Frustration....in the hammock.....Macro note

(The Danish summer this morning!!!!!! - feels like gr8 analogy to markets)

Back from Tour De France - thkx to my friend Kevin Connors( & Alex) for hosting me for a gr8 week-end in Verbier. I tip my hat - again - to the TdF riders... they are some of the greatest atlethes around and most of them perfect Gentlemans to....and Verbier remains one of the coolest places to hang out.... period!

In the markets I have been losing, losing and then losing some more - all I got left is small optionality and the frustrated trader in me......

The more I think about this market, the more "untradeable" it becomes - take this link:

48% of investors unwinding sec lending program:

http://globalpensions.com/showPage.html?page=gp_display_news&tempPageId=866222

So... there are simply less stocks to short - obvisiously major part of this "drift higher" in stocks, one would argue the pension funds are serving self-interest, but long term they are merely helping bidding up stocks to unrealistic valuations based on "scarcity" of short base.....making the whole valuation "articificial" and increasing the event risk when the "mini Ponzi" scheme breaks down.

The trend of the market becoming more and more driven by technical factors, rather than valuation metrics, is one major concern for me as macro manager, although I trade high frequency and hence have better flexibility.

Short- and long-term managers have to "adapt" to political non-sense and crazy central bankers trying to "buy even more time" - where it in early July looked like the 5th leg (down) had started, we are now back to the neutral zone of 950-1050, which still remains my "Maximum valuation" range considering the odds of higher unemployment, output gap and lack on "real credit"

This macro guy is going to wait out balance of July for more signs - but I remains extremely sceptical on this market, as nothing seems to happen except market going up 5 pbs every day.....

so.... it's back to the hammock for me, althoug the weather here in "Summerland" is dire........

Macro program: Down 150 bps for YTD (Since Mid-June)

Safe trading,

Steen

Hope is tomorrow's veneer over today's disappointment. Evan Esar

Dear Investors,

Todays blog - a small note preparing me for guest hosting CNBC on Friday morning from London.

• Equities has entered 5th wave down - We have now completed what looks to be the 4th wave up in the S&P - and we are now preparing for the "final descent" into 666-00 and then below to 550.00 - if failing to find support then even potentially 450.00 (Yes, it is minus 40% to 50% from here)
• Europe - I'm very bearish of Europe both equities and foreign exchange....meaning DAX and STOXX50 should "outperform" on the downside which is already seen now as DAX is down 12% from top vs. the US down about 5% - this will continue. Be net short DAX and STOXX50. Europe will enter recession and see unemployment on the wrong side of 10.0%
  
• US Dollar - a need to balance between the long-term weaker US Dollar - and the issue of "competitive" devaluations where the US dollar as balance sheet, funding and transaction currency will strengthen (add much better current account to positive) - means my biggest position is short EURUSD and overall long DXY (US index)....
• Growth: World growth in 2009 will dip so low - that the road back to no output gap will take longer than even the pessimist thinks - the output gap still widening despite demographics positive and productivity (function of firing people) - but it is similar to negative compounding.. the deeper we go in 2009 we longer the road back to trend growth .....I project 5-10 years of below trend growth as the world fights: state-isme, regulations, consumer deleveraging, protectionism....
• Balance sheet recession expert Richard Koo from Nomura talks about how Beige Book have often proved right - right now asset return indicates return to norm, while latest Beige report from June continues to see deterioration .....There is also from the media a huge focus on banks not lending (see below), but what most people tend to forget is that the greater "pain" comes from unwillingness to borrow - as the economy contracts, the consumers de-leverage the net demand for loans falls.......
• The US consumer suffered loss of 15 trln USD - yes read it out loud! - and the real question should be: How do you fix a consumer economy when the consumer is out of work? (source: Bob Herbert)..........The UNEMPLOYMENT is leading not lagging - when people lose their jobs, the world changes...let me tell my story from New York again: I met with head of research from major us investment bank, and he tells me: "Steen, we are 100 people here, we know 50% needs/may have to go (sacked), so right now 100 people adjust their consumption/life to the probability of losing our jobs" - this is key, key and key.. The world is right now consuming and behaving as if 100% of all people will/should lose their job - the real "Green shoots" will come when the 50 people have lost their job, and the remaining 50 return to their normal life.. but right now.. and throughout 2009 we will be in the 100 people behaving as if they will lose their job.... ironically this only accelerates the same process, which is Game Theory dilema.
• Commodities: The break even extraction value for most commodities risen (funding & investment costs up.....) meaning there is "bottom" below - the demand/supply all positive, but we could be in for a "clearing up" of overhang position in commodities... I see real risk of massive sell-off in gold, crude, and ind. metals......
• The key problems areas remains the same: Banking and mortgages. Banks repays TARP and raise capital. Why don't the US government make it condition that they lend out? The whole exercise has become futile. There are 8.200 banks in the US - The 19 banks who received TARP constitutes 50% only of lending - this means there 50% of the lending being done by banks, mainly regional banks, which DID NOT receive TARP - they need to cut balance sheet and raise capital ratios....! I.e This is getting worse not better. Mortgage - the amortization foreclosures ran out June 1st, now some states like California wants to extend "grace period" but.... time is running out - the whole exercise of "buying time" -- worked for the three month I was in the long-only world, now it increasingly looks like there is set-up up for nightmare 1970s style growth, big government and lack of market returns.
• Asset managers having the most difficult time ever - and I mean ever: Pension managers caught long wrongly allocated to bonds and equity, Endowments caught long illiquid investments (commodities, Private Equity, real estate), the banks are caught long credit, and the consumers caught long housing..... this means volatility - or more precisely: Certainty of path is the smallest ever - visibility is down to a feet or two - even the long-term managers need to adjust for short-term political non-sense of which most of it comes from a ruined Gordon Brown, from the "talking head" Obama and then spiced with the typical french "pragmatic" nonsense of dirigism.....
• EMG The fundamental case is excellent - but.... it is marginal risk capital at work - there is dangerous trend of less and less FDI into the EMG market - while ETF's and other synthetic instruments has overextended the exposure for many investors- again it looks to me like there is imminent correction coming - and I'm considering broad based short in in EMG through August.

