Pigs can't fly or can they?

The gathering of policy makers in Pittsburgh (http://blog.pittsburghsummit.gov/index.php/blog/entry/sustainable_growth/) as of tonight reminded me of the "classic discussion" of whether pigs can fly or not? (http://tinyurl.com/ycfzb43)

Flying pigs aside - I'm being told from some reliable sources that today the S&P is up in 101% of the time, when S&P has been down on Fed day.... Yes, the counting rules in this world of arcane nonsense. I also note that Premier Brown is getting seriously "dumped" by his American sweetheart (http://www.guardian.co.uk/politics/blog/2009/sep/24/brown-obama-snub-michael-white) - which is for me quite interesting as if..... Brown calls an election the opposition has promised to test the Lisbon Accord with voters - With Ireland voting on October 2nd the EU could be much closer to ...serious crisis than presently priced in..

Well on to the matter at hand the G-20 - here is my two cents, and it's two cents worth:

• The mere fact Merkel says there will no deal on Tobin tax at this G-20 meeting disgust me more than I can even tell you.. (http://en.wikipedia.org/wiki/Tobin_tax) . We are much closer to having the policy makers do a serious mistake than at any time in my trading life. Policy makers are high on their "success" (Creating articificial growth via expansion in public sector demand and state supported free trading regimes for banks..) - Any trader will tell you the most dangerous time to trade is when you feel invincible - statistically you have biggest chance of losing big after winning big. We are, in my simple and obscure thinking, very close to see a live experiment of "the law of unintended consequences"..... Odds: 75% of something "stupid" to happen


• US dollar risk - do not ignore the French "sources" calling for weaker EUR/USD - anything north of 1.3000 in EUR/USD is a total joke and merely pushes European growth behind the rest of world quarter-by-quarter cyclically. You may not want to own US Dollar, but owning EUR will for the balance of this year could be worse...... G-20 needs to address - or rather return - to the "strong US dollar policy" - Summers/Geithner must understand that to continue to be competitive creating demand for US asset you need stronger/stable currency - otherwise the US dollar soon becomes the G-20 equivalent of Zimbabwe. If any surprises comes out of the G-20 the most likely candidate will be "clearer" views on the levels of currency in my opinion. Odds: Less than 20 pct.


• Bonus regulation. Who cares to be honest? My trading presently does not exactly create expectations of a bonus. Seriously though, up-and-to the financial crisis the bonus culture could be rationalised(Close system with shareholders sharing risk/reward), but now.... with pretty much all the banks being public owned - it is, us, the tax payers who pay for dealers taking risk which is pre-guaranteed to work (The Central Bank lends the banks @ 0% - then they turn around and by leveraged Government Bonds @ 3-4 pct... if there ever was a FREE LUNCH this is it - and it constitutes a MAJOR MORAL RISK. There will be strong wording and it will ruin the bonus culture for better or worse. The bankers got too greedy - and all of the sudden the whole reason we have this recession is bonus!!!!!!! AW.. OCFGG##¤¤¤¤¤ - What a load of rubbish! - This nightmare we are in is based on: wrong policy decisions (Read: Alan-I-will-lower-rates-at-any-sign of trouble-Greenspan)


• Volatility -promise me one thing, please! DO-NOT-GO-HOME-SHORT-VOLATILITY(gamma) over the G-20. There is only one way for rest of the year - serious elevated levels of volatility - Volatility is uncertainty of paths - This week-end could become the financial market equivalent of Churchill's: The darkest hour (http://en.wikipedia.org/wiki/The_Darkest_Hour)

Strategy:

This simple, humiliated, trader is still in strategic mode: short 1 unit S&P, 1 unit EURUSD and looking for volatility plays for next month.

Safe trading,

Steen

FOMC, FOMC and FOMC

The issue as an investor right now is between.......

The need for intervention to work

The world needs a good close to 2009 - the time buying and excessive public spending is a project which can not be seen as failing (that it will fail.... is different agenda all together..)...

This entails the "smart money" is betting that the O-team will do ANYTHING to keep the momentum going into mid-term election and the agenda being one of FIGHTING BUSINESS - which mimicks the F.D.R - New Deal version 2.0 (do yourself favor and read F.D.R's inauguration speech)....

This could mean sell-off post FOMC today, but "quality buying" below ---- then rally into close of 2009 ....and then in 2010/2011 we will resume NEGATIVE tractions and new lows in the market...

The need for gravity to work

The buying of time is running out, the gap betwen "presumed" impact and realised is still huge and growing ... unemployment is rising.. everywhere, credit not reaching the consumers, and the new new growth is sub 2.0% looking 5-10 years forward. My favourite economist, John Makin, goes as far as saying 1% 2nd half 2009 growth is unrealistic, and that -2% is likely. http://www.aei.org/docLib/08-EO-Aug-2009g.pdf

The critical level of 1000-1050 reached and many "guru's" now looking for top in place..

We will focus on FOMC for now - and keeping things light... but here as few thoughts:


Agriculture:

We like it again, both from momentum but also fundamental value. China's growth is tax on farming prices - expect steep rise in autumn. Long DBA.

Fixed Income:

Still long Danish Fixed Income...

Foreign Exchange:

Strongest view: Short GBP - into quantative easing .... also long DXY (US Dollar index over FOMC for break - or stop out if FED goes further into QE)....

Like NOK - looking to short AUD....

Commodities:

Can not buy GOLD when we now world is entering long-term negative growth cycle, with excess capacity everywhere.... risk of crude like long pain..... was short took it back pre- FOMC

Crude: Short... for now.. .cyclical - but likes long-term prices action...

OVERALL:

Cold as ice, slowing getting into market, but it is hard to restart the engines ...also as we were so wrong during the summer months.....

Safe trading,

Steen

The only thing that saves us from the bureaucracy is inefficiency. An efficient bureaucracy is the greatest threat to liberty. McCarthy

Dear Investors,

First half of 2009 is coming to close and it was much better than most people anticipated, but also more volatile with the 666 low in S&P in March being the low point for many people.

I have been wrestling with some medium- and long-term macro pointers to set against my daily trading and my friend Yoshi has put some excellent views on the table for me, but from my angle I am somewhat "concerned / sceptical" on the decoupling of Asia - although I do recognize the major power shift from the US to Asia which is on going - but can the world move back into non-Global capital flow? If so what precedes it?

