fredag den 30. oktober 2009

torsdag den 29. oktober 2009

Silence is Golden

The market is now slightly oversold on my model - the top seems to be firmly in place and now we will await end-of-month-buying or not.

No doubt many fund managers are 'screen watching' over the next 48 hrs, potentially having to act on Monday should we take out 1050 in earnest.

It's not easy being a fund manager these days, actually never is, but 2009 the story very quickly became one of:

In 2008 we had the worst financial crisis, probably ever, and as expected 2009 became the worst year on the real economy. The numbers, the long line of unemployed confirms it.

Then the different governments decided to spend 5%-6% of GDP to 'safe the world from breaking down' but all they really did was to circle the wagons on their croonie friends in Wall Street - that's not a political statement, merely a matter of fact.

Now at the end of 2009 the banks - the major banks- are making billions on tax subsidized trading revenue (borrowing at zero with Geithner/Bernanke and placing them in...... Bernanke/Geithner long bonds) - you could say the its look very much like what a certain Madoff was doing recently, but do not let the facts come in your way.

Along the way, there was a public apology from Mr. Greenspan, effectively renouncing his Ayn Rand - Objectisvim and 'Efficient Market Hyphothesis' along the way. For many of you this may be relatively irrelevant if not for the fact that the whole principle idea of letting the market rule themselves came out of these two central "theories" - which Greenspan wholeheartdly subscribed to.

The only real issue with Ayn Rand and EMH being it leaves "morale" to the markets - and I must say: I have wrestled with the "morale" issue for a long time, but as its often the case in practical life, the answer came through observing the nature - in this case the banks, the politicians and the bureaucrats.

The conclusion: There is NO MORALE limit for people when they spend, invest, use other people money - I will even offer the preposition that man/woman generally have a lack of morale when it comes to dealing with money (and a lot of other stuff - which I will leave for your psychiatrist) but this old trader has lost all faith in the market place - the key issue remaining is the one of: What do you put in its place? I do not know - but 90% of financial people are talking non-sense, and 98% of what is produced in banks are waste not only time but also the paper its printed on - this a reality people needs to deal with, as the new world order in finance is not one where the government will come to rescue - ironic that the "free market system" most likely will be replaced by one where 'accountability' is the true measurement of success - lets see how is prepared for this down the line.

On the markets I have not traded for over a week really - got all the same positions as of last investment meeting - I'm surprised in two things:

The high level of GBP and oil keeping its bid tone - the rest is as expected and I will now await the month-end before putting further chips on the table (For those in doubt of my positions - follow the Twitters)

Safe trading,


mandag den 26. oktober 2009

When the fire breaks out the door will be to small for everyone to get out..

Dear Friends,


Above picture courtesy of my old friend: Ole Riis...

This is EXACTLY what I am talking about and today there is further evidence which needs to 'ADDED'

  1. George Soros - like him or not he is the 'Champ' and probably the only person I ALWAYS listen to:

  2. Bank of America breaking ALL support - this could be key....

  3. Dow Theory..continues.:$TRAN,$INDU

Safe trading,

Steen Jakobsen

fredag den 23. oktober 2009

Red alert is warranted...

Now I will do something which very few in todays world dare to do: Offer an opinion - one which statistically has zero value - but one which I feel I must share with you - if nothing else because in investing it is better to be on the safe-side / taking profit than believing in this miracle.

I believe it was JP Morgan who said when asked: 'How did you become rich?" - 'I took my profit too early' - wise talk.

Two major issues:

Issue 1:

Dow Theory is trying to warn us and what surprises me is the lack of focus on this - my partner Jesper got his CNBC going all day and they keep talking about Microsoft beating expectations - no talk of guidance being lower - and ABSOLUTELY no talk on how Transport stocks are tanking - it does not get more ironic than this -as a few weeks back everyone talked about Warren Buffet's favourite economic indicator: Rail road freight - This market is UTTER JOKE - and if you did not yet watch the Frontline prgoram I linked yesterday then NOW IS TIME. The defense rest.

Dow & Dow Transport (click to enlarge)

Issue 2:

Cable(GBPUSD) volatility is a concern. This morning Cable made cycle high - and now leaving the office it has made a 'key-reversal' - traditionally an indication of weakness to come. I may be wrong, but as an experienced FX trader the up-down-up-down moves where speculators 'chase' momentum is sign we are going to see some major reversals soon. You be the judge:

GBPUSD Chart (Click to enlarge)

Safe trading,

Steen Jakobsen

torsdag den 22. oktober 2009

Frontline on the go-go 90s....

