mandag den 16. november 2009

In the spirit of Benjamin Franklin - farewell

Once upon a time I started writing these blogs/emails inspired by Victor Niederhoffer (, who not only spared me his time, but also his home, his food and unfortunately his tennis court (Victor was the first inductee to the hall of fame in squash)...

Victor idea was to share ideas and views with dinner table manners among people willing to invest their energy, mind and spirit into all sorts of discussions which would or would not be relevant to trading and trading strategies.

He also in the spirit of Benjamin Frankling ( started the Junto-club....

Inspired by him, never with any intend of pretending to know better, but always with the single objective of provoking people/investors to think out-of-the-box, to make a stand, to question the consensus, knowing at best my projections would be innocent at worst I would look silly....

Over time I have enjoyed personal benefit beyond my own input, something which often happens when you invest yourself into anything, but everything has its own time, and I now feel it is time for me to cease the public part of this blog. To say goodbye.

I will recommend some excellent replacements for my blog:

and if he choose to return, someone I have always enjoyed for his honest, direct approach: 

Like in Atlas Shrugged more and more "voices of reason" turns away from the public space, I do hope Fintag returns in earnest.

In the meantime if you feel like engaging me on the markets feel free to contact me on:  Steen e-mail

As always I will end by wishing you: safe trading,


Going on empty: Monday morning Quarterbacking.

I am back in London - and to my own surprise things does not look one Iota better than when I came here every second week.

Last night when driving to my apartment the taxi-driver told me he could not get a 250 GBP overdraft despite having been with his bank for twenty years!

Now he has to raise the money from his family to make his small business of running a Black Cab work - He saw less passengers, worked longer hours and felt depressed. Tell me about it!

Then after doing a guest host job with CNBC this morning - I took the liberty of checking the local shopping mall ! Wow - this rather upscale mall Whitley, had one in five shops closed, and of the shops still being open one in four was on CLOSING SALES!

Keep producing China - there is plenty of consumption coming your way. The world has become one big competition of EXPORTING. Let someone deal with your problems.

I hope the balance of the week in London will give more hope for the consumer as I am now getting seriously concerned about the markets.

We are at the phase where the stimulus is peaking - which can be seen in the much improved economic data (although the biggest amount of cash ever floaded to the market place still have left everyone short of trend growth).....what comes in its place?

Will private investment come through -not - will business investment re-emerge ? Hardly.........will rates stay low? Absolutely - so more of the artificial help....swapping future consumption for present.......

The marginal benefit of extra stimulus is waning. In 2006 one percentage point of extra growth came at a price of 1.5 USD, now the price is 7 USD. Japan have taught us what you get when you create the third bridge across the same river!

Well enough from me - its expensive to be a grumpy bear, but in closing here is a sound-bite from my guest hosting this morning:

Safe trading,

Steen Jakobsen

lørdag den 14. november 2009

If two men agree on everything, you may be sure that one of them is doing the thinking (Lyndon Johnson)

A quick Saturday blog from me: I have finally figuered out what Obama/Geithner/Bernanke modus operandi is based on:  or more dramatic:

The only way to explain their actions and policies must be based on knowing its futile anyway!

I found the Mayan prophecy when reading a thriller and it struck me as the only sensible explanation for the comment/actions/policies enacted under what surprisingly to me now look an even more incompetent administration than that of W. Bush!

Another far more elegant commentator who is having a hard time not only with Geither et al, but also the never ending praise of China is Hugh Hendry:

His latest monthly report is so well written had there been a Nobel Price for financial market commentaries he surely would have won it for 2009 - unless obviously Obama runs away with it as he has once considered writing a commentary, which these days seems enough to win a Nobel price, but PLEASE READ IT. It is concise and raises several issues which I myself agree with:
  • The non-demise of the US Dollar
  • The non-believe in the Chinese miracle (where is the consumer for their production?)
  • Deflation - double-dip
Last week was big range trading - there was some "noises" that the "too big to fail means to big to live" could see regulation next week as the lobbyist fails to make their voice heard:

It seems Dimon agrees (or playing the game?):

The charts for banks should cause some concern:

Meanwhie the good old Dow Theory still not decided whether to confirm Primary & Secondary Bull Market or to make divergence indicating top in place for now....:

On the markets I have increased LONG US dollar exposure - and added slightly to option downsides - the odds of "see no evil - hear no evil " long environment is rising ... Even the bears now embrace this line of thinking as Goldman Sachs and others are now proclaiming more incoming STIMULUS is coming with the Job Summit in December -

