ouch for Spanish, Italien and Portuguese banks , but bite me if this is not going to be changed before implemented.

If you have not noticed;..... the authorities and central banks have declared WAR on the banking crisis, even the stupid politicians seems to understand this ........changing the odds slightly away from short stocks, long fixed income towards long stocks and cash...

I am still 80% long cash - but as stated I have now net long exposure - mind you I will change inside one nano-second if the deal fails, but for now, the risk reward for being old, grumpy and shouting not worth it.

On a personal note today was not a day to remember...despite this I wish everyone a safe and nice week-end.

Steen

When it is time, it is time....

There is 90 pct chance the plan will be approved today or tomorrow.

The plan is still inconsistent and non-transperent but......I have covered all my short yesterday around 1185-1190 and increased my short US dollar position.

I see Q4 rally based on shortage in stocks - sell ban/long cash and oversupply in bonds....the 'price' will be paid in early 2009 where the mix of the plan, a new president, 8 pct yield will kill growth and margins.

Long t-bonds put, short us dollars vs euro, short eurchf......buying small upside stocks today.....biggest move could be long-end treasuries....

I am in Dublin Ireland so short note this morning;

I will finish with great qoute from marc faber(thkx jacob);

Investment analyst and entrepreneur Dr. Marc Faber concluded his monthly bulletin (June 2008) with the Following:

''The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala.
If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy.
The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part.'

Good day,
Steen

Definition of idiot: A person without learning; an ignorant; uneducated man; a simple man; a clown (Webster dictionary)

I think in these time where the US turns into a Socialist state - In a time where the public at large is being lied to again and again and again - In time of total distress we need to look at who we should trust or not - Paulson called upon us to 'trust him' ... being a simple guy I like to look at persons integrity and intellect before commiting my and other hard-earned tax money;

The following was sent to by a friend.. I think it will "let the picture stand.." as they say in TV....

Paulson on crisis et al:

April 2007
"I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained"

May 2007
"We think it is near the bottom. It will take a while to work its way through the system. Fortunately for us, we have a very diverse, healthy economy. There are other things that are positive that are offsetting that.

…So my very strong view is that we are near the bottom and that this will be contained as — the housing will be contained, and we're fortunate that we have a diverse, healthy economy."

August 2007

"There's a wake-up call, and there's an adjustment to this repricing of risk, but I see the underlying economy as being very healthy,"
Paulson added that he did not see anything that caused him to reconsider his view that the economic damage from the housing correction was "largely contained," despite losses in a number of financial institutions and a long period for subprime issues to move through the economy.

Oct 2007
"I have no interest in bailing out lenders or property speculators."
" I can't think of any situation where the backdrop of the global economy was as healthy as it is today,"

May 2008
"'The worst is likely to be behind us,' Paulson told the paper, in one of the most optimistic comments by a top U.S. finance official since sub-prime mortgage losses set a domino effect in motion in mid 2007.
Paulson said it would take 'some months longer' for the situation to stabilize and cautioned there would likely be further 'bumps along the road'.

http://tinyurl.com/4pekqo

Liar, Liar.....

I shall keep it short as I am onroute to beautiful Dublin and then my London office, but here is my internal note from this morning as always remain "defensively aggresive"...

The financial landscape is being reshaped almost daily, but there is a few "knowns" from here forward:

The conversion of GS & MS to banks means their leverage will be reduced from 40-50 to 1 to 10 to 1. This is major LIQUIDITY ISSUE, as most hedge funds use Investment banks for prime brokerage. This forces the leverage down for hedge funds - first derivative being excess volatility as seen lately in t-bonds, crude and eurusd. Long-term it will decimate the "population" of hedge fund AND their return (less leverage - less ability to outperform)

CDS market is in total disarray - relevant? Absolutely - this is a 70 trillion US Dollar market according to BIS - there are NO RULES, and all CDS will have to be closed with issuer (Imagine where the bids are for closing out? Guess? Real bid minus 50%?) ---- this has extreme issue on ALL MAJOR BANKS in the world. If Mark-to-Market on those bids it will erode capital reserves(if any left) even further - solvency still major issue for financials

The 1987 crash happened mainly due to illiquidity in hedging (among other things the program trading..) - we have signs the CDS market could take us close to the brink, most likely around Mid-Oct..