Been watching this tonight:

You have to admire the quality, the pictures, the directing of this 55 min program from PBS (my favourite TV when living in the US - actually 2nd after Yankees/Giants) - and it is a lesson in what an idiot Greenspan was.......

Brew a cup of coffee and sit down and enjoy, please!

Then a comment from a young student lecturing me on why Philosophy is no better than economics as an education - what a talented writer!

Hello Steen,

You don't know me but I have been following your blog pretty closely and we also shared the same roof for a year in saxo bank (where I still work as a sales trader while studying economics in the lovely tiny town of lund). The reason i am writting to you has nothing to do with economics it's just a warning to NOT waste your second life studying philosophy. At least not in a university. Having been to school in a country where philosophy is force fed to every student (something like finnish kids having to learn swedish) i have a few words of advice for you. Typical philosophy class goes like this:

- Teacher tells you to read text (say plato's republic, or socrates' apology if the teacher is kinky) and then write an essey about it. Then the possibilities are:

1. You don't understand it and he does not understand as well. But nietzche did understand and wrote something about it so the teacher knows how to rationalize the bad grade you will get.
2. You don't understand it but he does. He is a genious and of course he is bitter because nobody else in the world understands him, he is still virgin even though he teaches classes with 1/10 Male/Female ratios (the reason i took philosophy classes back in the old days) and worst of all he has financial problems. He fails your paper and you are not even in the mood to ask him why, just repeat the class and hope that next year it's being taught by a less clever teacher. Eventualy you get disapointed, drop out of class and study economics instead.
3. You understand it but the teacher doesn't. He pushes the button, the floor below you opens and you find yourself in a pit of crocodiles, snakes and piranhas. So long sucker, better luck in your third life!

Above all, if you decide to study philosophy anyway, do NOT do it in Greece (and preferably not in UK, sweden or germany either). Try some country that doesn't try to teach it like it's math. If you really really can't find one do this: Study MATH but only socialize with philosophy teachers. They will speak to you without seeing you as a person retarded/severely retarded/too clever to be kept alive.

by the way, very nice presentation, unfortunately in lund 90% of the time we have to hear the swedish (my correction) idiots speaking... But hey, we were founded in 1666, so all our clever guys are long dead, or retired and moved to an island house in greece which they bought back when SEK could still buy stuff.

Best regards,

He talked with more claret than clarity.

Dear Friends,

Not that I want to impose on you my views, but often when having to do a speech you need to clarify/project your thinking more clearly..

This presentation was done with help of my good friend Olof Lindgren and my two partners Jesper Christiansen and Carsten Høgh.

The presentation took place last night at the Copenhagen Business School and hence the CV and other 'crap'... but some key take aways:

Denmark - for those of you mainly interested in out Danish view go to the back-end of the presentation.... u will find some food for thought.

Yield - for those w. mortgages... rate exposure ... the core-inflation discussion could be of interest... as it seems we will continue twds lower yields...

Stock - our 'gut' feeling and tech. model tells us.. there may be breather in this rally...around now ....whether its merely correction before higher.....will need to be seen....but 930.00 in S&P is our target for now (1100 now)

Macro - the global imbalances... are now worse than before the crisis -.. as china reserves keep rising.....

Bottom line: the world feels good.. lots of hope.. but we are afraid..this is ....the calm before the storm.. but we(I) have been wrong before..

Enjoy at least there is some good pictures in this presentation...

Download the presentation from this link:

Safe trading

Steen Jakobsen

tirsdag den 20. oktober 2009

Ceteris Paribus - Investment Meeting...

Tuesday means Investment Meeting .....The conclusion became:

There is 60/40 chance of more of the same - market is committed to upside now, the standard protocol says:

  • Recession is over
  • Fed will remain on the sideline at least through 2010
  • Earnings will be coming back after Q2/Q3 - was cost reduction, inventory build - Outlook upgrades relative to downgrades: +20% - setting a very 'high bar' for Q4.... Market will be good in Q4 - it's final. (says consensus)

We are however slightly concerned about this chart:

Gold, US Dollar(Inversed) and Crude(click to enlarge)

The fact Bernanke mentioned: An Asian Bubble in his speech yesterday could mean some slight distress with the "bubble" in Gold, US Dollar and Crude. (Created by reserves accumulation in China)

Crude going above 80$ historically been negative, and above 100 $ key concern.