One recent theme I saw from Arthur Kroeber of Dragonomics was on China trying to go from labour productivity to capital productivity........meaning more efficient and open capital markets, increased foreign ownership through IPO's and bonds issuances, relaxed currency control ..........relevant?

I do not know yet, but clearly China had a Plan A, but no Plan B, now plan B seems to become to use their capital more efficiently, in other words, until this crisis "capital was something they took for granted" - now that they are spending close to 15 pc of GDP on fiscal stimulus (which will run out in 2011) they clearly have set themselves up for using the capital differently and more efficiently.

The problem is the old physics theorem of: An action creates a reaction, in this case...if China wants to use capital more efficiently they need to open their markets - something which ALL of the emerging markets need to do to go the next "efficient frontier".....this is no easy task especially in Asia where Governments are still recovering politically from the Asian currency crisis of the 1990s - but I expect many of the deals being done behind the scenes to have been done in the "name of the above change" - if you from a game theory perspective look at being an Asian investor with the above goal, then a few things springs to mind:

1. You need to align the regions currencies closer - something I have written about extensively and China is now actively and openly persuing this policy. This means more open access but also lower trade barriers - a net net positive for growth in Asia.
2. Capital markets. In order to replace a US market you need to have bigger capital markets - this means increased IPO and debt issuances on the international market........
   
3. Capitel efficiency. How effective long-term is it to maintain and pay for the US Consumer - if you are Labuor Efficient - then it makes ALL the sense in the world, but when your focus changes, you does you willingness and ability to recycle surplus' to the US - hence we will see less and less investment in the US, which will ultimately lead US Dollar much lower and US interest much higher - DO NOT IGNORE this natural gravity of the market as it may be the strongest "slow" theme going on in the market..........
4. Demographics and real estate. Both are bid to the hill in Asia in this scenario - if international investors freely gets to convert their profit & investment - something totally controlled by governments right now, then real estate should take of in Asia - also the demographics are so strong that it is a book in itself (rising middle class, rising education level, increased meat consumption etc.. )

This is just the quick version, but the end game is one which my American friends in not going to like - the US share of global GDP will fall, year after year, as the bill for over-expansion created by both Bush and Obama needs to be paid through lower growth and higher taxes - The US is doomed from logical point of view - maybe it is time to look for the "Hail Marry" throw from the quarterback? http://www.youtube.com/watch?v=r-qkpsygNYo

The Hail Mary is ALSO the overall risk to above scenario - the US administration is not stupid, only wrong, so there is so many behind the scenes things going on trying to secure long-term debt financing.........

Well this became a bit long-haired - forgive me, but it may be the most important blog from me this year, as it certainly got myself thinking. I have enclosed a few charts which shows part- or the whole of this reasoning.


Table 1: Fed balance sheet has stabilized: Means now the administration can start looking at the above issues of long-term financing and what they believe is the "exit strategy" - I call it the Hail Marry project.




Table 2: Courtesy of my friends in BoA - this shows clearly how the potential
for de-coupling is happening - mainly in risk taking environment ...




Table 3: As the world normalize - the inflation expectactions dictates the US Dollars
future - right now it looks like our expected inflation is again coming in...




Table 4: From IMF latest report - this charts clearly shows how the US is lagging, and NOT coming back, while the rest of world and EMG performs again...





STRATEGY:

FX: Short EURUSD - as above inflation expectations down = stronger US Dollar - also there is almost competition from other central banks in the G-10 to tell the world their currencies are overvalued (NZD, GBP, AUD, partly EUR, CAD.....)

FI: Neutral - adding risk tomorrow..

COM: Short crude and Gold.... http://www.marketwatch.com/story/iea-revises-down-global-oil-demand-forecast

EQUITY: Short S and P...

Safe trading,

Steen

Fake the "fade" before the Fed ........Macro

Dear Investors,

Had a great evening with my now former associates and my partner Jesper tonight - we went to watch my old soccer club B.93 (http://www.b93.dk/) fight for promotion to 1. division only to see them draw a boring 0-0, but the away game is our to win on Saturday!

Then a nice dinner in one of my favourite restaurants in Copenhagen, Pierre Andre: http://www.aerislifestyle.com/0632, but during the dinner conversation we agreed on three major things (or rather Jesper and I agreed)...

1. Zlatan Ibrahmimovic is the most overrated player in soccer....http://www.youtube.com/watch?v=yObIYDOv1Qc
2. Obama is the most overrated President (http://www.gallup.com/poll/113980/Gallup-Daily-Obama-Job-Approval.aspx)
3. ...and finally.... Fed credibility or lack of it means: You have to fade the "fake" from Fed....

The meaning of # 3 being: The Fed has a tendency to "leak" certain things to the press ahead of the FOMC, this time they are telling market on the quiet: "....listen do not tell anyone, but we are NOT interested in raising rates now..."...

Then Paul McCulley of Pimco sees right through FOMC- arguing Fed can hikes rates but keep the quantative easing in place.... (http://europe.pimco.com/LeftNav/Featured+Market+Commentary/FF/2009/Global+Central+Bank+Focus+June+2009+Exit+Strategy.htm)

Hence the need to "fade the fake before the Fed" - or in other words - Fed has been known to use Medley and other "reliable" sources to manage expectations, our feeling is this time, they may be doing more of the same... Fed knows asking for more help for the banks right now is impossible considering the morale hazard already in place, but also more importantly six month on "artiticial life support" is enough by any political standard, hence the need to "fund" other projects..... like engineering lower mortgage rates - again - for mainstreet Americans.

On the strategy side I remain focused on hitting some singles.... went long EURUSD this a.m @ 1.3855 ish.... and long S&P @ 904.50 ... Puma Macro MTD: +37 bps for now.... small in number of trades and size for now..

FX:

Looking for some more consolidation inside 1.3830 - 1.4100 ish top - before break-down based on Eastern Europe and the "fade the fake before Fed" arguments above...

Like SGD, JPY(long) - feel nervous about ALL EMG as risk appetite is changing....to the negative in my eyes..

