onsdag den 26. november 2008

Notes on Wednesday...

First the important stuff: Happy Thanksgiving to all my friends in the U.S - I wish I was in the US this week........

Friend of mine sent me these clips with our old friend Jim Rogers - he talks common sense, probably does not make him a lot of friends, but his thought process is crystal clear. Enjoy it: http://tinyurl.com/65r8wd

I must say I am more tired than at anytime this year - hopefully it is the travelling but the market goes on my nerves.

The policians keeps doing the same mistakes, the media keeps drumming the same drum, and it is all going in a big circle ..and leading us nowhere.

I am on the record saying I personally felt Obama at least would mean change - however it seems I was wrong, again, all his appointments smell of establisment and his policy indications feels like protectionisme and Dirigisme... in other words ..I will have to keep my negative outlook something I have come to fear as being "realistic" carries too much pain as everyone rather get the free option than face reality.

Talking inability to face reality looks like Bernanke is "dead in the water" post 2010 - maybe Princeton will take him back after all ? http://tinyurl.com/6427og

Maybe what's really bugging me is the fact I have spent far too little time on the market and thinking about them..... something I will change from next week.... but doing some small research this evening some things seems obvious to me:

S&P - consolidation and hope the main drivers - we had "patriotic call higher" into Thanksgiving (Am I the only noticing markets tends to go up on National days?) ..... 900/920 begs for perfect 4th wave correction before the 5th final wave down.... in other words.. neutral into 900/920.. watch if momemtum can carry us above if not... then full short......

Forward earnings still major league unclear as Ticker Sense indicates below (Thank you Jesper):

US dollar (EURUSD)- we may have seen the high in place for this 4th correction - inflation being called lower in Europe and Stark from the ECB even talked some common sense this morning......but Europe is on the verge of serious slow-down which will take all Euro-rates to ZERO...and fast....

Market is also dealing with Investment Bank year-end - or rather state owned Investment banks - sometimes in the past this had an effects - but for now US dollar got some fundamental potentials from waning Current Account Deficit and deleveraging of balance sheets - both of which makes short EURUSD the only real worthwhile deal to carry into month end.

Fixed Income- If I ever was in doubt I should listen my asset allocation model guys now is the wake-up call - despite US Yield being hysterically low - I still do not want to lend the US Government ..below 4 pct in 10 years - there simply is not any alternatives into year-end - more of the same - low after low in yields as "quantative easing" happens.....

Finally, we are, or rather my excellent team doing some research on our Outragous Prediction (into todays lingo: Our Black Swans)... without giving away the positions I note the calls themes are:

1. Hardly any US calls ... 1 of 10 - with Chinese calls having 3-4 of 10 - this to me indicates the clear paradigm shift - when looking into 2009 ... my analysts not really that concerned/bothered with the US - the policy lead will come from what happens and get done in Asia/China.

2. Dirigisme - Anywhere we look there is more State/public sector intervention in the markets - from Sarkozy to Obama- they all embrace the "hidden hand" of Keysianisme ---this time undercover as the 3rd way....and named: For the sake of greater goods (It will die as much as Tony Blair failed to find the 3rd way..) - Fiscal expansion will follow.

3. Social/political unrest - if commodities continues to fall there could be both political tension in some regions but also social unrest.... The impact too harsh to imagine, but in a Black Swane exercise this "mental mapping" could safe the investors a lot of money...

4. More of the same-- -as much as they want to find some sunshine - it quickly becomes as grey as a summer day in London...

On this positive note - I wish you safe trading and nice week-end


tirsdag den 25. november 2008

When given a free option you either.....

Sell it or use it! This was one of the most fundamental lessons ever given to me by my former boss in Swiss Bank Corp, Mr. BJ..........(Mind you I have failed to exercise quit a few times in my life despite this insight!)

The US govenrment have now given the ABS market a free option : http://tinyurl.com/62gg2h

Buy these issues - if it fails(lose you money) just give it back to the US Government, or rather Fed - it also... the lessons goes.... implies quantitative easing!

Wow, easing in near depression environment? - What a surprise!!!!!! I must say I am tired, extremely tired of this game of mouse and cat.