Intentions are good - action better (Steen Jakobsen)... It seems to me that the last Deficit Summit brought nothing - I expect Job Summit will bring... Nothing ... The Obama policies are the worst nightmare this world have seen - when the Chinese engine have filled the last few storage facilities with useless products no one wants to buy - the day of reckoning is in ........This is 1999 all over - no values, no metrics for fair-value.....maybe the Mayan Calander is right ? :-)

Safe trading,

Steen Jakobsen

PS: I will be in London for most of next week, but will try to update... nice week-end...

onsdag den 11. november 2009

There is no atheist in a fox hole - Weekly Investment Meeting

We had our weekly investment meeting and to say the least there is a matter of different opinions. In the blue corner we got the resident equity bull Mr. Lars Thørs, who sees no evil, hear no evil(but highly profitable) -and in the red corner we got yours sincerely who is on the verge of committing public Harakiri in frustration over how much B.S there is flying around on a daily basis.....

The gist of the conversation goes as follow:

There are really three if not four different scenarios for balance of 2009 and 2010:

Note: The X-axis is time, and Y- the return(yield)....

(Click on diagrams to enlarge)

Note: The different scenario's with impact on macro and asset allocation.
(Click on diagrams to enlarge)

In our opinion there will be a movement from presently: Sweet-spot through Double-dip into Crisis 2.0 over the next 6-9 month, but we could be wrong a below we have assigned our consensus vs. the market in terms of odds.

Note: Limus Capital view relative to consensus

The conclusion on the outlook is: It's either going to work or not, we do not see how a V-shaped recovery can be established - but oddly enough here we are at odds with some of the major players in the macro world, who all seems to think the bubble in US Treasury is the biggest, but while we agree on the overvaluation we feel that if we move out of the Sweet-spot then it will be due to increased concern about rising yields on Treasuries - in other words - a starting crisis of confidence.

This scenario is based on several key points:

Maturity of both banks and government debt has shortened considerably making the next 24 month the biggest issuance period in monetary history

There are simply not enough demand to take the supply in our opinion, which in turn will force the rates higher. The US Government has shortened the average maturity from 70 month in 2000 to less than 50 month early this year ( - this happens as the public debt reaches USD (8 trillion US Dollars), but more importantly almost 50% of that debt expires in the next year! 

This should on its own create some concern, but at the same time the banking system has done exactly the same exercise according to Moody's report out this week:

The average maturities of new debt issuance by Moody's rated-banks around the world fell from 7,2 years to 4,7 years over the last five years! This constitutes the shortest average maturity in history. Practically it means the banks will face maturing debt of (10 trillion US dollars) between now and 2015 - or between now and 2012.

Let us not kid ourselves, there is always some debt maturing - T-bill normally constitutes 30-35% of funding, but the point being that even the slightest crack in confidence could have a snowball effect on confidence and catapult  rates higher, as the shortened maturity increases the demand for higher yield and in a world of falling disposable income (due to higher unemployment) - the private sector savings will be in great demand across all assets not just funding the mighty US of A.

More stimulus & how Obama could be forced for more to 'print money again despite a political lack of will to do so

The recent talk of town among Obama's clones is to not only keep up the spending but even to increase it as he did too little to start with! Lately former Labour Secretary Robert Reich and Paul Krugman have called for such measures. The philosophy was reflected in my 'analysis' on earlier blog this week.

From Monday morning quarterbacking, Nov. 9, 2009: Geithner said it best this weekend: "If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater," he told reporters in Scotland. "It is too early to start to lean against recovery."

Ok, let me get this straight: So if we continue spending tax payers money then: we will have smaller deficit, lower unemployment, less business failures, and smaller ultimate bill for resurrecting the world? If that does happen I will be playing for Denmark upfront in the next World Cup in soccer in South Africa next year (despite my 45 yrs and less than fit fitness level)

My friend Daniel Arbess, who runs the Xerion Hedge Fund inside Perella, Weinberg Partners had some excellent point on how US and Europe is mired in deflationary forces for two out of three macro themes working presently:
  • Consumer deleveraging. Rising unemployment ==> Deflation
  • Improving earnings via cost reductions and cheaper finished product imports from China ==> Deflation
  • Zero rate policy drives investors to speculative investments ==> Inflationary....
Dan has several others good observations among them that such a "global imbalance" is continuing leading to some sort of confrontation.

But all of the above really talks about is a double-dip, the fact that post the biggest stimulus in world history, the result was not even back to trend growth, and in 2010 without more stimulus then Crisis 2.0 will come back to haunt.