The old rule of thumb on oil vs. growht goes:

For every 10 $ price increase in Crude - GDP loss is 0.4% in OECD - going from 40 $ to 80 $ means loss of 1.6% growth....Ceteris Paribus.....

But.. the real interesting discussion was based on the discussion "core-inflation" / Taylor-gap which led us to following conclusion:

There is no way the "traditional" rates will go up - but how about TRADING MARGINS ?

Core-inflation never moves - 35% of the index is "rents" - it's the equivalent of having a stock market index where 35% of the index is in bonds!!!! Joke as a policy measurement.....but it's yet another of the Alan-I-will-cut-rates-as-soon-as-I-can-to-become-the oldest-most-incompetent-central-banker-in-history-Greenspan.......

PCE - Core inflation -mean around 1.8/2.0% for 15 years!

A hike in trading margin would serve the right political masters plus its an effective way of short-cutting the never ending global imbalances going on again.......

More on this tomorrow as I will submit on this web a speech I am giving at The Finance Lab on Copenhagen Business School: with plenty of charts and fun. Link will be posted tomorrow night.

For now:

We still believe top is in place - but the BULLS not going to walk away without a fight - the fact remains: It would be suicide not to be long this market for fund managers, but it could, very likely, also be suicide to be long the market now.. :-)Safe trading,


mandag den 19. oktober 2009

Is it time or not - that's the question...

To make sure I follow my own advice I bought some 970.00 puts December in the S&P - for about 8.25/9.00 per contract. My work on the models keep indicating the top should be near or in place - and the objective on the down-side is minimum 930.00.

Tomorrow I will try to validate this objective - but it was expensive Monday back ignoring the first rule of trading - no edge means no positions...... ;-(

There is so much momentum in the market and I was "surprised" to see how the big Private Equity Funds all talk about EXIT from their long positions - some even admitted: "It is doubtful" how long the "window" for IPO's is open - once again I am reminded of the 1999/2000 analogy... but more on this later/tomorrow.

Also bought some 1.5600 Nov. late GBP puts -clearly there was some technical trading in GBP last week, and the incoming data may surprise - but the "rebound" is built on bank bonus' and profit, but the international bankers (and hedge funds) are leaving the UK is steady stream. I am not one for standing in their way...

Safe trading,


søndag den 18. oktober 2009

Back from the sun.....

It's Sunday, the market made a new top last week - and we are entering the "danger" zone where fortunes are made and lost - I got strong feeling this week could be bellwether for the next 25% move in S&P - You know I have been calling for October top since late August and now is the time to make a case either way...

For this week-end my friend Kevin Connors over @ Goldman made me aware of this article in Barrons / WSJ over the week-end: C'mon Ben (Barrons calling for exit strategy----)

More tomorrow ... nice to be back ...

Safe trading,


onsdag den 7. oktober 2009

“The best things in life are unexpected - because there were no expectations”

Market had chance of a 'correction Tuesday but going into the close it looks like another up day....

The strategy for the balance of this week is pretty simple:
S&P futures above 1040-00/1041-00 you are long...below you cut:

Alcoa came out beating top- and bottom line ( - setting the pace the next 48 hours? (Stock twitter - flow/and latest news)

The Alcoa chart looks pretty much like the S&P - an upward channel with potential break to the topside..:

NOW the disclaimers: and Dow Theory also looks like it sending out clear signal of potential divergence as DOW Transport is NOT close to making new highs....:


Core long equity (with time stop around middle of next week latest)Sceptical on fixed income - more and more focus on China waning trade surplus...

US dollar weakness (but it seems Trichet was "pounding the table" about the weak US Dollar over the week-end, but I will dare him to "frank & honest" in the ECB press fade the Trichet comment ....sell US Dollars....

Long commodities..

Safe trading


tirsdag den 6. oktober 2009

Don't part with your illusions. When they are gone you may still exist, but you have ceased to live. Mark Twain

It became a long meeting today as we had a full plate with topics:h

  • Reserve Bank of Australia hiked rates first...
  • "Secret talks" among US Dollar creditors to diversify away....Gold new high...
  • Iran - October deadline is getting closer..Aghanistan - where is Obama heading ?
  • Earnings season
  • Latvia
  • Conclusion

We ended with "resigning" to the fact that we will have one more upmove into the middle of October, which has been the main path we have looked at since our initial investment meeting in September.

The possible dates could be both option expiry Friday October 16th or IEA visit to Iran on October 25th.