You know, I know, this is one big Ponzi scheme - and the game right now is to figure out who can stay solvent the longest. The US government got some cards on their hands being able as always to "print themselves" out of the trouble.

The risk being this time, it's a global crisis, it's not only global it's also the biggest uphill struggle in history with debt remaining at all time high 340 pct of GDP... so now.. if moving ABS debt from one pocket to the other is big "feel good" factor then my bank advisor should just move my overdraft from one account to the other - at least one of them will improve!

Feel free to buy this rally, even feeel free to cheer on the new O-regime with their Dirigisme.

I for one is tired of being the "warning signal" for this market but please free me from talk of this market being cheap, having seen the low, and please stop producing "counting" documentation for why this market is now going up 1000 pct!

I do not want it! - I am 75% in cash,yes...... seventy-five percent C A S H ! - and if anything I am likely to increase this cash ratio as I see nothing but utter disrespect for the forces of the market and a total lack of willingness to understand all these "help programs"... and the junk yard they all lead to.

My good friend Drew Baptiste have given me his new outlook on stocks which sort of mimicks my amateur levels: (Below is his and mine combined - sorry Drew!)

S&P could move into broad 650.00 - 1050.00 range - for now 905.00/900.00 is upside to break (S&P now @ 848.00) - downside still got some attraction before downside established for now....720/680/650 our new medium targets and long-term now 2009 we will see S&P 500 in 500.

For the mighty EUR/USD I still, alone it seems, feel Europe not priced correctly - The US Dollar has horrible outlook but at least they have done something - and with new Prez O from January there will massive fiscal stimulus - meanwhile in Lalaland- sorry Euroland - Trichet is about to publicly acknowledge things have slowed!

All core Europe rates will go to ZERO, ZILST, NOTHING in 2009 - the sooner the better - implying massive yield steepning........ but the EURUSD will neeed to pay the price and for me 0.9500 EURUSD is more than likely - just not this week ;-)

Talking about something I do like from long side, I remain positive on selective corporate credit - in the refinancing period between now and middle of next year there will be so much dislocation that VALUE DEALS will materialise......it is time to start new VULTURE FUND in Corporate Credit space.

I also maintain overweight Japan - versus short Europe - The Japanese have been in "recesison" the last 20 years - they know what to do AND they got the saving surplus to deal with it.

It is also time to look at inflation linked products - whether selective REIT or direct in TIPS - this explosive creation of money will have inflationary impact but delayed as the REAL ECONOMY for now will be bigger drag, but rest assure where there is ACTION there will be REACTION (= inflation) down the line.....

We are:

Short EURUSD (still), short EURGBP @ .851932, long bunds @ 120.50, short S&P(still)m small long JPY.... and just taking opportunistic view on everything.

Safe trading,


mandag den 24. november 2008

Weekly Investment meeting...

Finally back to order in the small investment world of Saxo Bank - we had long meeting where we touched on most of the intervention for this past week... - Is it not ironic that 20 bln. here and there has become something "normal" in this market?

I find it terrible and I must say I tip my hat to the brave people seeing this Citibank bail-out as something positive.

Looking at the lead into this week-end it seems Citi's DTA, or more precisely their 'Deferred Tax Asset' was the key issue - being more than 19% (vs. maximum ceiling of 10% of Tier 1 capital)....and 80% of all their tangible assets. I am not tax or accountant specialist but from what I read and being told Citi's Tier 1 capital was mostly........fantasy.... DTA can only be used as capital if expected to be used inside one year - Citi is hardly going to start making money inside this year, next, or even the next five years!

More troublesome for me being, I doubt C is alone using this arcane way of creating Tier 1 capital.

Hence despite being happy for my friends at Citi being saved(for now). I remain extremely bearish on financial stocks especially considering the new Mr. Dirigisme of America: Incoming Treasury Secretary Geithner, seems more than willing to "force" banks to comply with his and his Masters agenda. In other words: Bernanke is bad, Greenspan the worst, but the new Mr. G. looks, sounds and smells a lot like the old guys.

Having learned his craft with Kissinger, Greenspan and Summers it is hardly a surprise he does not represent change but rather mirrors his Master left-leaning interventionist agenda, which I understand from US electorate point of view, but one I can not recommend, not that anyone cares about my opinion in these "small matters". Mind you I will be in the US next week to take a more close look on things in New York and Alabama.