FI:

Can't get excited but two of the smartest guys I know wants me to buy short-end G-7, and look for curve steepners... I'm in on that trade but will not execute before FOMC is out of the way...

COMMODITIES:

Considering the amont of "exit strategy" & reflation talk going around Gold have performed miserably - (yes I know I advocated long @ 930.00)...... Looking for net short, same goes for crude - the world is in denial on unemployment, growth and true state of the economy - Crude will trade sub 40 US Dollar THIS YEAR...

EQUITY:

From technical point of view - I wish that we could test higher levels like 935.00 ish.... as good "top formations" normally have one or two retest before caving in and falling..

Much smarter people than me are pointing out:

• We have had a 90% down day - i.e: 90% of all stocks in Dow has been down the same - normally sign of top...or in this case reversal
• Both volume and the fact the leaders has been "poor quality stocks" indicates this was COVER RALLY more than based on sound economic policies..
• Sentiment has become almost euphoric - even Cramer is feeling on top again.....We moved from most negative sentiment in my career to the most bullish in less than four month - Hip, hip, hurrah...
• We have some interesting cycle dates coming up: Early July (around Non-farm)....
• Divergence is in place in almost all stock markets.....
• Obama disapproval rating is on the rise- (click link above)...
• Time is not working for the Administration in the sense the moratorium on foreclosures is running out, Obama can only do so many public speeches telling us to "feel" better, the TALF not working, we are getting closer to mid-term campaigns - meaning the Washington Senator' and Congressmen, God forbid, will need to go talk to their actual "voters" - and explain my Main Street got Royally burned while the "greedy bankers" were bailed out... hard one for even smooth talking "tosser" like myself..
• 880 my 1st target - AND - I still believe in new lows this year...
  

OVERALL:

Looking for SQUARE positions into Fed meeting - but trigger happy on options on down-side in stock markets- also looking for FX to lead the break of range... shortly.....

Safe trading,

Steen Jakobsen

The game of undermining the US Dollar is under way...

I note, through friends of mine, how the Shanghai Group backed Russian proposal on using national currencies in mutual settlements and introducing a commen currency. Mededev own wording: "The current set of reserve currencies and the main currency - the US Dollar - have failed to function as they should" ... http://en.rian.ru/business/20090616/155268544.html

The meeting included China - so the China/Russia link is showing up more and more, and it again goes to my point on how Asian and EMG countries overall are focused on getting their proper share of political and economic power - they want to keep the flow "local" - which will have material impact on unemployment levels in Europe and the US. (Increasing "natural unemployment").....

The more short-term critical aspect becomes one of how this "Think Local - Buy Local" will derail all the global intiatives in G-7, G-10, G-20 as the economic impact will be one of less recycling of current account surpluses, meaning less financing for the indebted US and Europeans......

The growth rates in Asia, EMG will outperform G-7 by more than the norm going forward, although I suspect the REAL DATA will be that Asia + EMG will barely grow while the USA+ EUROPE will be in recesison for far longer if this game Think Local- Buy Local continues.

The other topic is again one of the FED trying to "talk to/leak to" the market that they are not even close to raising rates....

FED weighs FOMC statement: http://www.bloomberg.com/apps/news?pid=20670001&sid=arWqPRMOr14A

This combined environment of Fed "not" going to hike - surprise, surprise, plus continued talk of diversification away from US dollar- got me long: EURUSD and S&P again .... (took profit yesterday on short S&P and short EURUSD).....

Puma Macro MTD: + 27 bps (3 trading days).

Safe trading

Steen Jakobsen

A fanatic is one who can't change his mind and won't change the subject. Sir Winston Churchill (1874 - 1965)

Dear Investors,

I know a few of you got a "scare" seeing me go long EUR.USD and S&P yesterday ;-) but I will remind you I am doing this as a trader who needs to make money, not as medium term fund manager (That's why we got Puma Beta and Puma L-T).... The alpha model is flexible and recalibrates daily....)

There is a few themes growing on me:

1. Asia leads this rally - sign of new times in financial market ? I.e: Increased need to allocate relative to GDP rather than the MSCI? Impact is massive - as EMG Asia will outperform through this process, also by product the Chinese "anchoring" of currencies- Good or bad?
2. Financial system feels under pain again - the easy money of Q1 is gone - Obama and the central banks are turning the volume down on the "free lunch" money for the bank - and banks now trail in performance relative to overall market? What's next for banks to safe the day? Disclosures still behind the curve and the "true value" of commercial lending, mortgages, and speculative lending is far, far from real value.
3. Yields are high, too high for comfort for the FED - risk is they will try to engineer a flattening of the yield curve, and that the consumer will be left behind still unable to fund himself and his business. Unemployment going to remain high for a long, long time
4. Eastern Europe noise will continue. Business model no good - looks too much like the one taken in Dubai for my liking.

I will try to fine tune this macro theme list as my reading/research goes back to norm.....



Equity market

Today is Super Tuesday, the market presently have rhythm of down Monday', up Tuesday' a pattern I will follow taking my profit, if any, at the close of business tonights.... looking over the chart yesterday there is a few concerning issues for the Obama and Happy-go-lucky camp, which believes whatever happens is good.

The Above chart points out the obvious "divergence pattern" between the RSI and Price, this could be sign of summer top in place, but in classic scenario we would like to see another test on high, only to fail, and then turn down.




Data & macro news

News overnight is tempered but ZEW was strong - in the words of my friend Stephan Collet from CS, Zurich:

German ZEW expectations further recovered to a three-year high of 44.8 in June from 31.1 in May, firmer than the consensus forecast of 35.0.

The recovery in the ZEW expectation is strong and persistent, with the series rising and exceeding consensus forecasts for eight consecutive months.

Our work suggests that the path and magnitude of ZEW changesserve as a guide to the coming PMI and Ifo data, albeit an imperfect one. Today's strong ZEW reading supports our bullish EURUSD forecast of 1.43 in three months, with the better global environment continuing to trump more local concerns in Germany.

This is exactly was ECB do not want, but in life you do not always get what you want, and increasingly the game seems to be one of:

Taking things to the boundries plus VAT and then reverse - always respecting the mean-reversion with or without drift. Facts is neither the US or Europe wants a strong currency - there is no inflation to contain, only the game of competitive devaluations - and no one, but Zimbabwe, does this better than Obama and his new administation.

