Labor day - the cheerleaders been busy...

Back in Copenhagen and over the week-end the G-10 financeminster met and the cheerleaders immediately concluded: This is good - RISK ON.....

However the only worthwhile comment I probably read over the week-end and this morning was from my old collegues in Saxo Bank Research David Karsbøl and Christian Blaabjerg who when asked why they saw market down 20-30% while other saw it up by the same amount replied: Because we are "Austrians" and they are Keynesian.

They could have added - and the investment banks are whatever it takes to paint the world bright and appealing.

The conclusion is correct.....but the mere exercise of trying to predict this market is utterly futile. Even the best "futurists" - only get 10% correct....so why keep trying ....

I do not prescribe to any school, partly due to my lack of intellect, partly because it really does not matter...... as a speculator.... the main ingredients is the amount of stomach pain you can take - and right now there is plenty of acid for the same......

The move off the high in S&P was classic divergence + high sentiment indicators, but even record high unemployment on Friday did not stop the plunge team from getting in line and buying into the close..... then this morning quarterbacking by the investment banks has taken the market yet higher..the incoming data keeps the momentum going on the bull side - and there is some light as seen in this "record of industrial production":
http://www.voxeu.org/index.php?q=node/3421

So... here we are: The Austrians vs the Keysian, the Investment bank vs. the Hedge Funds, the naive vs realistic ? :-)

Well I'm not taking side yet... our base scenario remains one off:

Down in September/October (Probably more likely in October than September due to the overfocus on how "baaaaaadddddd" September seasonal does - so expect range in September down in October.....

The Q4 overall should be positive: Looks like the exit from the stimulus has been postponed after the US forced other G-10 members to rein in the "urge" to normalise....and the Prez O needs to regain the political focus at home - what he does not need is a second leg of this crisis....

He has plenty on the plate with: Health care (note he is speaking this Wednesday to Congres, Aghanistan and Iran... http://tinyurl.com/nfckbm

So... the best "deal" right now is wait for further confirmation and accept the market is in "positive" spin if for nothing else due to lack of new information......

Strategy:

We remain short GBP into the Bank of England meeting this week...http://tinyurl.com/mlag6s

We are short USDJPY from today @ 93.01 - stop 93.55

Long Bunds on strong performance.....

Small short S&P and DAX - low conviction...... (Research shows day after Labor weak in 9 out 10 days with two positive closings preceding it...)

Short Crude.. still....

Short Gold... mean reversion..

Safe trading,

Steen

Free markets - why are the banks whining?

It is very clear to me that the central banks of the world are in the process of doing a paradigm shift. In all of my trading life we have had the Greenspan put in place. Basically, since 1982 every single market down turn should have been bought, as IF there was ANY type of crisis on the horizon the central bank response was to float the market with more capital in order to stem the tide.

This "safed" the Asian crises, but made the IT-bubble in 2000, post the IT-bubble capital floated into housing, and private equity/hedge funds. The REAL paradigm changed has been the fact that 1989 was the most significant ECONOMIC EVENT in my life. Why? Because it created more wealth by creating 2 billion new capitalist', it created more saving allowing the Western world too deeply dis-safe.

What I see in front of us, it that the CREDIT CARD bill now has to be paid. No longer is it enought to pay the minimum amount on the bill. The card is MAXED OUT!

The paradigm shift happens because the new central bank managements, understand that bailing out the industry right now will not only create a moral hazard but also make the bubble even bigger. They need a resolution to this crisis which comes from somewhere else.

Yes, they will cut rates WHEN, not if, the economies show down turn. All cyclical indicators for the world economy is collapsing anyway, but......the CREIDT issue as seen by the graph here neither can or should they touch.

LIBOR, the London interbank rate is now trading through the FED discount window allowing at least US based banks to arbritrage... this will not happen yet as there is collateral needed for borrowing in the discount window....

This situation illustrates many fold, how this is about the world banks taking ALL their off-balance-sheet investment onto their balance sheets.

Without naming names, clearly, a lot of European banks are not telling the full truth about their loses. (How come some banks continue to have Glitches in their payment system day after day??)

This is to continue, having read Schumpeter at University finally pays off!!!! Destruction of capital is the name of game. Destruction because a lot of those off-balance-sheet products was funded by NON money. This was always smoke and mirror, the only place it really showed up was in the ever rising earnings of the investment banks.

Pension funds and risk averse investors, are now caught with AAA "vehicles" which is downgraded to junk. The mom and pops Money Market Fund is losing 10-15 pct... in a month! New world? Yes for sure.

In all my life as a trader I have never seen anything like this. The stock market is in a total denial, the fixed income in near panic. JPY risk reversals in 3 mos still safely above 5% for JPY calls or 2-3 times the norm!

The only thing which can safe this seems to be the 50 bps the stock market thinks Bennie will give them, but .......even that could be short cutted by another discount rate cut.

I have very few positions as I get stopped out almost inside 5 min off initiating the positins but..

I am VERY long gamma downside in stock market for September. I'm small long JPY, short AUD......

I am still keeping the powder dry, but the longer this goes on, the more I get nervous...

Steen