tirsdag den 4. november 2008

Some national parks have long waiting lists for camping reservations. When you have to wait a year to sleep next to a tree, something is wrong.

Some national parks have long waiting lists for camping reservations. When you have to wait a year to sleep next to a tree, something is wrong.
George Carlin (1937 - 2008)

Dear Investor,

I am not trying to spam you, but we just had our Weekly Investment Meeting and with the US election tonight I felt it worthwhile, if for no one else then myself, to put into writing a few perspectives ahead of the result and action.

The investment meeting had following conclusion:

The three driving premises for our research remains:

  1. Cost of funding drives market and valuations

  2. Price of liquidity new unknown (tax on money)

  3. No prior analogy historically will work (because this is different, very different)
The markets (stock) are oversold but not undervalued.

We reduce cash from record high of 95% to 70%. We favor a short-term "relief" from oversold, but we like indirect Beta such as EURCHF, EURUSD, EMG and Crude better than direct market exposure. (More on this later!)

Putting any real metrics to valuation obviously difficult, but when our one and only key premise remains: Scarcity of capital. The "gurantee" we have for a further erosion of the market will come from when corporations, banks and governments needs to refinance.

What I am saying here is: The corporations can presently service their debt on the books on the "old terms", but when these credit facilities needs to renegosiated, the banks will need to tighthen the provisions and consequently create higher cost of funding.

This play nicely with our always present Three Driving Premises of research as seen above.

Being the sceptical crowd we are never really convinced of anything - I must say personally, I realised if I, of all people, have figured anything "out" then it's too late already, that's why I/We always keep everything as odds. We are "positive" on stocks to the odds 60/65% vs. 40/35% for one or two weeks of "rebate" to the present turmoil.

The key indicator as dictated by my red-hot Chart-guru John Hardy is the VIX above or under 21-day moving average, which John finds a good leading indicator right now. We expect at worst: some consolidation, at best some further drop in VIX volatility indicating some less pain on the stock market horizon.

I must also admit that moving from 95% cash is a must, if for nothing else the pure opportunity costs of having so much cash. Banks are off theirs low by 25% and we could like in the 1929-34 period see a further 25% upside before the always present bear trend re-establish itself.

If I am sounding confused its for a reason. From tactical allocation perspective trying to fine-tune probably the worst deleveraging cycle in mankinds history is a little like trying to convince politicians they should SHUT UP......A fantasy, not to happen... (Together with Central Bankers by the way)


Some stabilisation, the deacceleration has stopped - Sweden now remains the country with the fastest deacceleration - indicating if seeking to find Governmental Fixed Income - Sweden is a good buy on our models.

Our Global Economic Indicator model is falling for the 6th straight month, and our economist's believe it will continue to do so another good 12 month as things looks as of now, furthermore which is even scary, my Chief Economist David Karsbøl thinks that the World GDP growth per Capita could reach zero and even contract which will be first time since 1982 and a major indication of how the world is rebalancing towards savings away from spending. (AGGDWLD INDEX for the Bloomberg users)

Our currency models continue to favor: CHF, JPY and NOK vs USD & GBP.

Fixed Income

Tough Universe. Will you lend the US Government money @ 4.00% for 10 years? Not me, and yet another question: When will the bill arrive for all these nice "packages" ordered and delivered by the worlds leading Dirigisme fans; Bernanke, Paulsen, Cox, Trichet, Sarkozy, Fogh Rasmussen, Gordon Brown, Greenspan...??

We remain bullish TIPS - picked up slowly last week and we notice/respect the elevated levels in agencies and credit spreads in the US remains in place, while CDS' and Itraxx comes down slightly - finally money market wise - solvency seems to remain an issue? Year-end issue? Lack of trust?

Danish Mortgage market now expensive at 120 over on a OAS-basis.Note how Scandinavian mortgages trades similar to US ones pre/post bail-out deal.

First initial positive reaction, then slowly the real price will have to be paid(I.e: Higher spreads on worse credit)

Historically US and Scandinavian mortgages have traded on par rate differences - but Denmark and Sweden @ 120 vs. US @ 210 ... clearly indicates there are no REAL VALUE in this, and one can only hope my pension money manager is selling MORTGAGES as we speak. (Again I show how naive I am)


Forward Earning excl. Banks remains in la-la-land @ +5% going forward - unless the analyst' gets ahead of the curve and live outside their Ivory Towers we will continue to see revision pressure down in earnings forecasts. It is a good thing GE "helped" the Government by borrowing money from them ( Please explain to me who gives GM PR advice? I need to sell them short!)......

Europe is more expensive than the US - AND European banks will see MASSIVE write-downs based on their big investment programs in Eastern Europe and periphael Europe........watch this space...

Our stock team likes Ryanair & Easyjet on lower fuel costs and payable debt, while BA and SAS "stinks".....Their words not mine for once! ;-)

Consumer Discretion needs to see inventory clearance never a high margin business ?

Overall: We like the oversoldness more than the actual Mr. Market - and we are scared to death on the Barrons article on Real Money Managers (I have not been asked so I guess my money under management is not REAL or ??? ;-)) indicating 70% of the population in Real-money-Land expecting stocks to outperform other assets.


We favor long carry FX trades - presently we are long EURCHF.... and EURUSD.... and like some selective EMG as wel - however.. if VIX starts rising again we are out quicker than you can say:
"Rødgrød med fløde" (for the non-Danes - its a silly way of embarresing foreigners into speaking the most ridicolous of all languages: Danish!)


More exposure, we like somethings, we acknowledge nothing is one-way, but keep your eyes on VIX and JPY risk reversals. Cash to 70% - all our Premises remains in place - still keeping 765.00 S&P as minimum target- but for now chance of 1050/1070 first.

Finally two words of the US election - (as always I have no predictive powers):

Who becomes President is irrelevant for the economic agenda; but how White House and Congress is split is not. History shows when White House and Congress is in opposition- the economy does better: Budget deficits in stale periods: 1.89% of GDP, in periods of dominance 2.90% - clearly - as always doing nothing from politicians wins over them helping us out: Again Ronald Reagan is my hero: The nine most dangerous words: We are the government, we are here to help.

For a simple European, Elitist, High Horsed Tosser like myself, whether the Democrats gather 60 mandates or not is far more explosive - having said that - deep, deep down.... on very personal level, I can not stand four years of the moron McCaine... anything but him is good for me.....but as an investor I hope for: McCain in W.H and 60 mandates in the Congress.

Safe trading,

Steen Jakobsen

0 kommentarer: