S&P should be at 750-00! What is it doing here?

Dear Investors,

Sometimes you read something which makes you think again - my friend Yoshi often does this to me, so I have asked Yoshi for permission to print this e-mail he sent me today. Yoshi is an independent trader in Singapore and one of the true warriors of trading. Enjoy - Steen -

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Dear friends,

We have now arrived at S&P 950 and my model is flashing its short-term upside risk to 1050 while the current fair value is at $43 x 15-17 (S&P at 750). Well, that's what my head says, but my heart is saying the Japanese style long-term decline will eventually lead S&P to $35 operating ESP at 15x multiple assuming the positive correlation between Obama's approval rating and S&P. So forget about any quick killings in the mkt!

The Bilderberg Group, the plunge protection team, the Japanese PKO and the European something, validity of their existence is irrelevant. In the new world of Tarp, the Fed and the rape of tax payers, I have no problem believing anything. But, even putting these old bones together still would not make a big enough dinosaurs to make troubles for the emotionally sane equity and USD bears.

So I came across a FT article by Sundeep Tucker: (http://www.ft.com/cms/s/0/a7d56c18-5505-11de-b5d4-00144feabdc0.html)

Summary of the article: Early last year CIC picked two or three fund management groups for each of six investment mandates with an aggregate sum of $12bn. CIC has also earmarked a further $30bn of its liquid assets for global portfolio managers over the next 6 to 12 months. CIC and SAFE will hand additional monies to hedge funds and private equity firms, neither of whom typically need to declare the source of their financing. The collapse of the Chinalco/Rio deal will spark soul searching in Beijing. The irony is that it will hasten China’s push to hand bucket loads of money to foreign fund managers.

Well, CIC & SAFE/$2 trillion China plus the old bones may be enough to bully the mkt in the equity, govies, commodities and FX mkts to adjust their reserve portfolio without affecting the USD peg. Greenspan had kept quiet about China's UST purchase with his "Conundrum" bluff. The UST kept going up regardless of the Fed fund rate for sometime.
Now, are we seeing a Chinese Texas hedge after they got burned in their 2007-2008 equity debut? I am guessing their average S&P break-even is around 1100-1200. Considering their concerns over the UST, high priority on energy & commodities security and their determination to keep the peg, their indirect equity investments could make sense if they get their hedge ratios vs. UST right. They could well have decided to readjust their reserve portfolio when S&P happened to be around 650.

S&P M09 emini is now at 928 as I write my letter, but I just think the next bear mkt to the initial target of S&P 750 (and ultimately to 350-450) will be a long process with a few more false rallies.

Remember the African proverb? "When a man threatens you when you are asleep, stay asleep. But when a women curses you, stay awake." So then, what should we be looking out for to time for the next sustainable reversal in S&P and UST? It will be tax and rate hikes as we saw PM Hashimoto's 98 consumption tax increase and Hayami's 2000 premature ending of ZIRP had killed off the feeble recovery and all came to its head during the Japanese banking crisis.

Before the real black swan (geopolitical risk) will finally have landed upon us, I see tax and rate hikes as the precursors however improbable they may seem right now. Once Geithner, Summers and Bernanke fall from their grace, the political repercussion will dictate the fiscal and monetary policies and I sure will feel sorry for Volcker to take over the Fed to tarnish his good reputation by having to raise the Fed fund rate.

Well, with these current long term macro views of mine, I will get some sleep so I can make it to the Asian open this morning to trade short term in the mess of futures roll overs.

Yoshi

The function of socialism is to raise suffering to a higher level.John Mailer

Dear Investors,

Back into the game- the trading account is getting activated and I even signed on to my CNBC-TV online today - miss the old markets - being without a real position since March 1st has been a true nightmare, but now its time to deliver on my blogs et al.

The best advice I seem to be getting from my true friends is to wait out most of 2009 and start trading in 2010.

The market is "killing" people with its randomness and I guess I can understand why when Obama sees todays repaying of TARP money as something "positive" and not for what it is: A financial market which is livid scared of the Socialist Administration who believes in intervention, higher taxes and destruction of private initiatives.

Often the most simplistic way to look at the market is to check on the "technical patterns" - here to my surprise I find myself starting to believe the 950/1050 top - may actually really be a 1050 top - the momemtum of the "dumb" money - i.e: the long only managers chasing their tails as their clients wants The Full Monty of risk allocation will wag the market higher through a quiet summer where no one really wants to deal with the crisis.

A while back, seems like a long time ago, I wrote about how markets tends to get "fatiques".. they simply start to move in different direction because its "time" to do so... I really believe in this concept - or in other words: The only unknown quantifiable parameter we continue to ignore is time and its impact on trading decisions.

Someone who takes time extremely seriously is Terry Landry - his T-theory became a household concept when Marty Schwartz mentioned T-theory in the first Market Wizard book.

I note how Terry recently is starting to look for a serious break-up - his target if I am not wrong is a mighty 1340 in the S&P ?

Check his website: http://www.ttheory.com/ and more specifically check his latest chart: http://ttheory.typepad.com/files/srt20090605.pdf
Terry is not a trader known for high frequency and I love his time dimension plus the logic of his concept.

Click on chart for bigger version




As seen from above chart - I start to believe that 1050 is a real possibility, and the early running of my model in Beta-world is clearly long and happy to be so (I will start the models next week)....

The concern obviously being the rising yield which is hurting and counteracting the dominant theme and action by Fed - reducing the GROSS PAYMENT done by consumers in everything from credit card to the main deal: mortgages.

Also threathing is the potential weaker US Dollar - I think we all have to agree that the weaker US Dollar is fact not a question, but the timing is extrmely difficult as the European Banks are still shaky and the turmoil in Latvia indicates more write-downs are not only needed but called for.

The banking sector in Scandinavia is extremely poor - I expect Swedish and Danish banks to be down-graded later this year- Is it becoming more and more clear to me that the modus operandi used in Scandinavia and probably else where is one of: "Hands off " and "No reason to rock the boat" - so we, the shareholders, have to live with results being announced which at best is fiction and at worst is science-fiction.

Yes, I am saying this: The regulation may "conceptually" be stronger, but everyone has a vested interest in "containing" and "buying some time" the true fact is that Socialism in its present form in the UK and in the US is making sure we will have a lost decade of lower growth, low productivity and increased spending on pension, health care through MUCH HIGHER TAXES.

I find it ironic that despite what can now only described as a MASSIVE rally in stocks and a cheerleading by Prez O only matched by Greenspan's stupidity in the 1980s, and 1990s (or was it 1880s?) the ACTUAL fundamental situation is not improving ...

I have talked to 100s of business people and NO ONE is seeing any improvement at all - if anything people are seeing a negative acceleration to the downside.

Point: Enjoy this party: The booze is cheap, the music outdated and the hang-over have no cure..!

Strategy:

For now I will venture into small long on the stock market - respecting the "dumb"- money ....data is improving according to plan, but market over-interpret all events economic as well as ad-hoc ones...

Higher yield is a summer thing - I will look to go long Fixed Income in July - not before - I like commodities - and I need to revisit my old REFLATION basket -which seems to be doing well recently.

US Dollar - still awaiting the trigger point - decision is now taken - execution is different story...