The Investment Committee remained at 75% cash- We clearly see some signs of oversold and crisis fatique, but the with volatility of VIX bigger than 80% the market has simply become one big lottery ticket, where you need 80 pct luck and 20 pct guts rather than models or even rational behavior.

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)

We note the markets are extremely oversold but we also find it hard to find ANY economic reasoning for turning positive or even neutral on the markets.

The 25% invested is being changed around slightly - we have abandon our short Gold, and we recognize our long TIPS not exactly on the roll, on the other hand our long Government Fixed Income and cash still makes our portfolio massively outperform our alternative models - at least for now.

We reached our minimum target of 765.00 and we are in the process of looking for new targets -We stick with a simple S&P500 in 500 -

Looking into 2009 we are preparing ourselves for furher deleveraging - it seems to us the world, slowly, very slowly is figuring out why this credit creation not only was excessive but also directly damaging for long-term growth and behaviour.

We see credit spreads and mortgage spreads widen further into month-end and certainly into year-end - this will become the negative gravity of the markets, while the oversoldness will be the postive force.


We are almost back to neutral:

FX: short NZD (1 month option put) , small short EURUSD from here (1.2892) - we are looking to buy EURDKK again as we do not see Denmark escaping the Norway/Sweden turmoil in environment of widening spreads across all fixed income classes.

EQ: We sold into the close today @ 851.00 ( 1/2 ATR stop)... long STOXX50 puts...

COM: We were long Gold puts now worthless...

We will watch the market for opportunistic moves, but we are in game of protecting our relative ok year rather than being aggressive - as said, this market is for gamblers not investors or even traders.

Be safe and must Dirigisme go away,


søndag den 23. november 2008

Not impressed, not impressed.....

Back from the summers of Australia and Singapore into the freezing cold of Europe both physically but also intellectually.

The week-ends bail-out of Citi smells like AIG to me - the "hopers" will maybe have their 5-6 hrs of joy, and the appointment of Geithner as Treasury Secretary being behind 7 pct rally is simply too funny. Geithner is in the mold of Sarkazy and Dirigisme. A true politician who serves his masters in politics before being the treasurer for all of America. (Ergo: No change, but more of the same)

I had wished Obama has been a little less obvious in his choice - why not appointing someone with Seniority - somone who had acutally had a real job? No, we are going to see the US follow into the worst benchmarking of all: European standards.

Financial US is already expecting the worst from Geithner: Apperently he holds a serious grudge on anyone making more money than him, and the only reason for the praise bestowed on him right now seems to similar to press policy in Russia: If not positive about the "great man"......there are a price to be paid down the line....

I note with interest this piece on how Geithner in true Russia fashion seems to be "reshaping" his views post......http://www.newyorker.com/online/blogs/jamessurowiecki/2008/11/geithner-and-le.html

More later - just wanted to be my "anger" out early today..


Still the same ...... We need to recalibrate our new S&P target as we met our 765.00 minimum last week - but let me give you insight to the information I gathered this past week in Asia - It is not going to be higher - on contraire - I am more negative now than before last week.... I simply can not get this semi-pregnant stuff which Government by government does - on the context of: Systemic risk....... this is going to be very, very painful road to recovery.........I am really sorry, people are starting to point fingers at me for being too negative, but again, as I have said all along I am driven by some simple objectives:

1. Being realistic in all market conditions
2. Always trying to make people think out of the box - mental mapping I call it...
3. Make money for my investors

I may not reach as high on point 1 and 2, but the least I can do is point 3 - and right now the opportunity costs to being EXTREMELY DEFENSIVE is zero..........hence I remain sceptical and realistic. The hope I leave for the ones going to church.

Safe trading,


torsdag den 20. november 2008

The nine worst words: We are the government, we are here to help - Ronald Reagan

Today from Sydney - Australia - I am watchting the late US session from Hunter Valley, and it seems our final minimum target of 765.00 is within reach on deal/no deal package for auto-industry.

