Expensive!

Talk about an expensive trading week last week.....- will you? Cost me a few thoughts over the week-end to reasses last week action - it seems the present mode is one of:

Good data being rewarded - poor data ignored! To be honest probably not much of a surprise considering even President Obama has left town for better "climate": http://tinyurl.com/nz56jc

The house-keeping on positions should note I got stopped out of the S&P position with the break of 1018-00 on Friday, and we now "only" need confirmation for this "rally" by virtue of staying two to three days above this on a closing basis....if so 1050 begs, and even 1130.

Our main scenario of down now (August through September), up in Q4 could still work, although the August rally sort of derailed the process by a further one to three weeks..damn...

There is absolutley NO DOUBT that data from September through to December will "good" - at least relative to worst recession since the 1930s.

The real issue,however, is whether it will be enough to nourish growth when the life-support machine of cash-for-clonkers, tax benefit on first mortgages, the more positive talk from central bankes indicating the low rates may have a final sales date attached to it, plus rising cyclical unemployment comes into play.

There is a growing number of geopolitical concerns coming onto the radar:

Ukraine vs Russia is once again focus point as Medvedev insults Ukrainian president on the anniversary: http://news.bbc.co.uk/2/hi/staging_site/in_depth/georgia_russia_conflict/default.stm (also most importantly: Read... The Economist this week on why Ukraine vs Russia is and will be major issue)

German election in September.......and Japanese similar end of this month - in the later we will most certainly say goodbye to the ruling of LDP - finally......whether this is good or bad remains to be seen........

Freight rates had terrible day end of last week - we shorted some shipping companies on the correlation - with loss so far.... :-)

Fixed income is holding up quiet nicely - fortunately for me - the "real life" choice here is between 1% in the banks or 3-4% with the Government bonds? - I believe the choice is obvious, even more so from the angle of Macro Investor - with stock markets hitting YTD high, long FI become relatively low risk bet....

In the world of FX I am slowly building bigger position short the GBP for now vs. USD, but later vs. basket of currencies like SGD, JPY and NOK.......as the QE is not enough to safe a country which is utterly and exclusively dependeable of life-support in the shape of cheap money for the banks.

The mere fact bankers in London (and New York) can claim bonus' on trades which end of day involves taking in money for ZERO PCT(funded by your government) - and lend them out for 12% or placing them in yielding bonds is beyond me.................

The same tax payers who are losing their jobs right now.... are also paying through their nose to bankers taking ZERO RISK!!!!!

This insults me as a capitalist, as a poor (intellectually and monetary) speculator, but mostly as a tax payer - Fact is my dog could do the same job !!!!!

This is why "intervention" does not work - the unintended consequences of macro dececisions will ALWAYS, ALWAYS go wrong... Yes, indeed, you can do the wrong things for the right reason, but it does not make you smart or a hero...and you certainly should not get bonus' for picking up dimes on the street.....

Well enough said - week three of this Speculators nightmare has started... I beg you all a nice evening - safe trading and we will blog again tomorrow...

Steen

http://is.gd/2f3BA Wal-Mart earnings..

We are increasingly of the believe that this market is driven by a NEED FOR POSTIVE RETURNS in the stock market...... meaning the market will be up in Q4 ...to safe-guard Obama waning domestic political support.

We now need to find the likely paths for this, but it could include some downside initially followed by big demand below (minus 5-10% from here)....as there are too many shorts or neutrals around....but it is important to realise the stock market is "artificial" it has nothing whatsoever to do with overall fundamental economy (which is still weak) but all to do with a move out of EXTREME DEFENSIVE stance by most prof. investors - hence the market moves are driven by allocation models more than new incoming data. Note this or you will lose a lot of money this Q3 and Q4.

We, the old macro guys, remains sceptical, but we are also ALL OF US, acknowledging this could go on for longer than we like as it would be political suicide if Obama also had to deal financial crisis 2.0 in this autumn.

Personally I think many "overseas investors" are ignoring the political trouble Obama is having at home:

http://freerepublic.com/focus/f-news/2314047/posts

In order to balance this out he needs better, stronger markets .......at the same time Bernanke will go quiet over the summer as his reconfirmation process starts in earnest.

The FOMC statement yesterday was clear signal to market:

Listen, the tail-risk is now dealt with (super gloom scenario) , but we are still in the left-hand side of the normal distribution.

The economics indicators on a "leading level" is positive, but the gap between "expected" and "realised" economic growth is still big, and growing (as seen by rising unemployment and output growth)......but more and more investor is joining the chorus of: This is sustainable, this is good...

This speculator is still cautious after poor June/July performance for the strategy, but we are fighting the urge to short, and remain constructive on stocks.

In FX-land the market decided the small exit from QE shown by FED was less important than the RISK ON sign that camed attached. I remain constructive on US dollar, but we will need some action inside next 24hrs.......

Still long DBA...otherwise strategy is to remain 100 pc flexible....

Safe trading,

Steen

Bear Market is here.... but too early for 1929 like crash?

I am not hiding! I took off all the bullish trades late yesterday which turned out to be extremely lucky.

Only done two trades today:

JPY: Bought some good size 106.50 JPY call for Friday as my good friend Drew Baptiste of Morgan Stanley been telling me if 107.22 goes it#s 3rd of 3rd wave target ting 97 +-

Drew has been extremely right on JPY plus it mixes well with my prevalent view that Q1 is all about risk adjustment and going "home" on investments.