Beta model is 80 pc long stocks - 10 pct in FI (mainly Credit ETF's) and 10 pct long commodities
Alpha model is small long stocks, short US dollar, short FI, long Commodities, short CREDIT.

Safe trading,

Steen Jakobsen

Buy land- they are not making it anymore - Mark Twain

Dear Investors,

Yes, I got quite a few reaction on the "solar thing" - including this in Financial Times Alphaville: 

http://ftalphaville.ft.com/blog/2009/04/20/54873/markets-and-sunspot-cycles/   

Where Izabella does much better job than me to explain some of the mechanics of this.

I remain sceptical but have observed how more and more serious players at least incorporate this into their cyclical models. Whether this turn into a Heisenberg moment or not is to be seen, but in fund management, as long as it works no cares cares  - really...;-)

I am net short maximum position in stocks, I closed the short gold yesterday at 880ish as my 910 put ran out.....still short EURUSD, and long EURSEK and USDSEK (my favourite long since last week)

Sweden is an interesting example of a country which has chosen to announce that fighthing or keeping unemployment down is more important than anything else (Hasse Borg last week) - this makes for dangerous cocktail as they have entered DEFLATION, have weak currency - the policy choice of jobs means public sector will expand (its already massive), making economy less productive and crowding public capital for private capital almost 100 pc securing Sweden will have sub-par growth for a decade - hence the bearish SEK view. The tool box is simply empty.. .had Sweden been a company it would have been comtemplating Chapter 11 - which I guess is showned by Volvo and Saab fighthing for their lives.

Which bring me to a country who is in Chapter 11 considering bankruptcy: SPAIN - unemployment at 15% and could see 20% before long - Spain is in a viscious negative cycle and it will spill-over to rest of Europe - Am I the only noticing the ever increasing number of countries in DEFLATION land ?  Switzerland(confirmed), Spain(confirmed), Sweden close and Ireland must be close as well -  the implications on corporate earnings and future growth is NOT priced in this market.

Europe is the MOST mispriced asset market for: Earnings, equity values, growth, monetary policy and CDS for banks. Europe is "toast" - the Social-Capitalistic model is falling apart left-right and center..... making me underweight ALL european assets except fixed income ......(which is really same way) ... I remain with my 1.1000 in EURUSD...and I expect growing risk in EEC currencies.

With this cheerfull closing... I bet you safe trading,

Steen Jakobsen

Market getting ready for sell off?

Dear Investors,

Maintaining the same outlook for the market - we are in final path of this bear-market rally, and I am already short, awaiting confirmation top is in place. Concern would be if we broke 860.00 on two continues days.....but 850/55 should cap the S&P for now.

Earnings system has been bad for the market...and all my trading indicators is screaming SELL, SELL, SELL, and with Goldman done manipulating both their numbers and the market in order to get the right issue in place, it may be time to look down again.

This is from my CNBC guest hosting from Tuesday morning .....:

http://www.truveo.com/This-Week-Will-Make-or-Break-the-Market/id/1898898098

Safe trading,

Steen

When people learn no tools of judgment and merely follow their hopes, the seeds of political manipulation are sown. Stephen Jay Gold

Dear Investor,

New research shows bond market predits better than anything else -that's bad news... but then again why let facts get in the way of hope? WSJ: A warning from the bond market. http://tinyurl.com/croo2x

Yesterday it was leaked that the stress test' of the major banks would be delayed and that the administation would batch them up and release them at the same time - now this leak from the New York Times: http://tinyurl.com/dc3h75

What I find amazing is that the administration really thinks it can play these types of games with us again and again.....reminds me of the qoute: You can fool most of the people most of the time.... It is clearly an adminstration running out of time whom is behind such moves... I am sitting with the cash book almost full and awaiting the "true nature" of this market - although today good news is everywhere is it not?

The one news item which does matter is the big improvement in US Trade deficit which at least justifies my very bullish view on the US dollar http://tinyurl.com/dyzlt7

The main reason all year for my bullishness has been the fact that the falling current account deficit (and for the non-economists, the C/A includes trade & another important item: invisibles (the overseas earnings, royalties - a favorite "tax item" which Obama will hit soon)) - a smaller US current account equals much better balance in the world "monetary flow" - as the size of positive and negative current accounts sums up to...... (drum rolls.... ZERO)....

This is the REAL REASON why China, Singapore, Vietnam, Eastern Europe, Europe, UK et al is having major issues - the US consumer (who was the current account deficit) is bankrupt - the next move will be IMPROVEMENT in current account for the US - and much, much small surpluses in the above countries, but mainly EMG risk, so.... the "strong number" today hides further unwinding of imbalances AND it substract from global growth/credit...and finally should make the US Dollar much much more expensive... but as always I am merely simple Danish farmer writing from a sunfilled seaside in Denmark..

Finally, today is FULL MOON, my learned friends all think this is significant indicator of peak or trough in the market, for this simple guy, though it merely tells me too many people have no conviction.......

Positions all the same - losing on the short equity, gaining on long USD...and short EUR,SEK......making ok money still on short gold...... cash reserves remains high....and the powder will not be used next few days.... I am contemplating - and being as slows as I am....it could be a while before I re-engineer my outlook....themes remains the same as yday's post..and targets.....with no predicitve powers are:

• EURUSD in 1.1000
• Gold in 700 (Gold is the crude of 2009)
• Europe to have deflation before end of Q3
• EPS will be maximum 35 USD this year...
• Housing prices still 25-35% too high in most of Europe...
• Steen Jakobsen will become positive once this year..

Safe trading,

Steen

Wednesday Macro

Dear Investors,

Easter is coming - no change in positions....did small interview with Bloomberg this morning, although headline is slightly more "outragous" than my argument....and the interview stinks...but safes me from writing piece today.... http://tinyurl.com/dfqrow

Macro themes for me are now:

1. Deflation is coming to Europe - not only Switzerland (check link: Ireland imposes emergency cuts http://tinyurl.com/dan4z5


2. Unemployment and what it means for monetary policy, policy decisions, people quality of life, social unrest in not priced correctly.


3. Obama - is the most overrated President in history - its all smokes and mirrors ...... (please check link: A rookie President (http://tinyurl.com/dczxyz)


4. Banks in G-10 are insolvent - the more they claim not to be - the more they are...


5. Time is up....for Eastern Europe - only matter of time.....

Safe trading,

Steen

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

“A man who pays his bills on time is soon forgotten” Oscar Wilde

Dear Investors and Readers,

There has been considerable "time lack" in my updates and blog - this WILL be corrected starting tonight..... but the new job has meant considerable NON-INVESTMENT time ...but no excuses..!!!!

Some questions has been raised on the portfolio going from 90 pc cash to 55-60 pc mentioned in last week Investment Meeting - it calls for an explanation:

From my Pura Alpha Macro perspective I am, and continues to be 90 pc allocated to cash..mainly..and as of today I will be buying some bonds to take money out of cash.....however in my new role, which the Investment Meetings was taken from, we are born with minimum exposures of 25-30% at ALL TIMES, meaning to get "translation" that you deduct this "embedded" exposure to get old... but from now on.. I will on this page commit to my pure alpha not to confuse anyone.......and this is how I allocate both Alpha Macro and more importantly my PA money - even outside my own funds.