In order to make this more operational this our expected returns in the different scenarios:

Click to enlarge

It is worth noting that the key in Crisis 2.0 is the LACK OF POSITIVE RETURN from government bonds - this is the main driver of the worst to come scenario.

In normal markets long Government bonds would perform in times of crisis, in this one we have -3,9% expected return and the only positive being a much smaller volatility relative to Sweet-spot.

The way we use this is not as a way to make money, but these three basic possible scenario's are the ones we need to navigate. (The above is very much work in progress)

Right now we are in the sweet-spot for better or worse, and the expected return on this is close to 16%! 

Something which will please the market, but we(Limus) have a much smaller 1 in 4 odds vs. 2 in 5 odds among the consensus investors for this - again we stand almost alone with our projections, but as Groucho Marx said in wire to his club wanting him as a member : "PLEASE ACCEPT MY RESIGNATION. I DON'T WANT TO BELONG TO ANY CLUB THAT WILL ACCEPT PEOPLE LIKE ME AS A MEMBER"

Investment outlook conclusion:

There is nothing on the horizon indicating the see-no-evil-hear-no-evil lose monetary policy will end - on contraire - the central banks, the pundits, the politicians all firmly believe spending more money will create smaller deficits, higher long term growth, in this environment keeping to your Beta exposure is the only option. Our Beta model is very simple and can be executed through ETF's:


We continue to hold a negative outlook on the market in Limus Capital Partners, but our outside partners are either neutral or major bullish on the market. 

The correct allocation presently is to benchmark everything (the exercise of Beta-chasing) - in our case: Beta model long plus some down-side protection through our Alpha plays (which is the ones we describe mostly here on the blog)

The charts and most of the work done for this presentation was courtesy of my partner Mr. Jesper Christiansen.

Safe trading,


mandag den 9. november 2009

Monday morning quarterbacking

Dear Friends,

Well the market is back in 'jolly mode' - the lesson goes: Bad economics is good for stocks(WSJ article)- and easy money will last forever. (Where did we hear that before? Oh, yes - the "Greenspan" put)

Now we have the Geithner/Bernanke put - leading into the FOMC last week, there was 'rational' people like me, who thought maybe, just maybe the FOMC could see how they are now creating the exact same mistakes Alan-I-am-the-most-useless-centralbanker-in-history-Greenspan did, by promising the market NO hikes - whatever happens ....

Geithner said it best this weekend: "If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater," he told reporters in Scotland. "It is too early to start to lean against recovery."

Ok, let me get this straight: So if we continue spending tax payers money then: we will have smaller deficit, lower unemployment, less business failures, and smaller ultimate bill for resurrecting the world? If that does happen I will be playing for Denmark upfront in the next World Cup in soccer in South Africa next year (despite my 45 yrs and less than fit fitness level)

I will let the "picture stand" for a few minutes so you, yourself, can contemplate how deeply misguided the Treasury Secretary is in even the most basic economic-one-on-one!

Another headliner being thay Goldman Sachs not only depend on cheap government money, but apperently they are also doing the work of God - at least that's what the CEO Blankfein says: . Look I am a declared Agnostic, but with a firm believe in morale and the ten commandments, but telling someone you are doing the work of God is that on the border of blasfemi?

I refuse to be drawn into the discussion of what a serious CEO calling upon God in his defense for his industry does/tells me.... - as I remember a born again Christian President doing so for too long.......and the issue of everthing from Wars, violating individual rights......

The week-end did give some justification to my long held believe that over time justice will prevail:

 Warren Buffet got caught with his hands in the tax payers pockets, as he did not feel too big to take some tax credit from the US Government, making sure there is less money for the 10.2 mio. unemployed et al: and if you want facts, not CNBC hype maybe looking at this website could help level some of the God-like stature he likes to take upon himself.

Last week was by all accounts an extremely expensive week for me, if nothing else, it shook my confidence as the Friday last big down close confirmed my long held view that a top was in place Mid-October, now it seems we need the classic re-test of old highs to see if there is more momentum above those levels - most of my positions is now under water, although still some distance away from the allowed 5% loss, but time-decay is very expensive.

The strategy for this week, will be to observe, recalibrate, because despite my lack of income from the portfolio last week, it is abundently clear to me that the financial market lives in a Fantasyland.... so while the market tracks higher, I will leave the final verdict to beyond the old highs, as I do firmly believe 10,2% unemployment is AN ISSUE - if nothing else to the miliions of families presently losing their jobs around the world.