My sources expect at least 10% redemptions from hedge funds (main index down > 5% this month alone) --- equal to 200 bln. US Dollar.. IF this happens we will see more selling of in US dollars, EMG, stocks........

The week-end plan takes US' Debt-to-GDP Italy's level - and its VERY likely US Government debt can trade below Corporate Debt (Yes, it has happened before in US history!)
I see 780 S&P - 8/10% US yield (next 18 month) --- US dollar will fall 25% from here (Note Singapore have publicly stated they will stop investment in overseas market and invest more in Asia - as per my note from Singapore)

There is major liquidity crisis in many money markets - the Swedish money market almost at standstill this morning.......

Most credit, swap and CDS spreads back to at or above pre-plan level - not good sign.....
Biggest risk now: is serious recession and that retail investors have finally realise the havoc caused.

All in all - there was plenty of "hope" but as least so far it has not helped the market......

I am officially advising being "defensively aggresive" - scaling positions to volatility, and from risk point of view, we need to keep alertness especially on spill-over effects from CDS and money-markets. The biggest risk remains in my opinion illiquidity of forward swap as single risk - but so far... everything ok there... relatively..

Best wishes,

Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com


Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.

Please read our full disclaimer.

Goodbye my lover...... http://www.youtube.com/watch?v=wVyggTKDcOE

Yes, this is the end of the capitalist system as we knew it, yes it is the end of levels playing fields, yes it is the introduction of the Socialisme .... We won so much, we lost!

This weekends plan is the financial equivalent of Homeland Security Act - and Fed is the Guantanamo - a place where there is no law - no respect for human interest:

Link on code of law :

http://online.wsj.com/article/SB122204156493561237.html?mod=googlenews_wsj
http://seekingalpha.com/article/96573-the-bailout-is-no-less-than-a-threat-to-the-rule-of-law

I am on TEMPORARY buying strike for all US assets. I will not/can not buy any asset from country with no code of law - The US has joined Russia on my list of countries I can not go long.

From 10.000 feet this plan:

Helps the financial institution by virtue of a plan so big its makes the Marshall plan look small - that's the back-stop for financials ...for now

Solvency still the issue at large - I do not believe you get better solvency by introducing measures which is normally safed for war-times - on contraire!

Quit a few countries has issue "threaths" to shut up or ..... --- my own compliance department already been here once this morning, but... let me say this: If there EVER was a time to write/speak and protest against what happens it's now!

This helps the wrong people - AGAIN - the croonies of Wall Street and London City gets help - where is the help for airlines industry, the car industry? There are still 4.5 mio. unsold homes - and with the US issuing unsellable debt which will take long-term US yields to 10% I do not see relief on the horizon.

Short selling ban ? What a joke! Read this 1929 Editorial from *New York Times: http://bigpicture.typepad.com/comments/2008/09/short-selling-o.html

The next phase is the real economy effects. I am afraid the private investor will use any rally to sell his stock portfolio (note: I certainly think he should) - and now me and my friends in the hedge fund industry will not be the bid - so expect extreme illiqudity and no bids for the poor private investors.

Be long gold, chf, jpy, crude(maybe?), cds on us assets, SHORT US dollar, short US debt(10% is coming to Theathre near you)

We were lucky to cover all shorts Thursday - on Friday we re-established 25% of max short US stocks, we bought CHF, and EUR..... we will sell US Teasuries today, buy gold and await transperency - we are on de facto buying strike - we can not go long ANY US assets for this month and next......we are 85% long cash - rest is used in NEGATIVE option plays.

Let me end by once again saying: I am no predictive powers, I hope I am totally wrong, that I am too negative, but anyone who have spent five minutes reading Thomas Kuhn's; The Structure of Scientific Revolutions (http://en.wikipedia.org/wiki/Paradigm) - knows and identifies this a true PARADIGM SHIFT. When you take this fact to the next level, it becomes a utterly dire outlook.

