lørdag den 7. marts 2009

A bank is a place that will lend you money if you can prove that you don't need it. Bob Hope

Dear Investor,

Admitted! I could not help using the above qoute from Bob Hope. ;-)

This is a Saturday afternoon mental cleaning for me, this week proved to me - and it seems also the market that this crisis will be here for a while. Losing more than 500.000 jobs have only happend eight time since the series began in 1940 and we have had four of them now!

31 mio. Americans needs food stamps http://snurl.com/dbxwo ....

The AIG story continues and it seems as per usual the more you look into this failure the more it becomes clear that the administration is pursuing a policy which at best can be called: "keeping financial system a live at all cost", and at worst: "incompetence and action on the fringe of corruption"...I will let you be the judge, but do read this link: http://snurl.com/dby0f

I had long conversation with my hedge fund friend from the US the other day, let's call him E.....and during the conversation it became clear that small part of information we had gathered over the last quarter are coming together into a relatively intimidating outlook for the world economy between now and April 2nd. (Why April 2nd I will come back to...)

This is the time....to be long cash

Time is running out for the policy makers and the politicians. They have now again and again tried to get the confidence and the economy going by printing more money and making promises.
Too high debt to equity ratio's was the reason for us being in trouble in the first place, so using more debt to deal with debt is hardly going to work!

Now they pursue a policy which my friend E likened to a beautiful analogy: It is like putting a parachute on a rock going towards earth! - in other words.. gravity will work - you can slow the process but not the ultimate result.....

Everyone, no longer not only me, is disappointed in Obama, and more to the point about the economic/business "dynamic duo" of Geithner/Summers.

Geithner is having such a bad karma, that even showing his face on TV makes the market go down immediately - one has to think this is either engineered by Summers, i.e making Geithner fall-guy, or we will see rotation around mid-term election..both ways Geithner has lost not only Wall Street's trust, the politicians but also it seems Federal Reserves, his old neighbourhood.

The new "hope" in town is the Chinese miracle - China is now pumping money into commodities and strategic alliances in order to maintain their job levels- what is the point of being Planned Economy if not to create jobs, however futile some of them are ?.....but people forget that this is no real plan B.

China set themselves up as the world factory - the US was the world consumer - now the "customer", the US consumer is bankrupt - this means production capacity will have to go down in China - China simply did not have a plan B.

They are now drawing down their SAVINGS creating infrastructure jobs - which coincides with US stimulus, leaving the impression something good is happening to global demand - but.....this is a pocket of momentum only to be replaced by the rock making a landing.....

The US saving rate is rising and fast - this means the US current account is improving at quickest pace in decades, but on the other side of the US deficit sits the Chinese equivalent surplus, so...the US consumer having gone bankrupt means China will have less export growth.......

This is one of the main reason for my outright bullishness of the US dollar - yes it is FIAT based but so are all the other major currencies, but the velocity of US current account disminishing is a very constructive component on its external value....

Now to April 2nd - the London/Gordon Brown G-20 meeting http://snurl.com/dbz0k
Combining almost 10% unemployment in the US, with a Europe where the P.I.G.S (Portugal, Italy, Greece & Spain) but also EEC countries are having problems rolling over their debt makes for one interesting meeting where everyone NEED TO FIND A SOLUTION.

I, for one, do not ever expect anything from these kind of summits, but for once the stakes of NOT MAKING - Plaza Accord (http://snurl.com/dbz4y) like solutions will be dramtic (minus 25% on the market and total break-down in EEC currencies)....
The CDS market plus Lehman have crystalized the failure of the EU system, where its biggest flaw being the lack of a European Treasury to coordinate fiscal- and monetary implimentations of policies.

The sovereign CDS market have increased the funding cost of the PIGS, which takes away the "only" real advantage of being in the EU (For everyone to have pretty much same credit rating, and hence funding cost)

So.... where does this leave me, my funds and the world? Well, there is NO REASON in the world to do anything ahead of April 2nd

Either they finally get some real decisions which is focused on not slowing the rocks path to earth but for blowing up the rock (Merton out with some rather "controversial ideas: http://snurl.com/dbzai) or we will have "blood in the streets".....the final melt-down before markets find a new better equilibrium.

I recommend maintaining the 75% cash (if not more)- and to deploy the rest in optionality - risk reversal on equities-- (Im short STOXX50 & S&P) selling equivalent of 650 puts buying zero cost upside just in case...)

Shorting EUR seems almost a certainty to me - but buying some short-term proctection around April 2nd makes sense...


EURUSD: 1.2000, then 1.1000 and if April 2nd failed then sub 1.000

S&P: Our revised target of 690 now reached - new target remain insisde 625/650.....for cyclical low.....

10 Y notes: Below 2.000 still

Central banks: All going to ZERO and Quantative Easing.

Europe will feel the worst pain, and the EEC currencies without April 2nd solution is doomed, and could be followed by PIGS.....

Yes, it is not a nice note this one, but in a time where all we have had is HOPE, HOPE and more HOPE I wish to explain why this is bad and could get worse, but then again trading around 690 this week-end another 100 points of downside is not big.......

There are great deals to be done on the back of this crisis, but they are ad-hoc in nature and not based on a market generally offering value.....

We are fairly priced for the first time in years, if not decades, but we need to get to the FIRE SALE levels for the money to leave the safe place of state guarenteed saving accounts.

Time remains the great healer...but for now.. cash is king...and I will bet you safe trading and a nice week-end.

0 kommentarer: