mandag den 20. oktober 2008

Prediction is very difficult, especially about the future. Niels Bohr

Prediction is very difficult, especially about the future.
Niels Bohr (1885 - 1962)

There is clearly now some established ranges in place in the S&P500 between 860 and 1060 on the downside, bias for me is still "south".

Right now I am watching my friend Drew Baptiste 987.00 level as key trigger for whether long or short, and remains with our negative bias meaning potential for minimum 767.00 based on the trading theme process moving from recession into depression.

I have said continuesly that the stock market performance for Q4-2008 and Q1-2009 will be based on the "perception" of either recession or depression. Despite my own bias towards recession, a severe one, it is more and more clear in the public domain and incoming economic data confirms that the worsening data is accelerating not stabilising.

The best point is our own internal model designed by our Chief Economist David Karsbøl, which measure key indicators. This model has been excellent in catching the trend of incoming data.

Saxo Bank Fundamental Index (Click to enlarge)

The conclusion:

For now we are moving into a "perceptional depression" from a fully priced recession - market impact is retest of low(potential for new lows) & much lower short-term interest rates.

In Europe, and in EURUSD I have become very negative short-term based on the increased pressure for much lower rates in ECB (& BOE).

I can not say I am fan of Kaletsky of The Times in London as he continues to act and speak like a person who uses history to explain the future, which is simply not do-able in my investment world: (

To remind you our three premises are:

  • Cost of funding - drives market and valuations

  • Price of liquidity new unknown (tax on money)

  • No prior analogy historically will work (because this is different, very different)

Despite this he has an interesting argument: If we assume UK has one of the most leverage economies in the world, then why does it not have the lowest interest rate?

His argument can be read and seen in the above link, but there is some truth in this and the investment outlook conclusion must be:.......Much lower front-end rates.

I hear you already, but it is already priced in! No! Not to the full "depression" extend: UK in 1.00%, USin 0.5 %, Australia in 1.00% etc, not possible? Sure it is, in a depression its all new rules, when you fight to survive as a country, a company and on a personal level. As President Reagan said: "A recession is when your neightbour lose his job, a depression is when you lose yours".

Unemployment rates across the world, will unfortunate rise to at least 1992 levels, and I remember being a young man coming out of a tube at Hammersmith Station in London in 1992, and hearing the newspaper salesman shout: Evening Standard: 3 million unemployed in the UK, Read all about it..........and if you do not trust me on the pain of the UK consumer check this cool site by the BBC


Foreign Exchange:

Short EURUSD @ 1.3500 - fancy new lows beyond 1.3260. My chartist John Hardy is very bearish....

Still small long USDJPY through options, mostly as "insurance".

Fixed Income:

We continue to flex between deflation and inflation, right now this a.m, we bought back our short Treasuries around 112 25/32 - looking for some erosion into the Washington Mutual CDS auction tomorrow, plus acceleration of down-side for economics.

We are also looking for post Investment Meeting tomorrow to put on some 1.00 pct UK rates by Q1-2009.

I remain sceptical of lending the US money @ 4.00%, so net long is not happening here......


We took profit on ALL our long positions including value trades like banks, pharma, and shipping making a 7%-17% return on them - why?

Well, the "needle" has clearly moved to 60% odds depression from 40% in the last few weeks.. which we now take consequences from.


Short Gold, very bearish.... target sub-700.

ALL in all we are in for exciting week, the financial panic has been avoided, but will we be able to avoid economic disaster? We think so, but right now price action and incoming data dictates us to at least believe it could be DEPRESSION´which is incoming.

Finally, spend 10 minutes reading this unique commentary by Ms Scwartz, 92 years old: Bernanke is fighting the last war.

Safe trading,


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