Finally, spend 20 minutes on this interview and learn something:

http://www.pbs.org/moyers/journal/09192008/watch2.htmlLink to prediction: http://www.prospect.org/cs/articles?article=bubble_and_bail

Be safe;


Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com/


Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.

Please read our full disclaimer.

URGENT - this is the best 20 min you can spend..

Dear Friends,

Promise me you will listen to this - someone who knows, understand AND predicted this week...
(thkx for link Jesper)

Critical interview w. someone who predicted this - and who have lived long enough to see this and... maybe worse...

http://www.pbs.org/moyers/journal/09192008/watch2.html


Link to prediction: http://www.prospect.org/cs/articles?article=bubble_and_bail

Illusion is the first of all pleasures. - Oscar Wilde

Dear Mr. Paulson,

You are not fooling me - you may fool the market but not me!

Take 100s of billions of"toxic waste"from private sector and move them into the public sector and you still got billisions of toxic waste.

Only difference is the debt is now financed by a currency upon it reads: "in God we trust" - ergo the only colleteral value is the blessing of God

Please do not issue Jihad or similar on me for talking about God - I admit I am a total ignorant in everything religious having grown up in the Land of Free Porn!)

The Resolution trust is one step forward - if - you want to spend tax payers money - certainly beat propping up US investment banks........but as they say in German: "aber dabei....."

- The mess left by Lehman going bankrupt is still being felt in the micro-world of PrimeBrokerage....

- There seems to be issues with margin payments across different counterparties..... everything is a mess. (No wonder with minimum two new GOVERNMENT bail-outs per day!)

- The Democrats will work for: plan which safeguard Main street from Wall Street.. (Pelosi)

Even this "hard" working fund manager is somewhat at loss keeping up with the breaking news, but apart from this being more dramatic than ERM crisis in 1992 - then at least we knew when Bank of England broke everything was going to be over....)..... -this crisis has so many dimensions that I must/should/could write a book about it.

At the centre of this book would be: Greed is good, too much greed is very bad.

Gordon Gekko was wrong in The Wall Street movie... Greed is not good in the Investment banking sense as it covers for unlimited upside bonus' with limited down-side (read ZERO) impact on the CEO and headless Powerpoint producing salespeople selling deep-out-the-money strategies for in-the-money prices.

I am now more than crisis fatique - I am constructively fed up - thinking about closing down (and for the record I am up on month and year)..... and come back when Paulson and the other Socialist' are done writing cheques which certainly will bounce next year.

My good friend Scott made me smile - and it's so accurate to:

*BN 12:29 *TREASURY SAYS PLAN TO GUARANTEE NICE WEATHER FOREVER
*BN 12:29 *U.S. TREASURY TO INSURE PERSONAL HAPPINESS
*BN 12:29 *TREASURY TO USE UP MY TAX MONEY

Strategy:

We went 98% cash yday - only keeping very small options in place.... today (despite Friday being amateur day) we again went short:

Cash 80%
Short stocks 10%
Short US dollar; Long EUR and CHF: 10%

Keep safe everyone - this is the worst market conditions I have EVER seen and for those of you who havent met me... I don't have a lot of hair.... on that cheery note:

Happy week-end

Steen

Reality is close by....

This very simple fund manager have noticed one major change in the last 48 hours which I will call significant: More and more people have started, finally, to realise this is serious crisis - probably the worst crisis in my years in the market. That's a positive, because if we engage on the issue instead of disengaging there is fair chance REALITY will kick in.

I personally think we are 1-7 days away from getting change to marked-to-market practise - It does not make a lot of sense, even on a good day, to take somethingwhich is not priced relative to its intrinsic value. Take a house - even if a mortgage trades @ 20 cents in the US dollar, you would expect the house to trade 40-60% of price in sale?

The biggest joke is Morgan Stanley recent reporting - they made pretty much all their money from having issued debt - as this debt goes down they book the profit - they issue @100 - market is now 80- hence 20% profit - but the only problems being .. to take this profit.. you need to go bankrupt! Welcome to the world of finance.