My present positioning:

1. FX: Short EURUSD and short USDJPY..... Conviction on 1-10 scale - 9.......
2. FI: Very long 5 y Govies sector in Denmark - with 75% of my old cash..... Scale - 9 - Long Bunds @ 121.50 break... trailing stop...
3. EQUITIES: Short DAX cash and long August 870 puts -- All initiated around my 29th June blog call for cyclical change around 3-4 July (Steen Jakobsen Blog w. cyclical change date)
4. COMMODITIES: short Crude since 68.50..... and looking to short Gold....

Macro themes:

1. UNEMPLOYMENT main indicator to watch. Not understood correct. How do you restart consumer economy when the consumer is losing his job?
2. China - wrote big piece on how decoupling will impact growth - marginal valuations: Long-term outlook
3. Long-term growth is will be sub-standard for longer....

YTD (Since early June +125 bps)

Safe trading,

Steen

Thursday before the 4th of July...and today is my "supposed" cyclical change day...

Dear Investors,

Better performance today now only down a few bps since inception (Mid-June) - the key today was to combine ECB and Non-farm - I haven't look through the actual data yet but loosing 467K jobs and a unemployment rate @ 9.5% things are not good - in fact Mohammed El Erian over at PIMCO got it right in his new piece out on FT.com: http://www.ft.com/cms/s/0/1e06911c-6719-11de-925f-00144feabdc0.html

Unemployment - remains the key issue and as a number of people been stating: To exit this low growth environment we need the two areas which got us there to start performing: I.e: Banking and Mortgage market - and I find it interesting that George Soros in his latest interview goes out the way to tell us - The government has done an ok job but not a good job, as exactly these two issues remains unsolved. The interview is short- does not offer any news, but it is a good reminder on the "situation" at hand: http://online.wsj.com/video/viewpoints-soros-on-obama-and-ailing-banks/B3353A69-8BA2-4CCA-9D41-B346D92F801E.html

Combine the two above opinions and it looks to me like there is high probability of low growth, decoupling and in one or two quarters sharply rising funding rates....

Strategy

FX: Main position right now in short EUR.USD - now only via options but in size...
FI: Bought Danish Government 4/17 today for 75% of cash - also long Bunds on the break of 121.50 - stop trailing one ATR.
COM: Short crude @ 68.45
EQ: Short S&P only now - took profit in DAX....

I have been talking about today potentially being turn-around day for bullishness due to cyclical work done by great friend of mine - and over the next 48 hours of trading we need to see test of 880-890 is this is the case-- in other word: FULL ALERT warranted...


To all my American friends: Happy 4th of July - travel safely .....

Safe trading,

Steen

If at first you don't succeed, find out if the loser gets anything.

Dear Investor,

Traded like a total idiot - please remind me that I am a MACRO trader not a micro trader - it is back to basic for this tosser............

• P&L since inception(Mid-June 2009).... now -125 bps.....

Jobless data tomorrow will we break the magic 10 % in unemployment - On top of this we got short week due to the 4th of July celebration, so Thursday will be major day for data:

The market is expecting this: http://www.bloomberg.com/markets/ecalendar/index.html

It is also the TURN-DATE/CYCLICAL WINDOW I have looked for: July 2/3

Despite promising to keep the powder dry, I have used considerable dollars on buyin downside in EUR/USD as I continue to see a cyclical change coming with the US having to take stronger currency first - I have have also sold a little more crude - on the back of better technical trading - otherwise I remain with the program believing the next two month could see 880- then 860- and in my opinion even outside chance of even new lows (666 S&P) - based on the extreme euphoria imbedded in all commentaries and media (Yes, I listen to CNBC all day long )

930-935 S&P needs to cap for now - EURUSD 1,4338 the old May high at risk now - this could very likely be me being too negative but I need to stay with my models and play the contrarian although after day like today its tempting to roll-over and go with the flow...

I noticed this one story - supporting my views today on how banks & regionals not been part of the rally.... http://www.bloomberg.com/apps/news?pid=20601087&sid=aCmsKKqx_Xq0

Enough - a long day for me ...

Positions:

Short EURUSD cash and very big in options
Short S&P - took some profit on 905 on 50% yday - long puts August
Short Dax intraday play - expensive...
Gold - stopped out..
Crude added to short..... net short now 68.50.........

Safe trading,

Steen