OVERALL:

The Geithner + QE plan was another week with another couple of trillions spend.

My colleagues are ALL looking for momentum upside, I am FIRMLY remaining out of directional exposure till after the April 2nd meeting - Yes, I could have had 26% of the low with perfect timing, but its 26% of a very, very small number, having had an excellent 2008 I am not rushing into a market which to reminds me of Japan more and more... check this chart from dshort.com (click to enlarge chart)





To me the future looks like the Nikkei in 1980s/1990s - lots of false starts, a low not in yet, and lack of tracktion.

Obama is less popular than Bush at similar time in the Presidentials cycle, bankers working in New York will soon pay 102 pc tax!!! - the 90 pc "jealousy tax" plus 12.5% NY State tax.

The Local states are bankrupt and finally, so much for tranperency in the new plan:

Do you know ANY bank willing to trade some "toxic material" in the 30s when it is on the book as 70s on the Dollar? I do not - then in April the Stress test will be in play.....which will show... what? Based on which price matrix? And finally, selling this plan as private/public where the private sector gets cheap financing, no downside but share upside does not strike me as being politically what the good Senators and Congressmen(women) wants to hear - but the usual suspects are out in force: Blackrock, Pimco, Buffet....so if it goes like the other times....then

Finally if this market is "bullish" ...then:

1. Why is Gold coming off? I thought this was the "reflation" dynamo? - I see gold in 850 next week...
2. US Dollar - why is it stronger?--- the correlation broken? No! It caught up to rate differentials..indicating need for +1.35s... now its back to massively improving US Current Account and home bias - US has the biggest home bias of all, their mutual funds having primarily invested overseas plus Obama threathning to tax overseas earnings... (I am again long US dollar... target: Sub 1.2000
3. TD is getting set-up on(for top): S&P, NASDAQ, DJIA, RUT, DAX, TRAN, SOX, XBD, BKX, CRY (http://www.tomdemark.com/)
4. Earnings cycle... we are still way of low in cycle....
5. Non performing private loans.. we have not even started, AMEX being the first to declare "nuclear waste" on private consumers even giving you money to close down your credit card.

No, it's still cautious for me, I am however pretty much left alone, maybe with the exception of the parma bears like Robini et al, but as Grouch Marx once supposely said: "I will belong to no club that wants me as a member"....

Safe trading,

Steen

Dear Mr. President with all due respect..

Sometimes you read something and wish it was you who had printed it - this Saturday blog will be link sent to my by Vladimir Pajkovski .......from: Mike "Mish" Shedlock http://www.globaleconomicanalysis.blogspot.com/


Dear Mr. President, With All Due Respect ....

Dear Mr. President,

I read your New Era $3.6 Trillion Budget Proposal. I also listened to your speech Tuesday night. You made a great campaign speech. However, the campaign is over. You won. And the reason you won is you offered hope as well as a promise of change.

With all due respect Mr. President, Tim Geithner and Ben Bernanke are offering the same policies as President Bush and Secretary Paulson. Those policies are to bail out banks regardless of cost to taxpayers. Mr. President, it's hard enough to overlook Geithner's tax indiscretions. Mr. President, it is harder still. if not impossible, to ignore the fact that neither Geithner nor Bernanke saw this coming. Yet amazingly they are both cock sure of the solution. Even more amazing is the fact that solution changes every day.

With all due respect Mr. President, Geithner and Bernanke are a huge part of the problem, and no part of the solution and the sooner you realize that the better off this nation will be.

With all due respect Mr. President, your budget proposal is the same big government spending as we saw under President Bush. The only difference is you promised more spending and bigger government, while President Bush promised less government and less spending and failed to deliver on either count.

With all due respect Mr. President, it is impossible to spend one's way out of a problem, when the problem is reckless spending.

With all due respect Mr. President, you and Congress want to force banks to lend when banks (by not lending) are acting responsibly for the first time in a decade. Mr, President can you please tell us who banks are supposed to lend to? Do we need any more Home Depots? Pizza Huts? Strip malls? Nail salons? Auto dealerships? What Mr. President? What? And why should banks be lending when unemployment is rising and lending risks right along with it?

With all due respect Mr. President, we were hoping your administration would not carry on the war mongering policies of your predecessor. Instead we see amazingly that you Seek $75.5 Billion More for Wars in 2009. Mr. President, do we really need another $75 billion for wars? Was there nothing in the military budget that could be cut?

With all due respect Mr. President, The United States spends more on its military budget than the next 45 highest spending countries in the world combined; The United States accounts for 48 percent of the world's total military spending; The United States spends on its military 5.8 times more than China, 10.2 times more than Russia, and 98.6 times more than Iran. Isn't that enough Mr. President?

With all due respect Mr. President, the downfall of every great nation in history has been unsustainable military expansion. Mr. President, the US can no longer afford to be the world's policeman. You act as if we can. Mr. President, can you please tell us how we can afford this spending?

With all due respect Mr. President, Fannie Mae Reported A Fourth Quarter Loss Of $25.2 Billion. Can you please tell us where you draw the line on taxpayer bailouts of Fannie Mae? Freddie Mac? AIG? Mr. President is there a line anywhere, on anything? If there is, we would appreciate knowing where it is.

With all due respect Mr. President, how can you talk about reducing the budget deficit while proposing the biggest budget in history?

With all due respect Mr. President, how is it possible to talk about reducing health care costs while proposing to increase the health care budget?

With all due respect Mr. President, you have talked about "hard choices". Can you please tell us what hard choices you have made other than to throw money at every problem? Sure a few programs have changed but Bush orchestrated the biggest Medicaid/Medicare package in history and you upped it. You upped military spending. You criticized McCain for cutting programs that amount to peanuts, and all you can find to cut out of the budget is peanuts.

With all due respect Mr. President, your "Era of New Responsibility" is nothing more than a continuation of the Bush administration Era of Irresponsibility. Mr. President, we hoped for more and deserved more. Yet, behind the charade of campaign messages of hope and change, we essentially see the same fiscal irresponsibility and misguided policies as before.

Oh sure Mr. President, your budget priorities have shifted a bit, sadly the irresponsible spending did not.

Mike "Mish" Shedlockhttp://globaleconomicanalysis.blogspot.comClick Here To Scroll Thru My Recent Post List

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Strategy:

Absolutely NO CHANGE in plans - still cash/fixed income (75%) - and still VERY NEGATIVE on the 25% invested.

It was excellent week for the portfolio - even the contrarian view on Gold worked well - I remain EXTREMELY sceptical on the rally in gold which more and more reminds me of the crude spike-and-burn story of 2008......

Otherwise:

Short EURUSD (it is only matter of time before we trade sub 1.2000 -and probably 1.1000 / short S&P, short Stoxx50, long USD/CEER, long bunds (yes.. tought one).....long options on more downside in stock market.

Target minimum on stocks remains 690 with 625 being perfect target - the panic is getting closer.

Monday AIG will be facing break-up and the implications of AIG break-up from legal and market performance point of view is SUBSTANTIAL BIGGER than the mess LEHMAN left behind...

Mark my words!

http://executivesuite.blogs.nytimes.com/2009/02/27/is-aig-the-worst-of-them-all/

This will be critical week - and I am starting my new job on this very Monday by going to London and doing the "Analyze that" fund manager interview with Bloomberg.....ouch...

