tirsdag den 9. september 2008

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.

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.
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

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