This fund manager have reduced his EXTREMELY negative portfolio to 10% of Friday's position. There could be bounce or not - there could be more Socialist ideas like banning ALL short-selling etc - (for the record if anyone thinks banning short-selling helps the market - they need to get their school money back!).....

I am now 85% cash - and awaiting Monday --- still small long upside EURUSD, small downside in S&P - (deep-in-the-money Puts)...... rest I leave for the market to figure out.

I have become "crisis fatique" - and if even my local business newspaper have realised something is rotten in the state of Denmark - I will step aside......

This does not mean I have become positive- it merely indicates that too many indicators are at 10 standard deviations -reflecting lack of transparency even for veteran trader like myself.

Stay safe.

Steen

The world biggest hedge fund the US of A - -renamed: Leverage Ponzi Inc.

Quick-comment this am:

Subject: This is getting worse than 1992 ERM crisis - distrust at new highs

This is getting worse than the 1992 ERM crisis - distrust at new highs... I expect EXTREME US Dollar yield in money market to be main issue into turn of the month..- yes even bigger than HBOS, Barclays and BoA getting nationalised!

The maximum pain in any financial system is the lack of funding - the banks no longer trust each other at all. Everyone is refusing to lend outside overnight - but EVERYONE is willing to give Fx forwards EURUSD ..taking in US Dollar deposits @ 5% and higher (in 3.25%).... this morning market is paying into 1 mos!!!!! (I cant say this enough - this is WORST part of this cycle)......
EURUSD Basis swaps... new high -- Chart 1

(Click on chart for bigger picture)

...having lowered my S&P to 770... I am MAXIMUM negative on stocks - keep 75% cash!

AIG bail-out 85 bln. ==> Price: 850 over LIBOR - nice one... so they will run out money SLOWLY instead of this week--- Idiots...

US biggest hedge fund now .. 900 bln. of toxic waste - chronology: Save Inv. bank, Save Mortgage Inst., Save insurance, next? Leasing? Soon Fed will accept used cars as colleteral.... US hedge fund will bear the name: Leveraged Ponzi Inc -

if this market not realising this is BIGGEST CRISIS since 1987 it never will.. Asia paying 25% of o/n US this morning...? Remember IEP o/n in 25.000% ?

Good luck Ladies and the few Gents ...

Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com


Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.

Please read our full disclaimer.

The end of the shadow banking system...as per Roubini

One of my favourite qoutes happens to be:... Remember I have no predictive powers - well it seems even I have it once in a while... Leh will soon be history - my good friends at Lehman sending me goodbye notes - I am sad to see these good people lose their jobs due to one of the most incompetent management teams in history. Too big too fail ----

Well moving on .. all night Fed, Paulson and their merrymen been busy telling us everything is fine.. but..

• AIG is next - asking for Fed help according to WSJ
• Consortium of banks (9 in all) will put forward 50 bln. to save their own ass
• Bank of America will be nationalised inside one year - why would you buy Merril stocks @ 25-28 USD, when they could have been bought for 13 or less in the market?

Whats next?

Fed cuts rates Tuesday - this could be the 2nd worst Monday in history - be warned....The SEC- useless as they are could reinstitute: uptick rule, no short selling.....The US is moving fast and furious towards: The Socialist State of America.

Friends - be extremely careful now - this is even for old hand like me unique circumstances - fortunes will be lost and made in the next 72 hrs - make sure you understand the game, please!

Strategy:

Still same: Long EUR/USD, JPY, short-end FI, short Dax and S&P- cash at 75%...

Links:

• AIG may seek help from Federal Reserve:http://tinyurl.com/5dxyug
• Consortium of global banks takes action to help: http://tinyurl.com/5zv38w


• Bank of America to buy Merrill: http://tinyurl.com/59eead


• Fed widens collerateral for loans: http://tinyurl.com/6rh564


• Paulson applauds action to aide market stability: http://tinyurl.com/5uurar

Again friends.... be careful out there... remember ending sentence from Hill Street Blues? If not.... http://tinyurl.com/6h93ak

Best wishes,

Steen

The US - the model plan economy - Russia must be jealous

In times like this with changing themes day-by-day I wil try do one daily "quick-and-dirty" thought process - I think this and next month will determine a lot:

Overall news:

Market rallied strong ahead of rumor of Boa buying Lehman yesterday - confirms there are two or three layers of information. Someone knows ahead of time each and single time.