Foreign exchange...& Commodities...

Still long EURUSD......Commodities looks ugly again.....  RJI (Rogers Int. Com. Index- Total return) have made clear toppish pattern: http://stockcharts.com/charts/gallery.html?RJI

Puma macra MTD:  + 13 BPS (start June 14th, 2009)

Safe trading,

Steen Jakobsen

America is a country that doesn't know where it is going but is determined to set a speed record getting there. Laurence J. Peter

A few Friday notes...

I have finally entered long Bunds @ 123.50 ish with stop below yday close - see chart below...also as a indirect play vs. EEC being promised too much ahead of G-20 next week I have entered EURSEK long, both in cash- and options.... 11.30 call.

(Click to enlarge)



This mornings piece by Ambrose Evans-Pritchard http://tinyurl.com/c9k58x got things in motion and then Medley apperently "confirmed" ECB going for 50 bps and if not QE - then certainly Q-easing.

Strategy:

Keep it light - Cash 75% - 15% allocated to short EURUSD in option & Gold, 5% in bunds, and now 5% long EURSEK..... been tough weak for sceptic like me... and I am sure the "hopers" will have another go at the upside.. I still wonder, how would a week without an interventio or plan look like? The more I study and read, the more it becomes clear the "fast money" buying this market is day traders and always bullish fund managers, while the seasoned Macro guys either stay close to cash or wait for better levels to sell...

Expensive March for this manager, but.....enjoy the week-end...

Safe trading,

Steen

I have heard your views. They do not harmonize with mine. The decision is taken unanimously. Charles De Gaulle

Dear Investors,

Well, as the title shows I am perplexed at the new state of Euphoria going through the markets - Do I have to be excited about C being up 65% from the low? Or should I try to put things in perspective and realise the stocks is down - what 95% still?

(click on chart to enlarge)



The main topic remains G-20 and this past week-end summit which on the surface did not produce any result, however in Euphoria-land, there was much more between the lines, as the US is indicating a will to increase the qoutas on GAB and NAB - yes this is the year of short-names I got this link from my friend Tim - which explains the mechanics:

http://snurl.com/dx3ik

This will SAFE Eastern Europe - so I am sure Russia will immediately roll-back their plans to put missiles and planes in Cuba http://snurl.com/dx3jr

The EURUSD broke a key level 1.3000-ish this morning, and makes me not only look wrong, but also losing some money, both of which I rather dislikes, but more to the point:

The Euphoria has apparently gotten everyone to turn their forecast higher in EURUSD, several are now calling for 1.4000 before 1.2000 - I was slow on the football pitch, and I am slow in changing my investment outlook - for now I will remain extremely sceptical of the HOPE of resolution.......and focus on the fact that:

1. US Current Account is improving day-by-day through trade & higher savings
2. Europe via the dogmatic ECB is behind on the economic cycle - and will have to see much more pain, a rising unemployment, and the unwillingness to increase German spending a critical point even for the always happy crowd
3. The break today "faded" for now - I believe in hope, but only when used for keeping us alive.....
4. Citibanks surprise index continues to show EUR should fall, likewise the real rates difference indicates more pain in Europe than in the US for now..

Otherwise I am very neutral, but this evenings close indicates to me some "top" could be in place, I watched in particular NASDAQ rather forcefull reversal - some charts..

Check this VERY nice feature: http://stockcharts.com/scripts/php/candleglance.php?$SPX,XLF,GS,UUP,skf,GLD,$NDX,QID,UYG,fasBI14,3

NASDAQ

Top in place for now?

XLF- The financial ETF looked like it would break now spinning top ?

US Dollar bullish index.....weekly... under threath? We will know soon...

Strategy:

G-20 stakes increased by the minute, dont see why I should be invested - had good start to the year no point in risking it - meanwhile I will accumulate yield on my cash......... 90% cash, rest invested selectively in short EURUSD, some options on downside in Stoxx50, and looking once again to short GOLD, if not GLD.....(break below 890-00 confirms)...

Safe trading,

Steen

Idealism is what precedes experience; cynicism is what follows.

Dear Investor,

First week almost gone in the new job - lots of stuff to do among them I did long interview with Bloomberg John Dawson which explains my take right now, which for some would be surprisingly neutral: http://tinyurl.com/cl574h

Safe trading,

Steen

My Karma ran over your dogma. Unknown

It's kind of dramatic that Obama did not even manage to get himself 100 days of honeymoon - his administration has been mirred in mistakes and major policy confusion, but what must really hurt is the stock market reaction to him and his merry men.....- Obama speaks --- market waits -- then sell off --- Geithner speaks market sells of before, while and after.....

Change? The only change is the change left in the tax payers pockets after Obama have spend their money.... and this week is Budget Forum week - how UN-Keynesian!

First they spend the money, then they make plans for cutting back - not even good old Keynes can they get right !

Either you put the invisible hand (animal spirit) to work or not - Not even you Obama can have it both ways! - I find it extremely frightning that Obama seems so driven by spin doctors and bad advice He is for EVERYTHING the voters wants...but "believes in ?"...- my advice to you O and let us not forget I am merely a simple Europea hedge fund manager but:

• Take the loss on Geithner - cut him, not even his own Fed supports him!!!!!!!
  
• Take your loss on Summers - anyone who thinks aloud that women are inferior to men needs their head examined - plus he is so outdated he is almost fashionable
  
• Finally "pay Volcker" - the only voice of reason in your cabinet and someone whom the market will listen to.....

The rumours of Jamie Dimon in the wings is a joke - who with a job would want to join US Politics - and become colleagues with people like Barney Franks?

Meanwhile in "Fantasy Policy- Land" - i.e Fed,the US Treasury, US Government, UK Government and ECB there are plenty of plans, but as someone more clever than me wrote this morning:

"There is no way you can rebuild the financial system from top down....there are plenty of architects but we really need plumbers"....so true, so true...

