Where the telescope ends the microscope begins, and who can say which has the wider vision? Victor Hugo

This is note which starts a new investment phase for me - for most of the year I have been willing to trade intra-day and with the momentum, but now it is the time to move back into medium-term macro and respect the laws of economics/mean-reversion.

There is some evidence of the this week or next two weeks being the cyclical tops - which will be followed by a "correction" of 10-15% before we again goes into the year-end high for the year. The market is now driven by small investors and "late-to-the-party" types throwing everything they got to join the euphoria of how well things are going..... (Ignoring the queue of people joining the jobless ranks day-in-and-day out.......)

All of this is "sponsored" by:

• Low interest rates and outlook for further 6-12 month of loose monetary policies courtesy of the politicians/central bankers
• Out gap & rising unemployment across the world anchoring inflation
• The cheerleader group consisting of politicians, central bankers and investment bank economist's every day supporting the idea things are not only improving, but they are all smarter than God.
• An expected significant upside surprise in earnings based on this recovery "surprising" the consensus according to... the consensus (I know the sentence on it own does not make sense, but trust me that is the whole argument!)
• A need to allocate to from ZERO income interest products to 100% allocation to stocks.
• Sentiment which reminds me of 1999/2000 - there are more "smart" people telling me how much money they made in stocks last few month than you can fit into the new Wembley Stadium.

On the other hand there is absolutely some truth to the fact the Doom-sayers has been pronouncing the end of the world forever and we are all, the macro managers, guilty of projecting to Armageddon, much similar to this "dissing" of Zerohedge: http://www.zerohedge.net/ at hand in this link.

I have for the longest time been a "fan" of Terry Landry @ www.ttheory.com after reading the book: Pit Bull by Martin "Buzzy" Schwartz (http://www.amazon.com/Pit-Bull-Lessons-Streets-Champion/dp/0887309569) but to the point:

Terry is looking for top in Mid-October, and I have to add Terry is not prone to sentimental involvement in his trades! Presently there are two suggested dates: This week and next or slightly overshoot into Mid-October - we reached the overbought area Friday....but with G-20 this week-end in Pittsburgh it will be low volatility week, followed by in my opinion serious INCREASE in all VOLATILITIES going into month-end post G-20.

(click on chart to larger version)

Another of my favourite "friends" Mr. Fintag: http://fintag.com/archive/2009/09/21/ states today: "Today we reach the top of the equity markets, the top of the so called W and slowly but surely the overvalued fake market will crumble. In the meantime we look at some sensible news reporting from newspapers than may soon be non-profit organisations [Editor: They already are ...]"

The key advice for this will be: Buy VOLATILITY in any product this week...........

The development I expect this week will be.... some selling of today as we had massive option expiry this past Friday with gigantic volume going through - last time we had: option expiry/explosive volume the S&P fell 27 points! This is short note I wrote internally this week-end:

http://www.reuters.com/article/GCA-Economy/idUSTRE5842HG20090905

Nice run down ahead of Pittsburgh by Reuters - the market is looking for confirmation of V-shaped recovery, the improvement in earnings & political will to sustain the fiscal stimulus - the price? Politically: some sort of tough stance on bonus's and obviously
higher taxes for years to come.

There is growing believe in the market this will continue and I note the MASSIVE volume registered on Friday with no real effect yet indicating alot of money went to work.......

Adv. volume* 1,117,340,240
Decl. volume* 1,134,669,814
Total volume* 2,275,042,754
Closing tick +204
Closing Arms (TRIN)† 1.40 ...

http://online.wsj.com/mdc/public/page/2_3021-tradingdiary.html?mod=mdc_t

Then the lead into G-20 meeting - there will comments upon comments on how the bonus's should be cut and every single politician will try to make his mark on the agenda. I noted one very positive comment over the week, watching the BBC World service, they said India now willing to discuss climate goals - this is a first and probably merely playing for the gallery......

Finally, we need address the issue of EVENT RISK presently at stake:

Last week Israel Premier all of the sudden disappear of to Russia? He was MIA for a while according to Jerusalem Post: http://www.jpost.com/servlet/Satellite?cid=1251804532464&pagename=JPost%2FJPArticle%2FShowFull - then later last week Iran get booted out Caspian Sea meeting by....Russia? http://www.televisionwashington.com/floater_article1.aspx?lang=en&t=1&id=13856 . This could be conspiracy thinking, but you can not ignore that the timing for potential strike by Israel into Iran is running out of time - was Israel seeking "indirect" approval ? This is something we need to monitor - impact on gold, crude, us dollar etc at stake.

Unfortunately history tells us in times of RECESSION is the time of increased risk for wars/conflicts....

Strategy:

Sold 1 unit of EURUSD @ 1.4717 outright - 1.47! EUR - think about it - unemployment only just starting to rise in Europe - full impact from recession will be felt in Q4 and Q1-4 2010 - I wish you all good luck if you are planning expansions presently - and EURO at 1.4700 is at least 17 figures too high, considering the biggest FX game in town remains one of: COMPETITIVE DEVALUATIONS (which presently has GBP(UK) in the lead......

Sold 2 units of S&P (1063 & 1059) - will buy some volatility when markets opens today.....

Bought 1 unit of BUNDS... 120.34.

No stops for now.. these are positions I expect to hold for minimum 30 days.....

Conclusion:

Not only is the weather "peaking" this week-end so will the markets...it is time to look at your "emergency" plans...they could come handy..

Safe trading,

Steen Jakobsen

Twitter: http://twitter.com/SteenJakobsen

A hero is no braver than an ordinary man, but he is braver five minutes longer. Ralph Waldo Emerson (1803 - 1882)

Our family office had its first real macro meeting in a long time... with following conclusions......(or lack of it....)