This leaves us with benchmark exposure to risky assets.

Reserve Bank of Australian hike (+25 bps) & Changed macro themes

Under "normal" circumstances a move like last nights rate hike from RBA would have had the market looking for the next central bank to hike, but since the non-farn payroll number last Friday the macro theme has moved to one of:

Potential for further "help" to the market Obama now talks of tax cuts - fully realising his political capital in Congress is all but wasted.........

The non-farm pay-roll should have led us lower as an individual number, but it merely delayed further back the dead-line for QE exit and it substansiated the need for another look at how the plunge team can work these markets higher.
The implication/conclusion is simple: There is further upside in this market as long as numbers and Obama deteteriates. Ironic - yet true.

US Dollar and Gold

It is pretty simple: Market wants something tangible - and that got me thinking: What did the market want during the "crisis" ? Yes, indeed something tangible. That sort makes no sense, unless... you do not really believe in "new Nirvana" around the corner?

Gold is being bought as an insurance policy, as a bet vs. debasing, as the only "tangible currency" and as storage of wealth. If you look at the attributes for those conditions it is not exactly positive association you get - in other words: We are long Gold, we believe in all of above, but we must acknowledge it also implies we firmly believe we can exit those positions ahead of everyone else. It is indeed a suckers game.

The central banks are clearly sellinh, swapping Gold out in order to contain the rise in the Gold price, but to no avail so far... to us Gold symbolises to some extent what is also going on the Obama's popularity - there is no longer any believe in change, there are really only the hard, tough, dry long way home - a fact no one wants to prepare themselves for, so we continue to "like" the debasing - despite the fact is really more of warning signal than anything else.

Iran & Aghinistan

Obama is now fighting with his own Generals over Aghanistan - he lost Olympics bid, and he is having more press conferences than there are minutes in a day.......and then we got Iran - the IEA deadline is October 25th, and with intensive leaking of information going on presently there seems to be reason to a little concerned (and long WTI Crude?) - but hang on - is it not pretty similar to the lead up into Iraq ?

We do not know, but the geopolitical risk is back in fashion and over the cause of Q4 this could become a driver for yield, commodities...

Earnings season

We do not per se have any strong convictio on the earnings season, but note that market expects above expectation earnings with the risk being on the outlook for balance of 2009. We also note the report from Hausmann Funds called:

Forward Earnings Imply a Return To Near-Record Profit Margins by William Hester:

1) analysts have penciled in earnings growth of more than 40 percent over the next year, and then another 22 percent between 2010 and 2011

2) Analysts expect sales to jump 5 percent next year and then another 8 percent into 2011, according to Bloomberg data

3) Analysts are forecasting that profit margins will reach almost 8 percent next year and then 9 percent by 2011, far above their recent trough and far above the long-term average of about 6 percent.

4) Assuming that analyst expectations for strong margin recovery are correct, the P/E is already at least 1.7 points above the long-term average. Assuming a 7 percent profit margin on next year sales, the P/E ratio would currently sit about 3 points above the long-term average. And at the long-term average profit margin of 6 percent, the P/E ratio on forward operating earnings would sit 5.5 points (nearly 50%) above the long-term average

Given these expectations, the ability for companies to beat earnings estimates may eventually become more challenging. Since aggressive profit margin expectations are already assumed, big earnings surprises would require companies to deliver those already expected high profit margins, and probably stronger than expected top-line growth too.'

Well, it is tough days to navigate the market, but.... at least something is going on...

Safe trading,

Steen Jakobsen

søndag den 4. oktober 2009

Sunday night quarterbacking...

I'm sitting here a Sunday night watching the Baltimore Ravens vs New England Patriot, so what is more relevant than some Sunday night quarterbacking:

Let me offer some direct thought on these markets - no apologies - only the gut-feeling - and let me stress that I'm a simple speculator with no predictive powers, but for now it seems the stars are lining up for further correction....

There is, as always, a big risk of ...bottom fishing tomorrow, and there may too much "consensus" on downside... but on the other hand... if we came down from Mars today - looked at correlations, the incoming data, vix, technincal levels, yields, .... .we wud probably objectively get a little concerned...

This could be time to forget the ........narrow trading ranges, the scalping move towards as a bare minimum to buy some volatility...