1. Trichet, my "favourite" central banker in-denial: want to regulate some more: Well done Mr. President that will work: http://online.wsj.com/article/SB123538521116847221.html
   
2. Citibank is closed to being "nationalised" - what happens to sub-debt? Default clauses? Ouch, this could get worse than Lehman http://online.wsj.com/article/SB123535148618845005.html?mod=article-outset-box


3. In WSJ article headlined: Red Light flasing again we are told: a) LIBOR- Swap spread which reached high of 366 last year - saw 90 in January is now rising above 100 again b) Markit LCDX (100 leveraged loans) at close to record lows again (@ 72,5% of face) and swap pay-out now based on 40% recovery vs 20 y avg of 81% pay-back c) CMBX (25 Commercial mortgage backed securities) at new record highs - with Moodys looking to downgrade 320 bln. of securities.....nice....in other words: It aint over yet....
   
4. Government bail-outs doesn't work! Don't trust me but do read Ela Glowicka on IDEAS on http://ideas.repec.org/p/trf/wpaper/176.html - less than 40% of companies receiving aid exists 10 years later --- C'mon lets spend some more money......!
   
5. Gold - being told, mainly by my friend Antonio Savoca of UBS, that I should think of GOLD as an currency - and that it will go to 1500 and then 2000 US Dollar - You know me, not one to shy away from an outragous prediction but this is a little rich.....but I could be wrong not having exposure...but the true contrarian is flat.....
   
6. EU/EEC - let them try to sort of the mess in Eastern Europe....but with NO TREASURY the task is several fold harder than in the US - who will print the money?
   

Enough from me, only getting back into the research game... I am still looking for:

EURUSD in 1.0000 - the game will commence soon.....be ready to watch the "Trichet Horror Show".......The trailer talks of: All the mistakes which can be done will be done, no one has ever been more dogmatic when faced with REAL FACTS, see how central banking was 20 years ago, and with performers like Barroso wanting to export the European "Social economic model" we are in for a real treat not seen since Hitchcock....

S&P getting close to my minimum target of 690 - my friend Drew wants 620 minimum to be happy, and I know Drew is not one to change his mind (fortunately!)......

10 years yield in the US will flirt with 2.00% - by the way ? How are the "Bubble in fixed income" Ivory Tower people doing ?

STRATEGY:

75% cash/fixed income

25% applied aggessively negatively..

Long 1800 Stoxx50 March, short EURUSD; short S&P, long EUR/EEC - looking to increase JPY exposure...

Safe trading

Steen

PS: Did I tell you this smells like it did before LEHMAN tanked? Check this link: http://carolan.org/ Something is rotten.....

Once I make up my mind, I'm full of indecision. Oscar Lavant

Sorry dear readers been trying to start on this blog like 50 times this week alone, but I am "sucked" out of anything intelligent to say it in this January madness, but a few things:

• Tactical change in S&P 500. We came into this year as everyone else pretty bullish buying the Obama effect - being scared of all the money the US will spend et al, but our technical model indicated strong risk and hence we change the risk to NET SHORT S&P via 870 put in Feb @ 27 $ & net long 850 March @ 33 with spot reference 935-00.

Click on chart to get bigger version

• Tactical change in EUR/USD. Similar argument purely short-term on tech. picture with 1.3800 now top formation and stop loss level....and with massive improvement in terms of trade and EURO soon going into negative spin....I feel short EUR worth it while from here (@ 1.3710) .... short cash and long some 3week options EUR p)

My dominant "theme" is sceptisme to all the bullish interpretations being delivered to me from all sources - if Obama and his plan was this good why is S&P then unchanged on the first 5 days of trading ? Do we not pride ourselves of being ahead of the curve? Or rather ahead of the positive thinking?

Unemployment will play big this year - not as in tomorrrow numbers but it will main theme for: People losing their jobs, politicians, police (social unrest?), central bankers (who shouldt keep their jobs) and media. Market is still too complacent on where we go from here, but more on this tomorrow.......

A sick - yes this time for real Jakobsen signs off...

Steen

The spread of evil is the sympton of a vacuum - Ayn Rand

The spread of evil is the symptom of a vacuum. whenever evil wins, it is only by default: by the moral failure of those who evade the fact that there can be no compromise on basic principles.
Ayn Rand (1905 - 1982), Capitalism: The Unknown Ideal, 1966


(Click on chart to get bigger version)




I really should not be showing you this chart from my Chief Economist David Karsbøl - it shows how some trades have become so out of whack that there is great oppertunities in the market.

BAA - or Moody's BAA-rated bonds pays more than 500 bps over US Treasuries(I.e: Yield > 900 bps p.a) with defaults never higher than 4% ! The only issue being our negative equity bias, but this is one of the trades you need to put on.

We are working on making synthetic ETF ratio which can cover this one for more direct access - otherwise check out:

HYG: http://stockcharts.com/h-sc/ui?s=HYG&p=D&b=5&g=0&id=p42658334577 or
LQD: http://stockcharts.com/h-sc/ui?s=LQD&p=D&b=5&g=0&id=p42658334577


Another thing you need to watch is this word:
Dirigisme (http://en.wikipedia.org/wiki/Dirigisme)

Sarkozy has turned out to be more Socialist than any prior President - my friend Henri Foch send me this email today and unlike me, Henri is not person to get "carried away".....:
=============================================================
Europe is getting protectionist as the French President suggests creating a fund to nationalise key industries. He mentioned two reasons why to create this fund:

- To gains increasing influence on the economy in order to guide it.
- To avoid foreign investors buying European industries for the cheap

Sarkozy suggested that Europe could run a 'different monetary policy' without violating the independence of the ECB. In order to achieve this he plans introducing an economic council / government which ‘should discuss with the ECB’

After the comment, European shares declined, CEE and other EMK currencies have come under pressure. The quality of the comment is poor and super EUR bearish.
=============================================================

I am sure Sarkozy like Putin soon will be proclaiming: "There is NO CRISIS in France" its a conspiracy of the hedge funds, the Liberitarians and the Economists.... sure is ....

Why are "facts" are so oversold in todays market? Fear, greed, stupidity ? Mankind is supposed to learn from their experiences, that's why we "rule the earth" is it not -

I must say I am getting more and more depressed about the intellectual part of finance (How about that for a contradiction in terms!) - there is too much BETA around........ Beta must die --- Destruction of Capital as per Schumpeter must play out .