The BoA/Leh is doomed to fail - if done - like Countrywide. CEO Lewis of BoA no longer than a few month ago announced to the world he was never going to touch investment banking again - and now he buys one of the most aggressive investment banks around ? Even at the rumored 3 US Dollars BoA is useless fit, but....

It clearly shows the US economy is now: A: Driven by Fed not the government B: a plan economy which leaves Russia and Libya nothing behind. 600 bln. US dollar is now on the FED book soon the whole of the US banking industry will be "owned" by a bunch of bureaucrats in Washington. Chairman Franks is dangerous person - he is UTTERLY clueless!

Hence I have "officially" lowered my S&P target from the soft 1100 to 700. This will be volatile up-and-down as seen last couple of weeks but as long as water doesnt run up wall this is doomed project - The best analogy I can come up with is:

It's quantum physics - 20% of population claims they understand or can talk about it - but really less than 1% of understands it - Finance is the same. My CNBC indicator is running high at 8.5/10 people talking absolute BS about Fed, the bail-out and showing so little understanding of the issues that is scares me.

We need one final leg down with desperation - similar to the one we see in Denmark presently in the happy-go-lucky real estate sector - let me say one thing in closing this: Justice prevails over time and as such keep cash portion high - buy optionality - the only four certainties in life remains: death, tax, stupid politicians and high volatility.

Markets:

Stocks:

S&P, DAX, Stoxx50: The CNBC crowd out in force all trying to find "break-up" in downtrends on banking, real estate and what do I know. I have one word: GRAVITY.
If anyone can spare me two minutes to explain how bailing out BS, LEH, and Freddie/Fannie (plus Washington Mutual this week-end) is good for the market - I will be all ears. It only
moves the risk from private sector to public sector - the risk and issues remains the same.

Again - call me when unsold homes is below 3 mio. - then we can start talking. Meanwhile my good friend Jesper sends me these two charts - makes you wonder does it not?

(Click on chart for bigger version)


Took of 40% of the downside plays yesterday around 1218 in S&P - reloading through selling cash @ 1252(Sep) now... tight stop.

Fixed Income

Waiting to set up long-term bearish trade - bottom line: US rates could go to 8% if not 10% when this market moves from fear to reality. Built-in is also major
change again to US dollar - We are setting up plays to see USD/CHF below 1.05 in 6 month time (one-touches).

Very long EDZ8 - Dec euro-dollar 9725... Fed is cutting soon - their balance sheet to getting to big for comfort......

FX

(Click on chart for bigger version)

Still long JPY - increased long EURUSD exposure yesterday below 1.4000 - the close from tech-point of view relatively positive - at least we got known "if wrong" stop pegged.


50% almost done - plus on RSI there is small divergence - (lower price action but not lower RSI)... Long one week 1.4200

Commodity:

Also tech. close to bottom- OPEC move will have an impact...

Nice week-end

Steen




Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com/


Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.

Please read our full disclaimer.

Leh: promises, promises ==> Fed will be busy this week-end AGAIN!

This was not what the market needed - Lehman makes promises they can not keep - here is prime example of a Management team who though they were Gods - Hubris !

It is a pitty - I got great friends and coverage from Lehman people - but the end game is near.

Paulson/Bernanke will be in the basement printing some more money this p.m

Be careful fellow investors, really careful..... Lehman CDS (Corporate Default Swaps):


LEH now @ 530 - yday: @ 475 : day b4 yday: @ 350

(Click on chart for bigger version)

The good, the bad, and the ugly....

The Good, the Bad and the Ugly was my title for a talk I gave this week-end in Marbella(Spain) - the title came back to me as I was thinking about the market right now (Thank you to all the kind people in Marbella - it was absolutely pleasure meeting you all!)

The good..news being that for the short-term the market, the patient, got a new medicin, although it was one no one would have wanted to see the patient get less than six month ago due to the strong side effects, but as the saying goes, it better to keep the patient alive than letting die.

