There is no such thing as an underestimate of average intelligence. Henry Adams

This morning you will find yours truely deeply concerned - there is too much optimisme in the stock market now - let me give you a few pointers:

80% of all stocks in DOW trades above their 50 Moving Average... this has indicated crust in the past.

(Click on chart to enlarge)



and the Bull/Bear in same risk.....


The past week action must have been disappointing for the bulls:

• The G-20 was MAJOR SUCCESS --- right ?
• FASB - will help the banks--- right?
• Breaking 825.00 was key -- right ?
• Banks are back - right ?

On the other hand I note, as yesterday, that Switzerland going into DEFLATION is the worst news at all in this cycle - the mere idea that Europe/G-20 will face the Japanese disease is simply scary.

People forget DEFLATION will make credit even less available - as in an environment of DEFLATION the "real price" of lending goes up as deflation increases your debt burden- hence the low leverage of Japanese corporates.

Deflation is a tax on borrowing money, and the present model of VALUATION needs to be ditched as "free cash flow" analysis no longer works - this will make companies with debt even less worth and it will "contain" an expansion of successfull business' as their REAL COST of funding expansion is rising.

Even Greenspan & Trichet, the two people most in denial in this major crisis, realise if the end game becomes DEFLATION its over - and we will see 400 in S&P.... So... monitor Switzerland fight against deflation - if their policy tool becomes competitive devaluation it will merely export the problem......

All in all it the above indicators have made me slightly negative again, and I have initiated short S&P and DOW Futures.....as midday yesterday..... also still short EURUSD & Gold... while I took minor loss on the EURCHF..... I also reentered long EURSEK.....

Safe trading,

Steen

Fear is in the air......

Dear Investors,

On my way to our Stockholm office, but driving to the airport it struck me what "feeling" or sense there is in the market: It smells FEAR.....

Fear that Geithner and his Communist Boss O will do anything and everything to break down big finance, one of only three industries earning the US income... http://www.msnbc.msn.com/id/29847658/

Fear that the hope placed in O and the one trillion US Dollar plan a week will not work...

Fear that we are facing the abyss....(which we are in my view....)

Fear this hope period is followed first by one of severe deflation/recession and then 1920s like hyperinflation

Fear that the G-20 is already doomed.. I duely note how the US and China now openly fighting the on the wires on new currency...I also note via my friend Yoshi that Yuan fwds clearly showing that China is DONE investing in the US......

Fear that Non Performing Loans will be next thing to hit market post Easter...

Yes, it is fear all around - yet not priced in the Fear Index VIX... but watch and check if it breaks th 50 ma, which for reasons beyond me has become the new black of technical indicators...

http://stockcharts.com/def/servlet/SC.pnf?c=$VIX,P&listNum=


The ECB looks likely to cut 50 bps, versus the 30 bps priced in as of yesterday night - there has been considerable 1.3000 EUR puts bying going on last 24hrs....1 month..exp....on this...

ECB is behind the curve - and both on a micro level (read: companies) but also macro wise the policy makers and CEO/CFO of the world starting to see TOTAL COLLAPSE in demand through the December-February month...... the newspapers full of people reversing positive to stable business outlooks to negative.... the margin are compressed and there is MAJOR cathcing up to do on the earnings forecast.. if S&P500 makes 40 US per share this year it would be surprised...

Gold is flirting with its 50 ma.. .and I am VERY BEARISH.. on:

1. Market is too long position wise through QE rally...
2. US Dollar looks to strengthen...
3. IMF and other quasi public organisations will have to sell reserves... and so will CB's with stock left to finance Government bonds buying..
4. Technical .....Gold could be the Crude of 2009... wild upmove based on speculation only to fall down when deflation themes is back ... (note all central banks forecasted to raise rates by 50 bps inside one year - ARE YOU KIDDING ME!!!!!)....
5. Everyone is long and have the right arguments for being long.... store of value, only none fiat currency.... bla bla..

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


Also.... again short EURUSD..

The rate gap close..making 1.3500ish fair value.. .now the improving current accouint will play its as will the move by ECB further towards "Artificial" QE..... the world is global also in monetary policies... we just drive at different speeds..

Finally,

I noted in my look through the market yesterday two "major issues" for me:

1. Freight rates been dropping most of March -- why ? Isnt the world getting back to normal?
2. Iron ore falling..... why? China is good, is it not?

Anyway.... allocation wise.....

Increased EURUSD downside considerably through options, and been adding to short in GOLD..also short DOW.... and Stoxx50 through options for directional trades.. rest is in cash/fixed income... (80% of NAV)......

Safe trading,

Steen