I "like" when several indicators points to the same conclusion - and I must say the additional "index" analysis I enclosed(see below in this blog) .. on the "end of recession" in my, obviously biased assumption, concludes that.... the "perception" of the new reality is much better/higher than the reality... which also confirms why unemployment keeps rising - why Obama is having political problems, why geopolitics is finally back in the frame (note: We have not discussed geo-risk for more than 18 mth!!!!)....).........

Also the rhetoric has changed.. there is a certain amount of complacency among policy makers - they feel vindicated - succesfull.....

My simple assumption remains... 60% chance of top in place - if this week is net down week, I think its time to add some chips to the table.. but there is long week ahead of us.... but...... the negative compounding is back biting at the bulls......and as long as water does not run up walls. there is a certain logic to the honeymoon of Obama, the stock markets, and the feel good factor being over...

A few charts: Break down in yield is NEGATIVE says John Murphy:

Volatility have seen a low..:

And finally.. .some "quant" analysis of the actual economy - as a anti-dote to the CNBC sensational driven data analysis:

Definition and background:

Strikes me as super interesting..

Night and safe trading,


lørdag den 3. oktober 2009

A consensus means that everyone agrees to say collectively what no one believes individually. Abba Eban

This morning I went through several "economic analysis" reports, and I must admit I got more confused the more I read.... an example on credit:

One respected analyst talks about how credit is not coming, probably never will: Meredith Whitney, then another senior and respected analyst talks about how the next cycle will be phase two: Credit cycle begins: Russell Napier, CLSA (It has to be added Mr. Napier does foresee it will end in tears) but they have opposite views of the credit:

Ms. Whitney argues that big corporates are ok, but small business, which constitutes more than 50% of the country's workforce & 38% of GDP, can't get credit and are unlike to get any.

In other words: The view of the credit market is pretty similar to the views held on the stock market.

There was two major take aways from me from the research:

US Yield curve is sending out small warning signals about Fed potential policy change

We need to watch the US yield curve 2-10 - this comes courtesy of my good friend: Andrew Baptiste over at Morgan Stanley: (click on chart for larger version)

What is major league interesting about this chart is the fact we have had tripe top around 260-ish three times, the most recent in September - the way this works is: The steeper the curve - the more stimulus/growth is priced in (I know this is slight simplification as I did small thesis on this when I studied economics some 300 years ago :-)..... but hang on: IF there is top in place around 260 - why would the curve come back down?

Well, if Fed started indicating/managing market expectations they would move short-term rates, it would mean 2-year bonds would be sold off - increasing the yield - everything being equal (I just so wanted to say that!).... I.e: inverting of curve would "signal" tightening - This is kind of interesting as Fed talks in the past two weeks have changed from being "accommodative" for the long-term to ... "when we move it will not be in small steps"....

So....bottom line: In my long, too long experience, if there was only one single "economic- indicator" I was allowed to watch it would be:.... Yes, the yield curve.

The yield curve is traded, arbitraged by people looking to scalp 1 bps, one basis point, nothing on the yield curve is left unintended - very much unlike stock valuation where at best we have a 50% correct picture of the corporate earnings and at worst simple lies!

I will be following the 2-10 yield curve for signs...... - and let me stress... IF 260 BPS goes on the upside I could mean we have avoided "recession" and recession light" and we are moving into new bull market, but one thing at the time.

We are close to getting the answer to the critical question: Is this a new bull market or merely bear-market correction

To round of my first point let me introduce two charts or rather two likely paths - which I borrowed from Independent Strategy, David Roche's firm in the presentation: Lipsticking the pig: (click on chart for larger version)

The two points made above may be old news for all of you, but for this one-dimensional danish speculator it offers some new insights...

Other important headlines:

Strategy for coming week

We have bought some EUR.USD volatility as the risk-of mode did not, yet, impact downside in EURUSD - the Asia central banks are extremely busy buying EUR selling US Dollar - reflecting the falling current account surplus with the US (China will run C/A deficit in 2010/11 - meaning the end of supporting the US dollar - please do not tell Geithner/Bernanke this... :-) .. but either way.... there will major move in the coming week.. we own 20 delta strangle 1.4250 /1.4850..

We also did same exercise in STOXX50 - despite our "tendency" to favor the odds of further downside- but we respect the "plunge teams" which works around the clock: (click on chart for larger version) for my own long-term model - I am still:

Short S&P from 1063is

Short Wheat from 451-ish

Short EURUSD / long JPY....

Looking to seel 2-10 yield-curve....looking to buy EURSEK... an contemplating long-term negative position on Denmark - where the economic conditions is in free fall.

Safe trading and nice week-end