Otherwise - cheer up, there has never been better deals to be had... if..and that's if you have been conservative in the last two years.......it is now time to load up on: debt facilitation, bridge-financing, selective real estate deals, yes this chronic BEAR is getting ready for the blood in the street - and moving at least the PA money into new deals - too early ? Could be, but as J.P Morgan once answered being asked how he became so rich: "I take my profit too early" .....http://www.geocities.com/bstateob/jpmorgan.jpg

Finally, may I kindly ask you to listen to Barry Schwartz: The real crisis? We stopped being wise, this could be best positive minutes you have spent in a long, long time: http://www.ted.com/talks/barry_schwartz_on_our_loss_of_wisdom.html

Safe trading,

Steen Jakobsen

An optimist stays up to see the New Year in. A pessimist waits to make sure the old one leaves.

Dear Investors,

Finally back into the rhytme of work again - must say holidays can be too long these days! Stunning weather, the market is happy and it looks like everyone got the same scenario for 2009 in place - tough first half-half then "flying through" 2nd half...I am not committed yet, having been one of the biggest bears for years, I must remain focused on seeing/understanding the catalysts for 2009, first up being the incoming President and next weeks Unemployment rate.

We have de facto ZIP (Zero Interest Policy) with all the risk of deflation ........the numbers looks bleak. It's almost certain 2009 will be best worst economic year since the 1930s, this does not, however, secure 2009 as a bad equity year per se... the balance will be between looking into the future and finding earnings, tracktions for credit and the extremely low interest rates on US debt or looking into the abyss...

A few things stands out as being in "riot" mode:

• Private Equity is "toast" - no hidding there. I really enjoy this piece by Michael Wolff from Vanity Fair:http://www.vanityfair.com/politics/features/2009/02/wolff200902
• US yield @ ZERO percent - while the CDS on US Debt risis and credit rating overall falls ...? Makes no sense, there will be price to be paid..I am sincerely concerned about continued talks of Overseas Foreign Banks selling of both agencies and treasuries overall ( http://seekingalpha.com/article/110873-who-s-piloting-u-s-treasury-bonds-flight-to-safety)
• EURO strength... with major Euro sceptic Vaclav Klaus taking the presidency from the ever self-promoting Sakozy there could major change in the "economic tunes" of Europe....so far there seems to be this crazy ideas Europe is in a better place... not so.. EURUSD down to 1.000 will be one of the major moves this year.. http://www.timesonline.co.uk/tol/news/world/europe/article5430362.ece
• Volatility will continue to be high.... I expect major ranges to remain in place for this year..I am still in process of looking at technical levels, but my friend Jesper gave me headstart by point to these amazing charts, which tells a story most counters DO NOT want to engage in: http://dshort.com/ (please do yourself the honor of clicking on ALL the charts to get enlarged version..its simply....terrifying who little REAL RETURN stocks have given!)
• Believe in Obama and a planned economy....I still do not understand why a capitlist society just rolls over and accepts general government intervention at large. Major banks in the US, UK, Denmark and elsewhere preaches Capitalisme and reacts with Socialisme. The talk of this working must stop and now... 2009 clearly will show how infrastructure projects DOES NOT solve the worlds issue, that we need serious Destruction of Capital for this game to continue..........

Strategy

I will ignore what everyone else thinks.. and start on the basis of our economic models which show pain is coming fast and furious in the incoming data sets - this will lead to further policy responses of infrastructure and spending future generations money they dont have.

There will be EURO fatigque and it will come early on, as market finally sees how changing Sarkozy for Klaus is not constructive for EUR values - the data for Europe will show how dogmatic the ECB and its merry chairman Trichet has been and unemployment will hit 10% in Q2 2009.......Europe finally paying the full-price for the FULL STOP on consumption......

No one I know feels good about the future..... not even my always miserable friends, thats not a good sign for markets and even less so for the consumption and risk taking which needs to be reestablished.

End of the day when you take TRILLIONS aways in private credit and substitute it with public credit, then the smart guys/girls will recognize it for what it is..... crowding out of private capital.........so unless you vote Socialist 2009 can become Annus Horribilies for us all.

Safe trading,

Steen

When given a free option you either.....

Sell it or use it! This was one of the most fundamental lessons ever given to me by my former boss in Swiss Bank Corp, Mr. BJ..........(Mind you I have failed to exercise quit a few times in my life despite this insight!)

The US govenrment have now given the ABS market a free option : http://tinyurl.com/62gg2h

Buy these issues - if it fails(lose you money) just give it back to the US Government, or rather Fed - it also... the lessons goes.... implies quantitative easing!

Wow, easing in near depression environment? - What a surprise!!!!!! I must say I am tired, extremely tired of this game of mouse and cat.

You know, I know, this is one big Ponzi scheme - and the game right now is to figure out who can stay solvent the longest. The US government got some cards on their hands being able as always to "print themselves" out of the trouble.

The risk being this time, it's a global crisis, it's not only global it's also the biggest uphill struggle in history with debt remaining at all time high 340 pct of GDP... so now.. if moving ABS debt from one pocket to the other is big "feel good" factor then my bank advisor should just move my overdraft from one account to the other - at least one of them will improve!

Feel free to buy this rally, even feeel free to cheer on the new O-regime with their Dirigisme.

I for one is tired of being the "warning signal" for this market but please free me from talk of this market being cheap, having seen the low, and please stop producing "counting" documentation for why this market is now going up 1000 pct!

I do not want it! - I am 75% in cash,yes...... seventy-five percent C A S H ! - and if anything I am likely to increase this cash ratio as I see nothing but utter disrespect for the forces of the market and a total lack of willingness to understand all these "help programs"... and the junk yard they all lead to.

My good friend Drew Baptiste have given me his new outlook on stocks which sort of mimicks my amateur levels: (Below is his and mine combined - sorry Drew!)

S&P could move into broad 650.00 - 1050.00 range - for now 905.00/900.00 is upside to break (S&P now @ 848.00) - downside still got some attraction before downside established for now....720/680/650 our new medium targets and long-term now 2009 we will see S&P 500 in 500.

For the mighty EUR/USD I still, alone it seems, feel Europe not priced correctly - The US Dollar has horrible outlook but at least they have done something - and with new Prez O from January there will massive fiscal stimulus - meanwhile in Lalaland- sorry Euroland - Trichet is about to publicly acknowledge things have slowed!

All core Europe rates will go to ZERO, ZILST, NOTHING in 2009 - the sooner the better - implying massive yield steepning........ but the EURUSD will neeed to pay the price and for me 0.9500 EURUSD is more than likely - just not this week ;-)

Talking about something I do like from long side, I remain positive on selective corporate credit - in the refinancing period between now and middle of next year there will be so much dislocation that VALUE DEALS will materialise......it is time to start new VULTURE FUND in Corporate Credit space.

I also maintain overweight Japan - versus short Europe - The Japanese have been in "recesison" the last 20 years - they know what to do AND they got the saving surplus to deal with it.

It is also time to look at inflation linked products - whether selective REIT or direct in TIPS - this explosive creation of money will have inflationary impact but delayed as the REAL ECONOMY for now will be bigger drag, but rest assure where there is ACTION there will be REACTION (= inflation) down the line.....