Strategy:

FX: We remain short our EURUSD based on:

• Technical 1.3260 was next line the sand. John Hardy, my chartist looks for 1.2700 - and he has been hot recently, so we move our 1.3000 target to 1.2700 minimum
• Fiscal stimulus in the US - Bernanke seems to want job with new administration as he "sanctioned" fiscal plan to the tune of 300 bln. USD in Congress yesterday (mind you getting Bernanke's blessing is the kiss of dead!)
• Europe deleveraging needs to run longer and deeper than the US.

We are looking to add short HUF & LVL vs. basket of CHF and USD

Fixed Income

As printed above - we like Corporate bonds from the "distance" - getting closer - looking to trigger.........

We like TIPS http://stockcharts.com/h-sc/ui?s=TIP&p=D&b=5&g=0&id=p42658334577

Bunds - we are long 116.00 calls for Friday - sold our cash today.

Commodities

We are short GOLD, mostly because I am enforcing the view on the team but in my metrics - fiscal deficits needs to be financed, why not sell something which does not work as inflation hedge, carries no value except illussion of storage - i.e gold reserves to finance the purchase on government bonds .. ?

Target: 700.00 still....

Equities

This is your Captain - we are flying in a straight line towards 765.00 - we do expect some turbulence along the way, so please remain seated at all times during the flight - Thank you for flying with us.

Cash: 85% still - Full Investment Meeting report tomorrow from me...

Finally, my friend, teammate and sparrings partner Jesper Christiansen have launched his own blog - although more "dark visioned" than me, he offers this from different angle than me - try his blog: http://mrtitrading.blogspot.com/

Safe Trading

Steen

Dear Reader, not much time, but Ambrose Pritchard, the highest "ranked" economic journalists in our universe writes it better than me... READ IT or you are lost...

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3141428/Germany-takes-hot-seat-as-Europe-falls-into-the-abyss.html

From internal note:

Read this or you could be lost......

This is an excellent summary of the risk we face - note the very dire words chosen by experienced in-the-know journalists -

I believe the next few days is similar to the extreme volatility we saw before GBP devalued in 1992.... It could also, unfortunately, be similar to 1987

We in dying moment of a 10 trl. US dollar balance exercise which is costing many banks there livelihood, and we will see MAJOR RATE CUTS this week in our opinion......Germany, as per usual, is so behind the ball, with the loser Trichet, that it could cost Europe SEVERE RECESSION.......

We will keep u posted all day - remember morning meeting 845...on trading floor..
Steen

Germany takes hot seat as Europe falls into the abyss
We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.
By Ambrose Evans-Pritchard
Last Updated: 11:26PM BST 05 Oct 2009
Investors will learn today whether the Paulson bail-out - fattened to $850bn (£480bn) by Congress - can begin to halt the death spiral in the credit system. So far, the response looks terrible.
Germany is now in the hot seat. The collapse of a rescue deal for Hypo Real Estate on Saturday threatens a €400bn (£311bn) bankruptcy that nearly matches the Lehman Brothers debacle for sheer scale.
Chancellor Angela Merkel has been forced to pull her head out of the sand, guaranteeing all German savings, a day after she rebuked Ireland for doing much the same thing. Reality intrudes.
During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis.
Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.
The US commercial paper market is closed. It shrank $95bn last week, and has lost $208bn in three weeks. The interbank lending market has seized up. There are almost no bids. It is a ghost market. Healthy companies cannot roll over debt. Some will have to sack staff today to stave off default.
As the unflappable Warren Buffett puts it, the credit freeze is "sucking blood" out of the economy. "In my adult lifetime, I don't think I've ever seen people as fearful," he said.
We are fast approaching the point of no return. The only way out of this calamitous descent is "shock and awe" on a global scale, and even that may not be enough.
Drastic rate cuts would be a good start. Central bankers still paralysed by a misplaced fear of inflation – whether in Europe, Britain, or the US – have become a public menace and should be held to severe account by our democracies. The imminent and massive danger is now self-feeding debt deflation.
The lesson of the 1930s is that any country trying to reflate in isolation will be punished. The crisis will ricochet from one economy to another until every one is crippled. We are seeing it play again in this drama as our leaders fail to rise above their narrow, parochial agendas.
The European Central Bank – which raised rates into the teeth of the crisis in July – has played a shockingly destructive role in this enveloping slump. Its growth predictions this year have been, and still are, delusional. Neglecting its global role, it has vastly complicated the fire-fighting efforts of Washington.
It could have offered "cover" to the US Federal Reserve this spring when Ben Bernanke was forced by events to slash rates to 2pc. It could at least have signalled an end to monetary tightening. That is how an ally ought to behave.
Instead, it stuck maniacally to its Gothic script, with equally unhappy consequences for both sides of the Atlantic, as well as for China, Japan, and India. The euro rocketed yet further, which it turn set off an oil shock as crude metamorphosed into an anti-dollar with leverage.
The ECB policy was self-defeating, even on its own terms. It merely drove headline inflation even higher, while deeper forces of underlying debt deflation pulled the real economies of Germany, Italy, France, and Spain into a recessionary vortex.
Far from offering reassurance, the weekend mini-summit of EU leaders served only to highlight that nobody is in charge of this runaway train. There is still no lender of last resort in euroland. The £12bn stimulus package is risible.
Angela Merkel has revealed her deep limitations. It was she who vetoed French efforts to launch a pan-EU rescue package, suspecting that any lifeboat fund would prove to be Trojan Horse – a way of co-opting German taxpayers into colossal transfers of wealth to Latin Europe.
In that she is right, but it is too late now for dysfunctional EU political games. By demanding that those who caused the damage should pay for it, she crossed the line into caricature, or worse.
Her comments echo word for word the "we're alright Jack" attitudes of Euro-pols during the first US banking crises in 1930-1931, until the storm hit Europe and the entire cast was swept away by furious electorates, or simply shot. Thankfully, this EU stupidity is at last drawing serious criticism.
"We have to make sure Europe takes its responsibilities, like the US:
action must be taken quickly and in a concerted manner," said IMF chief Dominique Strauss-Kahn.
As for the US itself, it has not yet exhausted its policy arsenal. It can escalate further up the nuclear ladder. The Fed can cut interest rates from 2pc to zero. If that fails, it can let rip with the mass purchase of US debt.
"The US government has a technology, called a printing press," said Fed chief Ben Bernanke in November 2002. (His helicopter speech).
In extremis, the Treasury/Fed can swoop into any market to shore up asset prices. They can buy Florida property. They can even buy SUV guzzlers from the car lots in Detroit, and mangle them in scrap yards.
As Bernanke put it, the Fed can "expand the menu of assets that it buys."
There is a devilish catch to this ploy, of course. It assumes that foreign creditors will tolerate such action.
Japan entered its Lost Decade as the world's top creditor, with a vast pool of household savings to cushion the slump. America starts its purge with net external liabilities of $3 trillion, and a savings rate near zero. Foreigners own over half the US Treasury debt, and two thirds of all Fannie, Freddie, and other US agency bonds.
But the risk of a dollar collapse is one for the distant future. Right now the world faces the opposite problem. There is a wild scramble for dollars as a $10 trillion pyramid of global lending based on dollar balance sheets "delevers" with a vengeance.
This is a "short squeeze" on those who have used the dollar for a vast global carry trade. International banks are facing margin calls on their dollar leverage. It is why the Fed is having to provide $1.25 trillion in dollar liquidity for the entire global system, according to estimates by Brad Setser from the Center for Geoeconomic Studies.
The crisis engulfing Europe, Asia and emerging markets, makes life easier for Washington. The United States is becoming a safe-haven again.
The Fed can now hope to pursue monetary stimulus "a l'outrance"
without being slapped down by the currency, debt, and commodity markets. Take comfort where you can.