Screenshot - 09-11-2009 , 16_28_56.png

My believe in mankind, the markets are positive, but we need the "forest fire" first, and if in the process people will start calling less on God, have higher morale standards, less leverage, and everyone will see how destructive egoism is, then I will be very pleased. On the issue of inspiration I found this link on a truely remarkable man: His message is for the environment, but as a trader, a person, there is some very interesting lessons in this.....if only..

Safe trading,


onsdag den 4. november 2009

FED's biggest problem is that the economic data is improving too fast - Macro Blog

On the eve of the FOMC meeting I will dare to suggest that the 'real issue' for FED is the fact that the data is better than expected!

Yes, lending is still weak, yes all in all housing is still dismal, and most of the improvement is in sentiment index', but... that the whole plan of Obama or the Harvard School of Economics as some people with tendencies for compartmental disorders.

Yes(again), you are reading this correct!

Obama has been successfull in creating the illusion of doing something, not unlike him winning the Nobel Prize on intentions alone!

He has now succeed in getting everyone to buy-into his 'hope' (Do not worry - it is ALL hope - no substance).

This leads me directly to todays FOMC meeting - the mere talk of EXIT STRATEGY gets people nervous, but it is hard for Fed to not change their communication:

1. Because its too tempting, always, for politicians and bureaucrats to take claim for something they nothing to do with (See chart below where US PMI surges past China and Europe)

Screenshot - 04-11-2009 , 15_44_00.png

Source: Societe General Cross Asset Research

2. It is paramount for Fed to create another illusion, the illusion that they have a plan for how to take the easy monetary policy back, for how to sell their old bikes, ladies hats on their balance sheet in the future.

This should be tied in with the massive shortening of term debt-structure which has been happening in the US: (see link below)

  • Maturity of outstanding US Debt is down to 50 mth from 70 month
  • Almost 50% of debt is due in the next 12 month (Will Fed hike making it more expensive for themselves to refinance?

It seems that the thinking in Fed is to 'pre-alert'the market, to communicate is the tool. Some observers Financial Times, and other insiders feels this meeting is too early - but that is it imminent.

Another interesting aspect as pointed out by the excellent research done by Societe Generale Cross Asset Research is the fact the world has a potential for a "decoupling"  (See PMI chart above)

Where early on it seemed the US was lagging China and Europe, it is now clearly the US which is in the lead as seen by recent surge in PMI data!

This would be major game changer - as the US Dollar has become the funding currency of choice.

Imagine if the market would/should/could starts repricing a rising rate structure in the US (it sort of makes sense the US needs to pay more...) while Europe lags - that seems to call more for 1.10 EURUSD than 1.70/1.80 which the consensus in the market.?

At the end of the day the market is in my opinion unprepared for the next move(s) in monetary policy, fiscal stimulus & geo-events.

In other words: Across all products VOLATILITY IS TOO LOW relative the uncertainty of path, which is the true volatility curve.

FOMC tonight I have no clue about - the way the market is setting itself up indicates to me there is 60/40 chance of major disappointment for the RISK-ON people, but as it is always the case with central banks, politicians and people in general: It is not what they say but what they ACTUALLY do do which decides......


Still same positions - massive P&L swings - but will await tonight & most likely Friday Non-farm before moving from aggressively short this market back to neutral. Justice will prevail! :-)

Safe trading,


mandag den 2. november 2009

The revaluation of the banks on life-lines?

...and C gets the RBS-disease( - there is clearly some new valuation of the major banks on life-lines going on! -

It kick-started last weekend with the too big to fail discussion (

Then ING( was forced by the EU commission to downsize balance sheet by 40% and sell their insurance business....

This morning RBS announced that the EU deal will mean divestment beyond their core-strategy - AND - Darling - yes it is a name - will tomorrow announce his plan for "dealing" with new banks, branches, competition - but will end up with 85% of RBS - what a joke. C under pressure tonight:

Fed not helping but for once talking common sense:

Comments from Fed's Greenlee:

U.S. banks face risks from souring loans, particularly for commercial
property, and some banks may face capital adequacy problems, a Federal
Reserve official said on Monday.
  "Credit losses at banking organizations continued to rise (in the
second quarter), and banks face risks of sizeable additional credit
losses given the outlook for production and employment," said Jon
Greenlee, associate director of the Fed's Division of Banking
Supervision and Regulation.
  Greenlee's comments were in testimony prepared for delivery to a
House of Representatives Oversight and Government Reform subcommittee.
  "Poor loan quality, subpar earnings, and uncertainty about future
conditions raise questions about capital adequacy for some
institutions," he said.

Strategy: Still the same - we believe mid-October was top - target: 930/40 minimu in S&P

Safe trading

Steen Jakobsen