We are:

Short EURUSD (still), short EURGBP @ .851932, long bunds @ 120.50, short S&P(still)m small long JPY.... and just taking opportunistic view on everything.

Safe trading,

Steen

Rebalancing - chances of three day rally

Dear Investors,

This is not even a "real blog" but I have to make you aware that potentially this month-end could be the biggest rebalancing going on since "crahs of 1987" - the following is an internal e-mail I did to explain - very simplistically what goes on! (Please, please do not send me email why its wrong, but accept the "drivers" of this totally mechanical process' which has ironically made most funds lose more money....but that's another story.

=======================================================
Rebalancing – the way most long only fund managers do their portfolio management is to hedge themselves versus a benchmark – for arguments sake let’s make this index:

60% stocks and 40% fixed income.

From end of September the performance has been:

Russel2000: - 34% month to date
EAFE International stocks: -30% month to date
Lehman +20 yrs bonds: +2%

A “standard portfolio” consists of:40% domestic bonds – here represented by TLT US Index, 60% stocks – where 75% is domestic (RTY index) & 25% foreign EAFE (MXEA) ---

now the math starts:

Assuming fund manager by start of October was balanced as per above his p&l looks like this:

Oct 1: AUM 100 USD.
TLT (Bonds) 40 USD
RTY (Domestic stocks) 45 USD
MXEA(Foreign stocks) 15 USD….

Oct 28th though:

TLT = 40.8 USD (+2%)
RTY= 29.5 USD (-34%)
MXEA= 10.5 USD (-30%)

In order to get back to Oct 1 “ratio” the fund manager needs to (look at 4th coloumn):

TLT 40.8 32.4 -8.4 -6.804
RTY 29.7 36.45 6.75 5.4675
MXEA 10.5 12.15 1.65 1.3365
TOTAL 81 81

He/she needs to:

Sell 8.4% of 81 USD worth of bonds or 6.8 USD worth
BUY 5.5 USD worth of domestic stocks
BUY 1.3 USD worth of foreign stock.

This is Totally mechanical and the closer we get to Friday the more this could play.

We have bought November call 1010 for 10.00 USD to play this – or 500 US Dollar per contract.

References: S&P @ 873.00, Stoxx50 @ 2355

Safe trading

Steen

It feels like 1992, it smells like 1992, but its 2008

This is very similar to what I felt before Bank of England gave up in 1992 - Every single central bank in the world are protecting their currencies by hiking rates - No, they do not learn from history!

Having said that this note will be short:

My targets in: Gold @ 700 been reached - in process of taking profit.....EURUSD @ 1.2700 been reached and exceeed - took profit. Bunds @ 117.00 took profit.

I will go home SQUARE - and I mean 100% cash tonight - We had great run last two month and it is time to honor the trading Gods by not believing in ..... "easy money"...

I feel the pain of my colleagues - they are hurt, but too many of them still "hope" - The hopers needs to learn that hope belongs in Churches on Sundays (In Denmark) no where else.

This week-end Central banks and governments will be busy putting together packages. Close to home in Denmark, we will get State Guarantee for Mortgages..... closing down the arbitrage between Deposits and Mortgage bonds.

Dirigisme - the most dangerous thing in the world is being used to talk about market potentially being closed for one or two weeks (Roubinin & Berlousconi both should have said so - I did not have time to verify either so please check yourselves)

I just had conversation with journalist from Norway and when being asked what the policians and policy makers could do to make this better I impulsively said: "Ask them to shut up!" Sounds harsh - why do not you listen to this link: http://www.youtube.com/watch?v=zPHUtFxaJ8M or even better consult studies on political economies:

As I always ask: Why was President Bill Clinton so successful (vis-a-vis economic growth)? Because he never EVER got anything done - it was eight years of total political vacuum on major issues - In vacuums the economy adjust on the micro-level.

What we need now is for the Americans to feel and understand why they need to save money - not because Government tells them to, but because its the only way.

Before I get attacked for being elitist, european and high-horsed, the same goes for European banks, consumers, real estate people - if you think money will be free forever then reality is here now.

Anyhow.

Stategy:

To have a week-end with no positions. (well entirely true - bought way of the money STOXX50 calls - only because I know I have no predictive powers)

Safe tradings all of you.

Weekly Macro Meeting

The three driving premises for our research remains:

1. Cost of funding drives market and valuations


2. Price of liquidity new unknown (tax on money)


3. No prior analogy historically will work (because this is different, very different)

Conclusion

This week: Reality hurts! Redemption, Dirigisme, tension in EMG+ EEC all points to further deleveraging in the economy ==> Bias on ACCELERATION on downside for risk assets

Last week: We have moved into grey-zone between recession and depression ==> Bias on downside is increasing.

Allocations:

This week: 85% cash maintained - short in commodity direct and indirect through stocks, short gold, long TIPS, Bunds,long USD,JPY,CHF vs EUR, LVL, HUF, GBP, long down-side in Stoxx50 and S&P500

Last week: We called the transition - although the Social democratic Nationalisation has created pressure in EEC and EMG countries as they stand outside the "circling of the wagons".
We maintain 85% cash - but up from intraweek 65% - as we need further information to make long-term call.

Targets:
S&P 500: Down to test our long-term minimum target of <765-00>

Fed funds: 0.50% by Q2 2009 /ECB: 1.50% by Q2 2009 /10y yield: 4.5-5.0% by Q2 2009 /2y yield: 1.00% by Q2 2009

Crude: 50-60 by Q1 2009 /Gold: 700 by Q1 2009 =========================================================

Economics

Bias: Negative growth, consumer demand & inflation

Incoming data continues to disappoint- below is the Surprise Index compiled by Citigroup, it rates better than expected data in ratio to worse than - not exactly time to smile is it?

(Click on chart for larger version)

We see increased tensions in the Non-in regions: EMG and EEC.

Hungary is being called the new Iceland, and Argentina is threathning to nationalise the pension funds......

EMG+EEC return is 100% correlated to their current account surplus' - in this global slow-down C/A balance deteriate and does the political will of these emerging countries to maintain "open trade" and non-intervention.....unfortunately.

On the premise of "cost of capital" key component, the saving surplus countries: Switzerland, Singapore, China and Japan will do "less bad" than overleveraged: EEC+EMG, UK, P.I.G.S, Canada, Australia and New Zealand.

=========================================================

Fixed Income

Bias: Bullish

Change in bias from neutral last week - we have been long Bunds the past week and with some success we see further flight to quality.

High Yield(Ticker: HYG) has performed ok - we are still constructive on this.

Danish Mortgages: Still under pressure - as long as the Government dont guarantee mortgages there will be pressure on DKK & Mortgage Bonds. We see intervention timed with the "conversion" in December - The government does not know this yet, but they will intervene before going on Christmast Break.

Still favour Bunds over Treausury. In cash bonds we favor New Zealand, UK and Austalia - currency hedged.