Radio silence & either you are pregnant or not

Why is it the world continue to have this "half-pregnant" atttitude to intervention? I was on small hedge fund panel the other day and made my usual simplistic presentation of the world, pointing out this crisis can be dealt with two ways:

1. The slow grinding, extended version, which is more expensive as errors upon errors are compounded to even bigger cost, when Mr. and Mrs Dirigisme Brown & Sarkozy continues to lead 'new' era state-capitalism where we selectively safe some individual stocks and industries due to 'national champion' status.... as said my Christmas wish remains that policy makers and politicians gets forced to do one or two year(s) of radio silence.

2. The hard and quick solution. Penalise bad behaviour and let industries die which have no competitiveness - this is the tough medicine but ultimately we need to own up to the fact that the only way to deal with this crisis will be to get saving rates up with the cost of serious dent on growth, stock markets and sentiment, but we need the micro economic agents (investors and consumers) to readjust their behaviour in order to get ahead of the crisis.

The policy makers and politicians creates so much 'noise' that the investors and consumers falsely continues to believe this crisis is something which can be dealt with from the top - and hence they delay their adjustment.

Having done my above 'spiel'; I had every single panel colleague go: I agree and disagree with what Steen just said! C'mon!

Maybe the 'good' news is that the crisis is now so total in impact that they(investors + consumers) will be forced to react despite the inadequate policy makers.

Evolution tends to happen from periods of stress rather than success, when we need to - we will respond to the challenges and this time is no different.

Interlectual capital, i.e our adoptiveness and brain power will take us through this period, but investors and consumers need to stop talking/acting and presenting themselves as believing in this "half pregnant" theory of intervention. Either you believe in it or not, you can't have it both ways.

The fundamentals for strong US dollar

I had lunch, as always, with Barclays Economist Peter Redward on Wednesday and we both had a stronger US dollar on our minds; Peter, who you should all follow, had a couple of interesting views:

1. The weaker oil improves US terms of trade, impacting trade and current account positively

2. The depression-consumer means they no longer using their credit cards, and with this the import is collapsing (seen the amount of cars stored at Long Beach?) - again improving the terms of trade.

3. US now got pretty much ZERO interest rates, but UK, ECB, Scandinavia, Australia, New Zealand still needs to deaccelerate (cutting rates to zero).... hence even from interest rate perspective there will be support.

It is interesting how a deal; being long US Dollar, have moved from being based on a balance sheet funding story to now being a real fundamental story (let me hasten to add that both Peter and I realise there is devaluation risk long-term, i.e 18-24 month from now on the US Dollar) as the world gets the US disease.

One of our Outragous Prediction could very well end up being EUR/USD in 0.9500 next year.


Nothing changed our end:

Short NZDUSD, EURUSD, EURJPY, STOXX50 and GOLD. Long Fixed income and cash(75%). Applying our 25% into negative outlook views.

We may soon need to re-set our S&P500 call as 765.00 comes closer... the banking sector and mortgage sector across US and Europe is dying a slow and painful death. I am extremely bearish on banks at large for every day they are getting closer to the insolvency cheered on by a policy response which is so out of touch it makes one want to weep.

Safe trading,


mandag den 17. november 2008

When in doubt tell the truth - Mark Twain

Now in Singapore after a long flight out of Europe - Had a nice dinner with very smart group of people in Singapore last night who made me, once again, realise why travelling is so important for a fund manager like myself.

The early take-away from my Asian experience:

1. Increasingly the focus of all Asians will be the north-south corridor of internal Asia rather than across corridors into the US & Europe - adjusting your investment outlook to this new world order is in my simple opinion the most important change one needs to make to understand - let alone make money in the next few years.

2. RMB faith. There is tremendous support/believe in China's ability to compete as currency in the international market. The concept being that the US ultimately will devalue themselves out of the trouble, this is what they have done in the past and this time it is no different - Europe meanwhile will put up more and more protectionist measures as highligthed by Mr. Dirigisme Sarkozy, who makes Karl Marx look like an amateur in the game of Socialisme. Asia accepts JPY will go stronger, but they prefer the RMB as storer of value through the next few years.

I respect this concept, but I have a hard time being a 'hard line Liberal' to accept ANY model which is based on 'economic planing' and allocation through central planning. I can't see China going it alone, but I think the above argument extremely valid and I am not one to argue based on my simplistic views of the world.

