tirsdag den 2. september 2008

"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



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,


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