=========================================================

Equity

Bias: Very negative

Our long-term EPS share model indicates we need to undershoot by wide margin on "cheapness" in order to follow standard mean-reversion. Our Chief Economist is all excited about potential for S&P in 400.00 as an analogy to The Great Depression where S&P fell 80% from peak, but unfortunately we are not in position to use this type of counting due to our rule #3: No prior analogy historically will work (because this is different, very different)- However this does not mean David is not right about deteriation beyond our minimum target of 765.00

Sectors wise:

Negative: Energy, Consumer Discretion(..but Fiscal Stimulus plan could change this), Materials

Positive: Financials(The National Champions), Utilities, and Technology

Neutral: Consumer staples, health care, Industrials, Telecom

Top picks: Credit Suisse, HSBC, Microsoft

Top pans: Carlsberg, Nestle, British American Tobacco, Coke, Volkswagen

=========================================================

Commodities

Bias: Negative

Gold: In time of writing we have passed our last week minimum target of 750.00 - new target: 700.00. The Central Banks sits on big Gold reserves which pays nothing, does not offer any value ==> They will sell - also correlation with US dollar will accelerate the move.

Crude: Passed the critical 70.00 US Dollar. OPEC this week will take 2 mio. barrels out of circulation - but pressure will continue.

Foreign Exchange

Bias: Stronger US Dollar and risk aversion currencies: CHF, JPY

US Dollar: The fiscal package mentioning this week took US Dollar through the critical 1.3250 level, we have been short from 1.3700 and we are now close to our target of 1.2700.

The key drivers in US dollar for now are:

Dirigisme, the relative more leveraged European banks, and differences in monetary policy expectations - all indicates that down the line 1.10-1.15 could be likely.

EMG, EEC: Very very negative. We are looking for strain in ALL pegged currencies and EEC+EMG. Hungary been hiking rates 300 bps - this smells like UK & Ireland in 1992 hiking to defend, but how is that going to do anything about their structural imbalances? You need to be long CHF, USD, JPY basket vs EMG+ EEC

=========================================================

OVERALL CONCLUSION

=========================================================

Our Puma Macro model made +123 bps versus Dax return of -1208 bps for the last week - and YTD we are +510 bps versus -43% for DAX .

We fully acknowledge being so extremely defensive dictates being open for any change of trend, but having said that in a world of almost total uncertainty the old rules of Money Management needs to be applied:

1. Preservation of capital

2. Respect and understand compounding

3. Knowing when you are wrong.....

I wish that more socalled advisors would have learned these lessons:

I now daily see "Conservative Portfolios" down 70% and where the standard reply from the "managers" continues to be: Keep calm, this will come back...... but as John Maynard Keynes (keeping with the theme of dirigisme) said: 'The market can stay irrational longer than you can stay solvent'

We are now in phase where people/investors face the most difficult task of all: Remaining solvent - the advice they get is to "stay with your positions - it will come back", but scroll back up to the top of this blog and read our # 3 rule again: It is different this time - negatively.

Safe trading,

Steen Jakobsen

Prediction is very difficult, especially about the future. Niels Bohr

Prediction is very difficult, especially about the future.
Niels Bohr (1885 - 1962)

There is clearly now some established ranges in place in the S&P500 between 860 and 1060 on the downside, bias for me is still "south".

Right now I am watching my friend Drew Baptiste 987.00 level as key trigger for whether long or short, and remains with our negative bias meaning potential for minimum 767.00 based on the trading theme process moving from recession into depression.

I have said continuesly that the stock market performance for Q4-2008 and Q1-2009 will be based on the "perception" of either recession or depression. Despite my own bias towards recession, a severe one, it is more and more clear in the public domain and incoming economic data confirms that the worsening data is accelerating not stabilising.

The best point is our own internal model designed by our Chief Economist David Karsbøl, which measure key indicators. This model has been excellent in catching the trend of incoming data.

Saxo Bank Fundamental Index (Click to enlarge)


The conclusion:

For now we are moving into a "perceptional depression" from a fully priced recession - market impact is retest of low(potential for new lows) & much lower short-term interest rates.

In Europe, and in EURUSD I have become very negative short-term based on the increased pressure for much lower rates in ECB (& BOE).

I can not say I am fan of Kaletsky of The Times in London as he continues to act and speak like a person who uses history to explain the future, which is simply not do-able in my investment world: (http://business.timesonline.co.uk/tol/business/columnists/article4974535.ece)

To remind you our three premises are:

• Cost of funding - drives market and valuations


• Price of liquidity new unknown (tax on money)


• No prior analogy historically will work (because this is different, very different)

Despite this he has an interesting argument: If we assume UK has one of the most leverage economies in the world, then why does it not have the lowest interest rate?

His argument can be read and seen in the above link, but there is some truth in this and the investment outlook conclusion must be:.......Much lower front-end rates.

I hear you already, but it is already priced in! No! Not to the full "depression" extend: UK in 1.00%, USin 0.5 %, Australia in 1.00% etc, not possible? Sure it is, in a depression its all new rules, when you fight to survive as a country, a company and on a personal level. As President Reagan said: "A recession is when your neightbour lose his job, a depression is when you lose yours".

Unemployment rates across the world, will unfortunate rise to at least 1992 levels, and I remember being a young man coming out of a tube at Hammersmith Station in London in 1992, and hearing the newspaper salesman shout: Evening Standard: 3 million unemployed in the UK, Read all about it..........and if you do not trust me on the pain of the UK consumer check this cool site by the BBC http://news.bbc.co.uk/1/hi/business/7457886.stm

Strategy:

Foreign Exchange:

Short EURUSD @ 1.3500 - fancy new lows beyond 1.3260. My chartist John Hardy is very bearish....

Still small long USDJPY through options, mostly as "insurance".

Fixed Income:

We continue to flex between deflation and inflation, right now this a.m, we bought back our short Treasuries around 112 25/32 - looking for some erosion into the Washington Mutual CDS auction tomorrow, plus acceleration of down-side for economics.

We are also looking for post Investment Meeting tomorrow to put on some 1.00 pct UK rates by Q1-2009.

I remain sceptical of lending the US money @ 4.00%, so net long is not happening here......

Equity:

We took profit on ALL our long positions including value trades like banks, pharma, and shipping making a 7%-17% return on them - why?

Well, the "needle" has clearly moved to 60% odds depression from 40% in the last few weeks.. which we now take consequences from.

Commodities:

Short Gold, very bearish.... target sub-700.

ALL in all we are in for exciting week, the financial panic has been avoided, but will we be able to avoid economic disaster? We think so, but right now price action and incoming data dictates us to at least believe it could be DEPRESSION´which is incoming.

Finally, spend 10 minutes reading this unique commentary by Ms Scwartz, 92 years old: Bernanke is fighting the last war. http://online.wsj.com/article/SB122428279231046053.html?mod=special_page_campaign2008_mostpop##

Safe trading,

Steen

Weekly Macro Meeting

The three PREMISES:

• Cost of funding for drives market and valuations
• Price of liquidity new unknown (tax on money)
• No prior analogy historically will work (because this is different, very different)
  

Conclusion:

Last week: We are seeing the financial effect now impacting the economic situation - making this the "worst part of the curve".

This week: We have moved into grey-zone between recession and depression ==> Bias on downside increasing

Allocation:
Last week: Watch the transitions period - we are clearly policy dependent. We maintain 85% cash = EXTREMELY DEFENSIVE

This week: We called the transition - although the Social democratic Nationalisation has created pressure in EEC and EMG countries as they stand outside the "circling of the wagons".

We maintain 85% cash - but up from intraweek 65% - as we need further information to make long-term call.