There is chance of 3-5% move up (as stated yesterday) - the pro's look for 1320-30 ish in the S&P - I doubt this -

I always tell myself the market have adaptive functionality, meaning:

1st time they(Fed) surprised cut by 75 bps the market reaction was+6.5% .

The second time the Bear Stearns 4.3%

This time(Fannie Mae + Freddie Mac) reaction was 2.9%

It will last 2-5 days maximum. (Remember though: I have zero predictability!)

I also have to smile at the major league crap being televised on CNBC, mainly in their US section, one moron after the other goes on and tells me the housing market is done for now - Paulson is their hero, cyclical turn et al - and I do not know what else. Let me respond with one simple chart:

US Existing Home Sales Inventory

4.70 mio UNSOLD homes in the US - tell you what: Sell those 4.70 mio homes first, then tell me the market have stabilised!

The bad...news being that this is merely a pause, a pause in the ultimative end game of capital destruction ... re-reading Hyman Minsky - here is common sense combined with inteligence:

“In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance” -Hyman Minsky

The ugly news.. odds of A real disaster - like 700 in S&P has increased 10-fold. Why? The printing machine is running in amoc - The US is merely moving debt from one box to another - and in doing so they make the ultimate cost to US tax payers more direct and VISIBLE.

The later will become major political issue in the coming Presidential Campaign. The fact people like Bill-I-want-freeride- Gross has been able to push the worst Treasury Secretary in the history of the US around like this will have repurcussions: for Bill Gross, Paulson, but unfortunately to the financial market at large.

Soon, when the US public realise that Bill-bad-toupe-Gross is taking a free ride financed by the US tax payers - the end game of penalising speculators and free-enterprise will become front page. They do have point to!

Obama will leverage this to his use - note he has ZERO people from Wall Street in his advisory team. Ugly indeed - real ugly

Enough on this week-end incidents. The sport freaks among you will realise the picture on this web includes Bjarne Riis, Tour De France winner both as rider and as team owner of CSC Saxo Bank.

http://www.riis-cycling.com/

Let say this: I was, duely, impressed by Bjarne Riis results even before I met him and his Managing Director Trey Greenwood this weekend - but to meet them both and see how humble and serious they take their job was absolute pleasure for old calvanized sceptics like myself: Running Team CSC Saxo Bank is built upon attributes which could be any hedge funds:

Honesty, team work,hard work respect and communication. One thing is to proclaim it, but these two gentlemen left me with no doubt they lived it, provoked it and most importantly believe it.

I know soon to be Team Saxo Bank will contiune to do well with these two, but any team who can have the best team in the world without paying the top salaries, have the only privately approved anti-doping program, and win the Tour de France got something special. I guess Team Riis is really the young George Soros of cycling. He did it his way. Riis is doing it his way.

I wish there were more people like that in my industry - what we need now is a forest fire to clean out the under wood of sick plants and animals, then we need to install an anti-doping program(close the central banks and politicians down), which is ruled on the premise of allocation of capital to highest return. Gone are the free rider days of leverage, leverage and more leverage.

Ultimately this could be good, however this simple hedge fund manager lowered the odds of smooth recovery this weekend as my anti-friends Bernanke and Paulson worked their crap.

Strategy:

Running very simple strategy:

Cash: 65%

Long puts on: DAX, Stoxx50, S&P

Long JPY vs US dollar main - but also CHF.

Long short-end US - rate cut coming soon....

Been "burned" in oil, crude and pharma...but made mow on down-side..

September could end up being worst month this year.....it is now we will see who is The Good, The Bad and the Ugly.

Steen Jakobsen

The morally bankrupt US Government

I have short comments on the weekends bail-out; Now we got:

• Higher energy prices
• Higher food prices
• No credit creation in private sector...

and courtesy of US Government

• Much higher yields! T-bonds down close to two full points in Asia.

The US Government must clearly think we are idiots - the above cocktial should mean higher stock prices for sure - if you live in Fantasy-land!