3. China will link periphael Asian currencies to the RMB. This to me is truely new idea, but again from 10.000 feet perspective it makes sense: China can use the present crisis to extend "guarantees" to Indonesia and other weak foreign reserves nations serving multiple purposes: access to their resources, building co-depence on China reserves, secure military export, and align China interest with that on the linking currency. Truely if done it will catapult China status and have geopolitical implications not presently priced in.

4. Appetite for corporate Asian credit. A favourite theme of mine, seems to have fans in Asia to - there is so much dislocation in short-term corporate bonds, that the upcoming refinancing will make for excellent plays which taken correctly could yield 15-35% p.a. There was NO APPETITE - and I mean zero, zilst, nada, ingenting, keine interest for Europe or the US - This is the first time I have seen Asia so 'local' in their investment outlook. Clearly a tell sign things are to change.

5. We all had positions we did not want. Around the table pretty much all of us, where in positions we did not like: The US Dollar, fixed income, short equities.

This tells me one of two things:

1. Either we need further erosion as we all take profit too early not truely acknowledging this is the 'right' trade despite our reservations.

2. There is room for major (suckers) rally as 'we' move into what we really like.... altough talking from personal experience I never seem to have any positions on I really like, the ones I understand normally losing me money, and the ones I do not believe in being the profitable ones.

Overall I am very keen on Asian stocks (versus short Europe) - I am, probably naively, starting to believe Japan could outperform.

  • They have total savings in excess of all Sovereign Wealth Funds in the world
  • The dividend yield on Nikkei is now higher than JGB's - why would you then buy Japanese Fixed Income?
  • The premise of scarcity of capital makes the Japanese productio model appealing (think Toyota)

I hate travelling! Yes, hate is the correct word! However I am again totally humbled at how being on the ground explains so much more, and having the luxury of meeting people ten times smarter than myself and hearing them talk about the markets, makes me realise its all worth it - especially having been 'carried' to Asia on Singapore Airlines new 777-300 which makes travelling overnight as much of a pleasure as it can be: Check this: http://www.flatseats.com/Micro/index.htm


We are still long 75% cash, the 25% deployed in:

Negative Stoxx50, long jpy, short gold, short EURUSD & EURJPY. Small long TIPS, looking to buy selective Japan, SGD, utilities.

Finally, may I suggest you read my Singapore colleagues blog which is truely timely, wise and to the point: http://saxocapital.blogspot.com/

Safe trading,


fredag den 14. november 2008

G20, G7, G-ee this is waste of time...

Dear Investor,

I could write yet another blog on my views, but "fortunately" for me, and "unfortunately for you, I was guest on Bloomberg with Roger Nightgale from Pointon York - not that I said anything interesting but.....:


The Interview include present market themes, China, G-20 outlook.

Safe trading,


tirsdag den 11. november 2008

Meetings are indispensable when you don't want to do anything.

Meetings are indispensable when you don't want to do anything.
John Kenneth Galbraith (1908 - 2006)

This week has the G-20 meeting in Washington as the big highlight - even President George W. Bush will leave his ranch in Texas to attend!

We had our Weekly Investment Meeting this morning and unlike last few meetings we had some "clarity" in our assessment;

  1. Financial Solvency is yet again an issue - AIG, Fannie Mae et al all were "maybe" solvent for about two month but with stock markets down 25% plus in September and as credit spreads continues to be elevated they now need further capital.
  2. Private consumer solvency is now main issue - yes, interest rates have come down, taking off pressure momentarily, but now the private sector is starting to pay the price: net net we are now worse of than when it was merely a financial sector insolvency. Basically we now got both major parts of the financial sector and the private consumer being insolvent at the same time
  3. ==> We are entering final leg of the deleveraging proces

The political reaction to the above will be what we call the "50/50" solution:

50% of the insolvency will be solved through additional capital injection

50% through easier accounting rules, solvency calculations, tax deferences et al.

Problem with this being it as per usual does nothing to the real issue: the solvency - the model used right now is one based on "hope".

Hope the markets will correct and then improve market valuations through better asset prices - good thing religion is so popular these days!