Keeping cash @ 85% is not only impossible in order to make excess return, it is also extremely punitive in general allocation theory, but this is not time for being brave, rather it is time to look for opportunities, so as negative as we are - we are looking to reduce our cash portion relative quickly should we get more transparency.

Targets:

S&P 500: Down to test our long-term minimum target of <765-00>

Fed funds: 0.50% by Q2 2009 /ECB: 1.50% by Q2 2009 /10y yield: 4.5-5.0% by Q2 2009 /2y yield: 1.00% by Q2 2009

Crude: 50-60 by Q1 2009 /Gold: 750 by Q1 2009 =========================================================

Economics

Bias: Negative growth & inflation

David Karsbøls economic forecasting model continue to fall indicating waning growth & inflation
Key leading indicators all point to lower growth

Fed 1 years forward expected rate is +26 bps - which we deem to be too high - We expect further cuts in Fed funds

EDCB 1 year forward expected is -121 bps - which we also deem to high - We expect minimum 250 bps cuts from ECB

Australia and any commodity country will decelerate the most - we are entering bust-cycle for commodities, which will hurt these countries

On the premise of "cost of capital", I.e savings we favour economic relative performance from: Switzerland, Singapore, China, & China - and underperformance from: UK, Scandinavia, Spain, Portugal, USA, Canada, Australia, New Zealand
=========================================================

FixedIncome

Bias: Neutral

Banks can not releverage their balance sheet meaning less demand for Government issuances
Central banks will need to buy their own government bonds as no one else will!!!!

High Yield is still struggling - Corporate leverage spreads widening - Financial tightening - 8 year Ford pay 27% yield

Danish Mortgages: Still under pressure - Lack of guarantee in mortgages makes for widening spreads plus weaker DKK currency

Still favour BUNDS over Treasuries

We will go long TIPS (ETF: TIP US ) - as breakeven has gone negative - indicating NO INFLATION expectations

=========================================================

Equity

Bias: Negative

Our team does not believe earning actual results to be major theme - although there are low expectations

The key driver in equity will be: Hedge Fund Redemption. There is talk of > 200 bln. US Dollar and most of it in November & December

Using our three premises sectors to be overweight are: Utilities & Telecom. Underweight's are: Energy sector and consumer cyclical

There is some silver lining in equities - looking at P/E based on trend earnings (I.e smoothed earnings) we are trading all BEAR MARKET LOWS: Presently 12,2x versus previous lows of 15.7x(2002), 14.2x(1990), and 13.7x(1987).

The issue being where the E in P/E should be priced...but in terms of medium- and long-term allocation we need to move into equities soon or we lose upside allocation potential

=========================================================

Commodities

Bias: Negative

Gold: The governments will need to sell out of their stocks plus if we should be buying Gold as inflation hedge, then with break-even turning negative, we should be selling Gold. We are net short GOLD through medium term Put bought.

Crude: Getting closer to "critical levels" for both producing countries and producing companies - 70 $ seems to have some budget rate implications - hence fall below could trigger two thins: 1.
Foreign Exchange

Bias: Neutral

US dollar: The US needs to fund themselves- there are two ways: 1. Much cheaper currency 2. Much higher yields - Second choice will not help the economy, hence must number one play - we are at turning point in this US Dollar strength, but we need further easing in US funding rates, and some better economic data to pull the trigger

JPY, CHF; Two best places to park your currency for now

EMG, EEC: Very very negative. The currencies is 100 pct correlated to their current account balances - with world slowing into recession/depression there will be more pain - unfortunately
Carry trading: Forget it!

=========================================================

OVERALL CONCLUSION

We fully realise keeping 85% in cash does not make you a lot of money, but with a performance of +400 bps YTD, and our benchmark down everything between 25% and 75% we simply do not feel this is the time to be brave.

We are more focused on finding long ideas in equity, corporate bonds and commodities than in continuing selling them down. We see and understand that in "normal times" this is cheap, but having premise number three: This is different, we have been able to navigate these troubled waters.

The Investment meeting was down right depressive for yours truly, who find himself the most "bullish" of all - but in respecting the framework and the lack of clarity we reassigned the extremely cautious weights to our portfolio.

For arguments sake let me tell you in "normal times" if we have no exposure we would to Beta exposure:

Equity: 35%
Fixed Income: 15%
Alternative Strategies: 20%
Private Equity: 20%
Real Estate: 10%
Cash: 0%

But clearly this is not a time like that.....

Have a nice week,
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/
Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.
Please read our full disclaimer.

A complex system that works is invariably found to have evolved from a simple system that works.

A complex system that works is invariably found to have evolved from a simple system that works. John Gaule

It could not be said more elegantly - for something as complexed as a financial system to work we need to get back to simplicity! Design, at least Scandinavian, is based on simplicity and functionality - maybe finance needs to take it cue from design rather than mindless policiticans and policy makers.

I did guest hosting on CNBC this morning - always a good and lively crew in London, but I was somewhat surprised at how EVERYONE is arguing in the past! Listen - Its over! New paradigme, we are now in period of transistion for both the way the markets and banks works, but also for valuation metrics.

The back-fitting and mechanical approach to trading is out/done/busted! In is: risk management, grey hair (I did warn you all about this trend!), alpha and directional players with a view.

The world is full of opportunitites let me mention a few things:

• UK banks trades almost a tangible values! Something I said long ago Citi and other should as well. (Long RBS, HSBC, Danske)


• Cash rich companies like Apple, Microsoft, VISA, Mastercard trading at multi-year low multiples, then add Pharma (Novo, Pfizer), Maersk(shipping/oil) and you have value proporsitions not seen in 50, yes even 70 years!


• High Yield US is 1.000 bps above US government - this means 50-60 pct default versus all-time high of 36-38% (We do need funding rates down before this becomes steal, but it is getting closer + (Benchmark you can use HYG US)


• Bank loans - trading at 70+80 cents in the Dollar


• Private Equity deals is extremely cheap


• Banks are AAA (In the case of Denmark at least)


• Pakistan Sovereign debt trading @ 85 pct chance of default

Some things are lacking as well:

• Housing market still has 4.5 mio. unsold homes,


• The crisis is moving from financial to real economy meaning more savings less spending


• Bank getting recapitalized helps, but they still need to raise more private capital


• The "plan" will mean crowding out private capital and most likely creating unfair competitons between public and private banks


• US election. Whoever wins is a loser as they will have to wind down spending, increase taxes..... and implement stupid regulatory frameworks

So what I am trying to say remains:

This is going to be like in the 1970s:

(Note: Any resemblance with my Senior Partner Lars Christensen on the above picture is random - for the record Paul Breitner is much better looking!)

Disco, Paul Breitner hair, color nightmare, big government(read useless), inflation pressure, non+performance of equity (broadbased indicies), now even Brown wants to do Bretton Wood which was last "seen" in the 1970s - so ...my unqualifed, non-predictive response remains:

• If this is going to be recession then its 1150-1200 in SnP in Q4+Q1 + as market has priced the R-word, plus manager underweight stock benchmarks


• If the nasty D-word, as in depression is what we will have then 765.00 our ultimate target comes into play

The fact remains --- Below 1000 in SnP there is 5-7 pct return for cash generating, margin business, below 850 ish its oversold and cheap.. 1100-1300 becomes a game of where economies are going, how fast rates will normalise and how much Bernanke et al can distroy with their mistimed regulation and management.