The ability to delude yourself may be an important survival tool - Jane Wagner

As the title suggest either I am totally wrong, which is utterly likely or "the market" need serious dose of reality or maybe is this about how asynchronous the world markets are right now.

First day back in the job and the headlines deems more trouble ahead:

1. WTO break down for real. This is serious blow to globalisation and add to the ever present theme of how globalisation has gone into reverse gear - as transportation costs have taken more than 50% of some products price. (leading ultimately to local production - like steel is now cheaper to produce for US market in the US relative to China)
2. Fed extend TAF facility
3. SEC extends no short on US financials
4. State of New York going towards bankruptcy http://www.nypost.com/seven/07302008/news/regionalnews/crisis_puts_ny_in_sell_hell_122211.htm
5. Australia worse of than the US http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/30/cnoz130.xml

In other words the game continues - I am surprised, and yet not, that foreign exchange volatility so low - 1 month EUR volatility atm <>

I find most people I talk have turned bullish the US dollar - the cyclical aspect in place - I am getting tonse of reasons why the US dollar should have turned prime among themStephen Jen of MS who writes elegantly yet does he have magic wane?

His arguments goes:(my summary)

1. ECB done hiking rates
2. Fed funds bottom of cycle
3. Oil and US dollar - arguing stronger US dollar and lower oil will benefit all countries - hence work
4. USD vs Asia already moved significantly
5. Failure of GSCE crisis to take EURUSD above 1.6000 seen as weakness

Its all well argued but as per usual I disagree, not that anyone cares!

I find a more compelling argument for relatively stronger US dollar in the weak EMG currencies, the first moves is ALWAYS into US dollar first before finding a new harbour - I am still of the opinion that this was normalisation of EMG risk which made for strong US Dollar short-term, next comes the move into JPY and EUR again.

Secondly, it seems the overseas part of the US investors base is getting cut back - to more normal levels, which also favors US dollars.

On the rate front though; there is no doubt in my mind; The US likely to ease before hiking and the ECB likely to hike before easing - both will ease in the end, but the US is going from bad to worse the numbers will prove this in the next 2Q - and where I before saw 2008 as worst part of this crisis I now fell we need to move into 2009 to see full impact on the micro level on the economies.

I also note the rallies happens on low volume while drops happens to big volumes, it is likely this is all a song-and-a-dance before the market goes into holiday mood?

Note also reliable good friend of mine sees strong t-bonds into month-end. He has been in the past -

Strategy

Need more overview having been off; feel compelled to add EUR calls vs US Dollar, to remain long December EURO calls in rates, to looks for buyign crude, shorted AUDJPY on above story plus major moves in STIR rates.

The world has become smaller again - all talk of decoupling should stop and soon, the sooner the worlds owns up to this RECESSION the better - what we need is for economic agents to change behavour not to pretend this is NOT happening. More tomorow. Happy to be back - I apologies for being all over the place just getting my thought straight here.

Steen

Liar Liar

Sorry, sorry friends!

Been travelling trading like a madman, so have not been able to "justify" my views on-line, hope to be back into it this week, so here is my 10 min QUICK-AND-DIRTY views:

Foreign Exchange:

Think market is getting ready to "attack" all-time high, based on a number of things but mainly the mere fact that ECB will hike and FED will not in 100 years risk anything by hiking.

The retractment of former hawkish comments from Fed in Was. Post yesterday and FT/WSJ today seems to confirm this.

We are long, again, EURUSD, EURGBP (from today on weaker than expected BOE outlook).....long GBP p JPY c, dlt 10 - from 2 figures higher - think this one could move to 180 over next 2 month - as market comes back down to earth.....

Fixed Income

Bought 2- and 10 years this morning as we had the above "leaks" but also due to divergence in 10 y contract. Market is SERIOUSLY ahead of themselves on yields.......

Mean reversion in 10 y notes indicate 4.30% as hard roof... 3.70% the next target....

Still LOVE individual corporate bonds - pharma, natural resources...

I note several leverage mortgage fund is under severe pressure both here in Scandi-land but also across Europe. Fixed income funds getting KILLED.........Yield curve inverting takes the European banks into serious earnings crisis......

COMMODITIES

Looking to see if 132.50 ish holds today in August contract, if so, I am going long into 145-155 range... next..

Iowa floated - major issue for production in the US - NBC News got segment EVERY day this week how to SAVE money on groceries! If that is NOT telling I do not know what is!

DBA (ETF still excellent play)

EQUITY

Been massively short banks, mainly LEH, DBK and BARC - closed all of them, waiting for GS results today, focus now on European banks for me - the inverted yield curve is slow and awfull grind for EURO banks - funding is an issue again - watch how SWAP rates expanding..