The G-20 meeting does seem to have some "real soluations" on the table - the latest one which Wall Street Journal picked up yesterday does make some sense to me: Spain's Bank Capital Cushion Offer a Model to Policy Makers: http://tinyurl.com/6x6lms

The argument being that the accounting rule change in 2004, which made the companies only take loss' when incurred made sure the leverage increased dramatically, without making provisions for future loss' - should be unwinded.

The Spanish model will give some "cushions" against loss - the issue with this being it INCREASES THE LACK OF TRANSPERENCY - actually almost everthing policy makers does from TARP to accounting changes works the same way: Adding layers of non-transperency!

Back to our Investment meeting:

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 market has re-entered negative bias - we still look for minimum 765.00 in S&P.

We remain at 75% cash but now we use the 25% for downside plays in markets

We favor being short stock markets, long US dollar (US Dollar balance sheet issue is back with year-end), short commodities and long fixed income.

Our asset allocation model (100% mechanical expects 1 month return of:)

MSCI World: -0.77%,MSCI EMG: -0.84%, Commodities: -1.22%, and Bonds: +0.87%

The model allocates as follows: Short 10% MSCI, Short 34% MSCI EMG, short 7% commodities and long 47% bonds - this is our WORST Scenario: OUTRGIHT bearish. The model is based on our leading Global Indicator Model - and regression analysis of expected return. It is not an exact science, but its a mechanical way of getting expected returns from one consistent source. The expected return from this allocation is: +1.75%


Incoming data continues to accelerate negatively - our model and forecast does not see any improvement in the next month.

The political landscape is getting more complicated. Treasury only got 40 bln. US Dollar left on the initial 150 bln. USD - and Paulson will soon be back in Congress asking for more, and the Democrats wants him to "fix" the auto-industry - making the bill bigger and bigger.

The fastest deaccelerating economies remains Sweden & Australia (hence best government bond buys).

Fixed Income

Credit remain scarce - credit spreads are not really moving - market starting to look at year-end balance sheet, and we expect serious deteriation of credit facilities and more and more corporate blow-ups like Circuit City yesterday.

We like Bunds over Treasuries. We like TIPS still.


Earnings forecast still too high - market looking for +15% 2008/2009 earnings. Per share it is at least 35-40% too high - I remain extremely sceptical on all earning forcasts with a positive sign on them - the insolvent private consumer is going to hurt EVERYONE in the business cycle, seems the analyst' have not been in out shopping recently.

I have to warn you - this is only the beginning - the next few month will be the worst part of this cycle - as several forces works against the markets:

  • Bankrupt consumers
  • Insolvent banks
  • No credit creation
  • Policy solutions based on hope
  • The "everything is "really"cheap "relatively" clowns
  • High expectations to G-20 meeting & incoming President Obama

We are short Stoxx50 & S&P. No longs at all.


Crude should hit 50.00$ - Gold below 680.00 - There is no value in commodities in this part of the cycle.


The meeting had higher conviction rate - we are now yet again outright short the markets - break of 895.00 on the close will confirm intermediate top in place - in STOXX50 this translates to 2540.00. Watch VIX above 63.00/64.00 will confirm next bearish leg has started.

We are: Short Stoxx50, long EURHUF, short EURCHF, short EURUSD, long Bunds - looking to sell crude, to buy some Private Equity & TIPS.

This is extremely important week.


I am just back from Dubai - I had the pleasure of spending the Sunday in the Desert - you must try it - makes you realise how insignificant ones life is in the grand scheme of things - but what a place, the quietness and light... amazing.

Safe trading,


tirsdag den 4. november 2008

One of the greatest discoveries a man makes, one of his great surprises, is to find he can do what he was afraid he couldn't do.

One of the greatest discoveries a man makes, one of his great surprises, is to find he can do what he was afraid he couldn't do.
Henry Ford

Dear Investor

Henry Ford qoute adress' the challenges of the new President of the US of A; President Obama.

President Obama is in place and with him the highest hopes since Kenney took office - both seemed(s) able and willing to inspire beyond the "standard protocol" of non-sense which politicians across the world spills on a daily basis.

I am, despite many of the readers seems to think otherwise, totally agnostic on politics - I merely learned long time ago that they are "destroyers of wealth" rather than visionaries and solution oriented people.