I am only involved through options but this could be case of 3% up but week down 10%

Excellent link here: http://abnormalreturns.com/ (weekend link fest)

Good luck - the only guarantee for now is: Higher volatility.

Will give full report Tuesday - in transit back to office.

Steen

"Politics is Hollywood for the ugly" - Ronald Reagan

Finally we can get back to the markets - I tend not to like Hurricanes, political scandles, and other "front page news" which takes the focus away from the market - it tends to neutralise the gravity of the market for a while only to make the following move even more volatile.

I find it a joke that "the market" trades on crude oil prices- and the crude pit trade on the EURUSD - it merely states: No one has ANY conviction this part of the cycle.

The case for pro and con can be made with equal conviction in my opinion - but anyone arguing US is now over the worst should be taken out and SHOT right away - what a joke!

Real disposable income collapsing, lending tighther than... . and credit creation has all but stopped.

Whether Lehman gets safed or not is irrelevant - just as irrevalent as Lehman is as an institution. Tell me what Lehman did for improving your life?

Investment banks are dead - never to come back - hopefully the young aggressive people of today will realise this and get a real job - I certainly would not recommend anyone to enter this idiotic business of screwing your customers with fee-upon-fee structures.

Let me give you an example - A very good friend of mine put his trust in medium sized danish banks and their proclaimed expertise in wealth management - result: In a portfolio of 50%50% stock to bonds he managed to lose more than outright buying stocks for 100%!

Surprising ? No not at all, as he has like 250 different funds, paying entry fee, plus running costs for all of them - the fund manager must be happy..... I have NO FAITH in any banks - their primitive, cruel approach of let's get maximum fees from clients does not bode well for my return as customer.

The good news is that in the future there will similar structures to INDEX funds for wealth management - I have not found institution clever enough to do this yet, but it is coming...

Enough rambling on the uselessness of banks - the game has become more complicated but as I prepare to do presentation in Marbella in Spain this week-end let me you through my thinking;

1. Credit creation the real issue at hand - tighter lending standards, falling asset prices, and write down by banks has taken minimum 1 trillion US dollar away from the consumers.
2. The consumers is facing triple headwind: Falling disposable income (higher energy and food), worsening employment situation(going to 6.5%?), and less credit.
3. Corporations is facing less demand, higher input prices and increased regulation(environment, energy, and consumer protection)

Credit Creation (down) + Consumer demand(down) + Corporate profit ( Down) = ?

The easy thing would be to say recession/depression, but as all things in life it's matter of valuation - clearly the market is finally embracing the recession as theme - if it is priced in - then there is fair chance of better than expected outcome for us all, but if... market is merely embracing it in "writting" and not in practice we got issues -

What would be the signs the market clearly has prepared for the worse?

Lower commodity prices - Tick
Lower inflation expectations - hmm...not yet
Revision of earnings cycle - Tick for 2008 - but 2009 still very high, so no tick
Lower short-term yield - hm.... getting there but no....
Central banks taking the side of weaker growth rather than inflation - No tick
Government desperately trying to "reignite" the economy through incentives/tax cutes/fiscal spending - It's happening but not yet implemented

The final conclusion must be: Yes, we have move towards more realistic expectations - but there is still major gap between what people think and what they prepare for - this final leg could be what we are facing in September and October.

We continue to think September/October will dictate the year but also the next 2-3 years - if there is REAL efforts to stop to erosion of the housing market then there is fair chance - if FRD/FNM not nationalised - even bigger chance -

The policy of crisis management in the banking sector needs to move to one of looking forward - so far the best qoute comes from Chairman Franks, Democrate: "I dont want to comment on housing market as its really the media who fuel this crisis" - Ergo: If we stop talking about the issues then thinks will be ok ? What a joke - disgrace

http://www.cnbc.com/id/15840232?video=831708400&play=1


Strategy:

Long JPY, CHF - bought EUR c today 1.5015 ish - @ 1.4520 spot -
Long FI - bunds, Long December 2008
Equities - short DAX and S&P - vs long Pharm, defense stocks, water, solar.....
Commodities - small long Crude - Long Agriculture.

Good luck,

Steen