The second trade is long EURGBP 0.7546 / my "favourite" salesperson telling its "key reversal" and other terms I clearly do not have the capacity to understand, as I cant for the life of me think of ONE reason why GBP should do better the Europe. Brown is doing everything wrong, Darling (what a name) is already joke 3 month into the job, and todays GA in Northern Rocks shows the incompetence of the government and its adviser's.

It is very clear to me some significant repricing is taken place, and in the process the "counters" are losing out. Counters are the very people who buy on dips and who thinks this time is like the last few times.....Nothing could be more wrong...

The policy action from the central banks is "print some more money!!!!!!!!!", in the US the FOMC, they are cutting rates and normally the bank will "blow" up their balance sheet to match the expected cut, only problem being that this time the balance sheets of the banks are so stretched they cant even do origination on deals, and one loan after the other gets negated, so the market stuck with banks going around to anyone, like me, with a positive current account, begging me to take some of "their special deals for you, my friend!" off them in order to clean up the balance sheets.

There are several so called investment banks running desperate to find someone with money to spend.

Another thing; SWF, SWF - I noted yesterday and I will note again today; Dubai Ports can not buy a port in the US, but they can 'as much as you like' in the banks? Logic? None! Banks are even more "strategic in nature" than ports..........

The US dollar crisis is very, very close now...... 1.5000 goes and we will see central bank intervention in my mind. The weaker US dollar makes the Fed decision even more difficult, but the Fed does not care about the US dollar, Bernanke has no clue, neither does the rest of adminstration. They should be hiking rates to defend the US dollar, make US more attractive and re-establish their inflation expectations.....but......thats almost as likely as me being drafted to play for Denmark along side Tomasson.

Strategy

FOMC is desperate. Desperate people does desperate things. We are HIGH alert rest of the week......Only Fx positions as of now.. and mainly in options..

FI: Getting hammered on long bond, but hedged through the JPY. Still expect very dynamic move to higher rates inside this week....... Looking to do spread long Europe short-end vs short long end US....

Commodities: Still "pis.... off" at myself for negating trade ahead of USDA report Friday, but...fact remains commodities NEED to reflect "recession mode"......

FX: Short GBP, Long JPY.....

Equity: Neutral, still better buyer than seller....

Good luck,

Steen

Recession, negativisme, and willing central banks..

There is no doubt more negative mood on the market than in a long, long time, probably since 1998. This move reminds me of 1998 as a matter fact; coming of the heels of Asian crisis, the Greenspan folks, reignited the great Debt cycle by producing some more money through the printing press - it eventually led to the IT bubble of 2000, but it "safed" the world economy, and gave the derivative of "deflation" through the Asian lower production cost.

The bulls will argue todays market is similar, it is only matter of getting the engines re-started, i.e: rate cuts from the Fed, some of the more optimistic even argue that the mere fact the banks are in trouble will only make the policy makers do more and deeper cuts. That is all fine, but how about the premise that bank are the very INSTRUMENT by which the policy makers express their wishes?

Investment banks are travelling to see ANYONE who have positive current account in order to offer them: "special prices for you my friend" - the very point being the need to cut their external balance sheet exposure and fast, otherwise the origination and other traditional high earners of the banks will dry up due to lack of "room" on the balance sheet.

Am I the only one raising an eyebrow to the almost begging like style the US Investment banks have when offering their company to Middle East and Chinese companies?

Less than one year ago it would have been unthinkable that the Chinese could buy billions worth of stock in a US bank, now it happens weekly, no questions asked. Is that what Paulson calls "movement on the Chinsese issue" when he is praising himself and the administration?

I don't feel comfortable about the Chinese agenda here, but in the investment banks, money is money for now, as they try to survive. Yes, survive, the banks are bleeding to death. This mornings story on UBS is simply disturbing, no less for someone like me who used to work there!

I spend Friday on a rare conference in Copenhagen, invited by Skagens Fonds, and I had a great time listening to Larry Summers and Swenson, from Yale Endowment. Both were formidable speakers, but Swenson left me, 'a market timer', confused on why I exist!

It was exciting stuff and Yale funds are only 40% in stock, 60% in alternatives! True diversifikation if anything - Swenson had several other common sense advice to offer, and I suggest you read up on his Yale model, as its truely exciting and with 16% net return for 25 years its beating S&P hands down.http://bigpicture.typepad.com/comments/2005/09/yale_endowment_.html

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Strategy>

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This morning we closed all our positions.

We had some luck in Crude, short USDJPY and short STOXX50 last couple of days, and with rumors circulating on Friday that Fed is so desperate they could even more inter meeting, I think its time to take some chips of the table.

The positive drift of stocks should NOT be ignored, neither should the fact that most "recession" type like corrections are down about 25% from peak to through.

Right now DOW is down 10-11 pct. leaving us vulnerable for an additional 10-15 pct in the next move, I do however expect some 'rallying' from here in the market, and hence takes constructive stance on the market...

We are:

Long USDJPY @ 107.78

VERY short T-bonds through options

Short EURUSD @ 1.4880

Long S&P @ 1413.00

USDA report on Friday was simply stunning. Read it - and try to understand the ramification for grains and inflation in the world; http://tinyurl.com/yrpthw

Good luck,

Steen

Carry Trading - scared yet?

This is commitment of traders report for: (Long): (AUD+GBP)-(JPY+CHF)