I am absolutely sure they have a firm belief in what they are doing and that they are doing so with the best of intentions, but history clearly shows "political vacuums", and here I am not talking about the empty space in their heads, but of periods where they are stalled have lower budget deficits and higher growth.

From this perspective the new Congress with 56-58 Democratic Senators and President O in the White House looks "dangerous" for the investors as we would expect all the normal Keynesian tools to come of the shelfs...... but is there hope for real change?

I hope so, I am one of the biggest fans of the US, and I want US to regain its strength, for the average American to not lose his job and for US to take a better and more rational place on the world scene again. Having read this blog before I am sure you all know however what I always says on hope: It belongs in Church on Sundays - we need to judge the new Congress and the new President on what they do and not what they say.

I expect the election on its own to have a neutral impact on the stock market for the balance of 2008 as President O gets his team in place - tries to pre-announce his policies and make himself comfortable in the Oval Office.

Data supports this view:

In "Presidential Cycle," Ned Davis Research notes the S&P 500 posted its weakest returns in the first year of the four-year election cycle. Since 1900, stocks have gained just 3.4% on average in the post-election year, compared with gains of 4.0% in the midterm year, 11.3% in the pre-election year and 9.5% in an election year.
Even after Tuesday's 305-point surge to 9625 in the biggest Election Day rally ever, the Dow is down 27.4% this year. How have stocks fared from Election Day to year's end? When a Democrat wins, stocks have lost 1%, while rising 4% if a Republican wins, Bespoke Investment Group says.


Another point is that whatever ones believe on politics - President O represent a new era and as such we need to make some changes to our projected future:


A few links on the election results:




Short-term there may be some impact for the day traders basing their position on "hope" and with the recent momentum of the market we maintain high odds for 1050/70 test - it seems for now that reallocation, "behind on benchmark" managers trying to get back to their equity weights - while on the other hand incoming data & redemption still offers the market its gravity on the downside. Mildly bullish - based on market being oversold but not yet undervalued.

The long EURCHF work as a charm yesterday we took profit - and awaits further "clarity" on risk - continue to moniotor VIX's 21-days moving average as lead indicator - while below its all go, if it turns back up there could be time for some sideways action...... JPY risk reversals another key indicator as they remain extremely bullish... I.e: risk aversion.

I am off to Dubai this morning - I will try to blog live from the Dessert in the meantime watch the political game for what it is: Politics is Hollywood for the ugly (Ronald Reagan)

Safe trading


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

Does it matter ?

Back from small holiday - must admit a long life in trading taught one clear thing: When you have the good fortune to have had a good spell, it is time to go away as the biggest losses tends to come right after the biggest gains - in that spirit I took Friday and most of Monday off - now however I am back in the chair looking for clues in what to me is a more complicated story:

Are we to see major bear-market rally? Even in 1929-34 period we saw 50% rally from lows without putting the low in place.

What scares me is how we all line up to micro-manage what is clearly a serious bear-market, potentially the biggest in the last 300 years! Barrons tells its best:

NOW THAT STOCKS HAVE tumbled to five-year lows, 62% of Big Money respondents say they're undervalued, up from 55% last spring. A scant 7% think equities are overvalued at today's levels. Almost 70% say stocks will be the best-performing asset class in 2009, compared with 13% who favor cash, and 11% who prefer bonds.

70% expect stock to be best performing asset - clearly the 3% dividend yield is part of that, but I must say the only way stocks become best asset would be serious unwinding of the low interest rates... which I find likely, and more to the point a serious increase in the steepness of the 2-10 curve is what we are betting on for 2009, when Governments will have to pay for all the public spending they have initiated.

Or in different words: Stocks performs as other alternatives performs worse - this is not to be belittled - when you are paid to invest, keeping cash @ 95% as we are now is now a winning formula!

We are having our Weekly Investmeeting today and I am looking forward to the above disscussion.

In this short blog also two links:

Carl Rove's map sees clearly Obama victory - but will Democrats gain 60 mandates and totally control politics?


Jim Rogers is always worth your time ;-)



95% cash - trying to figure out where to go from here...

Safe trading,