Short small STOXX 50 - took of large DAX put play (with profit for once!) - looks to like bifurcation from here:

1. Rebound, based on short-term oversoldness - reaction 2-3% up before final 5th leg down...

2. Directly lower - it seems, even on days Crude tanks, the market is extremely heavy ........

I am 50/50 on those two - and awaiting clarification - 1367/72 close will indicate scenario 1 in play....

Net long individual stocks: pharma, Water, resources, and steel - hedge with short S&P.....

If first scenario plays.. merely taking hedge of......

OVERALL:

This is not time for momentum in stock market -deflation history returns are: -3.0% y-o-y, so make damn sure you like your stocks before commiting.

Final notes: Like EURGBP higher to new high - like JPY exposure. Playing FI from mean reversion side . Open on equity awaiting "catalyst" for 5th and final clean-out of downside - possible below March low...on LEH or similar story...

"Announced hikes" being taken back from central banks - politicians in P.I.GS countries standing on the ready to fight Trichet!

I am writing extensive report on my US visist - let me prewarn you its not NICE reading :-)

Good luck,

Steen

We seriously need a crisis now!

Back - still slightly jet-lagged but I got so much on my mind, and I will try to distil it as best possible:

1. Unemployment is rising and fast

2. US consumers has been max'ed out
3. Asia dream is over for this time....high inflation and negative real rates killing world saving reservoir.
4. US Dollar is on the brink of real crisis
5. 95% of all managers do not understand the risk involved here. A system without a healthy working interbank market is no market.

I know, I know, most people see me as this total pessimistic guy on the economy - and the world, and to some extent that has been right since last spring where I started rambling about the incoming risk of slow down, crisis, and how private equity was dead.

I am not praising myself here, I for one, admits to not having ANY predictive powers, but at all times I do try to put odds on upcoming market moves.

Where in the past being too pessimistic has been wrong 99% of the time, I now think we have seen true paradigm shift, where being too optimistic will reward no one.

Why?Think about it for two minutes:

In a "normal" business cycle the rich nations will invest in the poor in order to get excess return on their capital. The flow will go from rich to poor nations.

Now? We have the "poor" nations, i.e EMG countries pouring money into the US at returns which is sub-par.

This will not work I am sorry. Capital should go where the marginal return is positive and rising not the opposite!

The fact is 10% of the world, I.e, the US, uses 80% of the world savings!In fact the whole recycling story is tied up on two things:

1. Strategic Deals. Energy deals for Middle East and for Asia import of cheap labour
2. Political agendas where Asia got the US "by its balls" by owning trillions of IOU notes.

Nowhere! Nowhere is allocation of capital based on best return profile!!!!!!!!

If you had the choice in investing a sum of money where would you invest?

1. Europe - poor demographics, with tail wind maximum growth of 2.5%....
2. US - poor demographics, saving deficit, real rates of minus 200 bps and weakening US dollar policy, maximum growth of 3.5/4.0%
3. Asia - excellent demographics, high saving rates, EXTREME need for infrastructure investments, minimum growth rates of 4.0/5.0% ?

I think it is very simple, and most intelligent investors seems to agree as the P/E for EMG for a while exceeded the P/E for G-15!

My point here is..... as the viscous cycle continues to compound the more the REAL RATES of growth, inflation , employment, currency rates gets out of whack with fundamentals.

Take Asia - now they got no monetary policy options (its own by Bernanke through the US dollar peg), high inflation (most above 5%) and negative real rates.

The biggest savers in the world is losing money saving !

Short-term that's not an issue, but when the net wealth decreases so does the incentive lend the money overseas.

The US consuming 80% of world savings offers you: more negative real rates than at home PLUS a guarantee for loss of currency value - is that a proposition you will take? No!

The result if this continues is one of stronger and stronger Asian currencies, with consumption falling as REAL WEALTH decreases and consumption comes down.

The saving grace being the STATE CAPITALISM in Asia which will keep pumping money into infrastructures making sure it crowds out private capital.

So this process which has been going on for way too long due to incompetent central bankers like Greenspan and Bernanke is reaching cross road where the worlds needs to face two major ghost:

Inflation and recession.

For balance to be established several things needs to happen:

1. The confidence in the US dollar needs to be restored preferably by increased saving rates and yields and a firm commitment to improve and maintain US competitiveness. This will work as confidence in the US will lower long-term yields, reduce inflation expectations and make investors commit to the "cheap" US dollar by allocating capital into the US.

2 Money needs to flow to highest marginal utility, which means where investment returns are highest. This means re-establishing the banking system to be able create CREDIT which in turn will be used for investments. The world is full of money, but there is ZERO credit. The market needs to flush out bad investment so the sounds investment can attract the proper rate....

3. The central banker should step away from speaking, engaging in the market place, and let market forces play it role. They should monitor inflation and commit to reduce inflation expectations to long-term averages.

Long time ago in the 1980s when I went to University I learned in Polical Science that the economies that survives long-term are the ones with the least amount of public engagement.

The US being the prime example, the very set-up of the US constitution making sure that Congresss and the President can't agree on anything meaning everything is left for the micro level of the economy to work things out. This worked so well during the Clinton years, which was ALL talk and no action (which reminds me of a lot of people I have met both internally and externally recently :-))

The bottom line here:

Never in my long life as a trader has perception and reality been further apart.

No one seems to understand that a capitalistic system with the above rules and no working banking system is the biggest systemic risk ever, and the policy response is one of more STATE CAPITALISME than before.

It is beginning to look a lot like the 1970s:

Big government, central ignoring inflation risk and rising energy and commodity prices.

This time we have a helicopter pilot who thinks its right to collect rent on Federal money - where is Volker when we need him ?

Finally, here is link to lengthy interview I did yesterday on the markets if you are not already bored - the link to the interview is on the right hand side.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aUn1XoFl9aB4&refer=home

We had excellent March - took profit - restarting engines now...

FX: Long MXN vs USD, long EURUSD from today.... (@ 1.5545 and @ 1.5665), short EURNOK @ 8.0170

FI: Long 122 US T-bonds calls

COM: Long AUG puts.. Long DBA

Looking to built negative Asian growth portfolio....more on strategy tomorrow.


Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com


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