In closing I will note two more things:

1. Everyone I know wants to sell rallies, like the whole CNBC crew, my own sales-traders, and analysts -- they are like Cramer - all into cash! Now! The balanced portfolio should add stocks now not sell....


2. 3.000, yes 3.000 stocks had Morning Star formation in the Us yesterday......(http://www.traderslog.com/morning-star.htm

Remember in chinese language the sign for crisis and opportunity is the same.

Be safe,

Steen

If stock market experts were so expert, they would be buying stock, not selling advice.

If stock market experts were so expert, they would be buying stock, not selling advice.
Norman Augustine (1935 - )

Dear Investors,

I find it scary that our target (long-term) is now in sight: 765-00 - We have been calling for sub-800 but the speed of this collapse surprised even me to be honest - I did expect the politicians to react to get ahead of the curve but in true politician/policy maker fashion they trailed - giving me 50 bps, when 100 bps was needed, leaking all info to press - etc etc.

Now we are awaiting two major events:

One, the Lehman CDS settlement - this has been major driver of the hoarding of capital by banks and funds as the gross amount needed to be settled is said to be > 300 bln. US Dollars.

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN0841811720081008
9:45 a.m.-10 a.m. Auction participants will submit bids and offers for the debt backing the credit default swaps, which will be used to determine the initial recovery rate of the swaps.
10:30 a.m. Auction administrators Creditex and Markit will publish the initial recovery price and the open interest for the contracts will be published. The open interest reflects the amount of bids and offers that have been made, and will show if there are more buyers than sellers, or vice versa.
12:45 p.m. -1 p.m. Participating dealers will submit limit orders for the debt on behalf of themselves and their clients to fill the open interest
2 p.m. The final price of the auction will be published.

Two, the G-7 meeting in Washington. I got feeling this meeting could start early if not already underway right now. There should be press conference 7-ish PM CET time, but I expect announcement before US open.

The schedule:

All times are (WashingtonTime/ GMT)...
0830/1230 - French Economy Minister Christine Lagarde speaks on the credit crisis at the Council on Foreign Relations.
0830/1230 - Eurogroup President Jean-Claude Juncker delivers welcoming remarks at a conference on the euro sponsored by the Peterson Institute for International Economics and BRUEGEL
0845/1245 - EU Economic and Monetary Affairs Commissioner Joaquin Almunia speaks at euro conference 0900/1300 - Group of 24 ministers meeting.
0930/1330 - ECB Executive Board member Lorenzo Bini Smaghi speaks at euro conference.
1000/1400 - Inter-American Development Bank holds seminar, 'Impact of Financial Crisis on Latin America'.
1015/1415 - IMF Managing Director Dominique Strauss-Kahn speaks at euro conference.
1240/1640 - ECB Governing Council member Christian Noyer speaks at euro conference 1400/1800 - Finance minister and central bankers from Group of Seven nations meet.
1515/1915 - Media briefing by G-24 Chair.
1515/1915 - ECB Executive Board member Lorenzo Bini Smaghi participates in IMF seminar on oil prices.
1700/2100 - South African Finance Minister Trevor Manuel participates in IMF seminar on impact on developing countries of economic slowdown among Group of Seven nations.
1845/2245 - U.S. Treasury Secretary Henry Paulson holds post-G7 news conference.
1945/2345 - ECB President Jean-Claude Trichet, Eurogroup Chairman Jean-Claude Juncker and EU Economic and Monetary Affairs Commissioner Joaquin Almunia hold news conference.
TBA: Other G7 delegations hold news conferences.
TBA: G7 holds 'outreach dinner' with Russia.

We are now in phase where innocent people lose their jobs, pension and net-worth due to bad investment advice and the ever go-happy-crowd of stock manipulators calling for buy-on-dips, through my optics this is the "fundamentals" right now:

• S&P in 900-1000 is oversold; getting cheap...


• S&P sub 800 is cheap... and should give excellent return on 2-5 years horizon.


• Our target remains 765-00....... we are 85% in cash - and we will await this weekend moves and NOT ENTER any new positions before Monday.....

My thoughts go out to all those who fights the markets today, to the poor Icelandic population, to everyone forced to "do something or else"....... this will be day to tell your grandchildren about, for once I am relieved I am a boring, defensive, and sceptic..... I am scared and so should you be.

Be safe - with the best wishes,

http://www.youtube.com/watch?v=jHPOzQzk9Qo

Steen

The opposite of talking isn't listening. The opposite of talking is waiting.

The opposite of talking isn't listening. The opposite of talking is waiting.
Fran Lebowitz (1950 .)

So... what did I do? I talked ;-) to my friends at Bloomberg - I put this link in as todays text as it pretty much states what I think right now (I am really sorry you have to both listen and see me)...

http://www.truveo.com/Investment-Strategy-part-2/id/3216682401

The Chinese use two brush strokes to write the word 'crisis

The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger - but recognize the opportunity. John F. Kennedy




This morning CRISIS version 1.0 hit european newspapers and media - for the first time every single media got SPECIAL EDITION on the crisis -
I find that somewhat positive as they so far have been talking about this AS IF... the crisis comes...

Second observation; what u dont die from you get stronger from?

The fact the market didnt total collapse this am in europe is good sign, same as asia... is there temp. lows in S&P in ?

Clearly the big losers are Paulson, Bush, and Washington, but cud the winner be "capitalisme" and the markets... ? I think so.. the plan would have been disaster.....


Other news:

• Ireland guarantees ALL bank deposits - wow, thats interesting.....
• Danish Nationalbank except all forms of collateral including old bicycles(i.e: non-traded stocks)
• O/N USD rates in 8-10% as we have turn money (September into October) - showing not enough collateral in the system for some of the banks.....
• This will be one of the worst month on record for hedge funds - we expect redemptions to exceed 10% of AUM at least , i.e more than 200 bln. US Dollars....

Strategy

We are trying to defend an excellent month by taking very small risk into the month-end - our primary focus has been stocks this month, next chapter in this story could very well the major move in the US dollar. Which way? Still unclear, the path of least resistance should be weaker US dollar based on their extreme need for funding from overseas, but for now it seems there is considerable repatriation going on from US based investors away from EMG back into the US, but to me this is merely matter of time, but tide is turning.

The issue as my good friend Lars keeps pointing out; the EUR is major disaster in every aspect, economically, cyclically, and policy-wise. Trichet will once again be forced to move away from his dogmatic views and into the REAL WORLD, as the Eruopean banks are collapsing one-by-one.

Left? CHF and JPY, I guess, if anyone can tell me what the Japanese investors will do the next three month, having savings exceeeding ALL THE SWF-funds in the world, I will tell you where the JPY (and US dollar goes)... keep me posted.

Moving into Q4 we could have potential for big positive return if the policy makers can stay away......Mind you the starting is low - the real deal though will be whether or not the REAL NEEDY, the US consumer with mortgages gets help or not - with the failure of the deal yesterday we are one step closer to proper solution - maybe?

Positions

Small long S&P from this morning, short T-bonds, long front-end US rates, long CHF vs GBP & EUR...

Good luck, and be safe