“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

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

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