Economics:

The incoming data continues to be good although we have noticed some deteriation recently relative to expectations.

We are simple people and use the rough guestimate delivered on Bloomberg by Citibank as benchmark. (CESIEUR and CESIG10). The better-than-expected data topped around end of August and into early September.

This week have seen very disappoing ZEW but very good US numbers continuing the a trend of
"cyclical" difference between the US and Europe, where the US is perceived to be further ahead on the curve and hence should perform better. (S&P over STOXX50)

This week is full of data and it will be interesting to monitor the development post this week and going into the G-20 meeting in Pittsburgh 24-25. September (http://www.pittsburghsummit.gov/)

We should note from 10.000 feet, the paradox of better economic data still does not rhym with the high Jobless Claims and the rising unemployment.

The lead-lag factor does not explain why this "recovery" which many ivory tower economist in investment banks are busy calling much better than in 1930s (due to Industrial Production presently doing better -maybe slightly overlooking the fact there is NO MANFACTURING left in the US)......

Conclusion:

The data still improving - but the velocity is dropping and a few "dark clouds" have been seen.

We need another fiscal stimulus, a new cash-for-clonkers, further expansion of Fed's balancesheet to keep the boat afloat....... but bottom line: No reason to fade the economics .....yet

Foreign Exchange

We had quiet a lengthy discussion on the US Dollar and it's direction. Jesper playing devils-advocate saying the pro-cyclical aspects of the US Dollar should be supportive (Improved balance of trade, Current Account and the US being ahead in the pro-cyclical loose monetary policy.

I, on the other hand, argued for the POLITICAL ASPECT being key driver- and here I have to add that one of the "macro mistakes" I have made over the summer has been to let my "hate" - and yes it is hate for politicians and central bankers cloud the decision making - the fact
they are implementing wrong policies, delaying the inevitable has NOTHING TO DO with our trading approach.(At least theoretically)

Politicians are simple people (Just look at Porno Berlousconi) - they try to do what they tell you! The London G-20 Summit roadmap has been followed to the point - the next main agenda being regulation .... and a hard one.

Back to the US Dollar here is my argument for weaker, a much weaker US Dollar:

The recycling of capital from the CONSUMING America to the EXPORTING Asia meant:

Lower yield, stronger US Dollar and a temporary equlibrium condusive for stock markets (bubbles). Now the US consumer is DEAD and gone.

The logic (I hear you laugh at me for using logic in this market :-) should be for rates now to go up, for the exporting Asia to increase their home bias and for the US to increase its domestic saving (which is happening)...... This is first part of the argument.

Then you add the geopolitcal aspect of China, Taiwan and now Japan increasingly trying to go it alone without the US on the foreign policy. Asia corridor policy I call it.

This week-end the new Premier indicated Japan no longer is happy to just bow and say: Ai,Ai.. Mr President.

They want their own footprint - own standing forces, which is new dimension.

Extend this to their allocation framework, their sovereign wealth funds, and a pattern of "less export of surplus" capital in the US markets and an increased investment in Asia region (Through stock and natural resources) and the US Dollar financing begin to look.... nervous....

We continue to believe China will "buy" Taiwan rather than fight it. It's cheaper and easier!

Well, we ended nowhere really on the discussion.

Being the FX guy I think both 1.5000 and 1.6000 maybe even re-testing last year highs is possible...but not in a straight line. The US dollar index could test new lows with the highs in the stock market coming end of September / Mid October.

We also monitor EURNOK and EURSEK. Selling EURSEK below 10.20 and EURNOK below 8.6000.

Conclusion:

Accepting sliding US Dollar - but also acknowledging the MASSIVE negative sentiment in place.

Equity

We define this as the 9th ining. Our projected cyclical top will be end of September / Mid October. The Euphoria is bigger than the volume in the market presently, but never the less, it is paramount to sit tight on long positions in this market while the market overextends itself.

Looking for catalyst for top in place- I, personally, think it will be political or event based, but on the calendar there is several other options: Non-farm payroll, G-20 meeting, Chinese Communist Party Anniversary...... (add to the list yourself).

We also take due notice of the DIVERGENCE in almost all stock markets. Prices higher, but momentum indicators are not following, and the relatively low volume, but bottom line: We respect the upside.

The price target is roughly 1080/1120 on a overshoot. The present envelop top is around 1062.00 (as of Friday) rising 10 figures per week, ie. 1072.00 by Friday or two points a day...... Adding three weeks obviously takes us to 1090-00 region..... and the you add some VAT and you got 1080-00 / 1120.00 expected top.

It is important for us to stress that the top coming up most likely will be a correction inside this mini-bull market as we do no expect the polticians/central banks to back away before we move into 2010. In other words we are looking at 10-15% correction in October/early November, with a rebound having probalities.

Fixed Income

Jesper made key comment: Relatively to where equity is trading its to expensive (price) - Relatively to how we see the world in Q4 and 2010 it looks fair......

The point being - the US Administations wants/needs rates to be low to mitigate the the recast in ARM loans and the replacing of bank loans by issuance of bonds. The key dominator/measure for succes of US Administation is the 10y yield!

There are good Taylor-rules reasons why we could see 3% break....low inflation expectations, slow job recovery......(although we feel the 3% threshold will only be broken in tandam with a correction in the stock market)

The EXIT strategy was cancelled at Jackson Hole, and confirmed CLOSED at the finance minsters G-20 meeting recently - the upcoming meeting will be more of the same and some public a..-covering with tough talks about bonus' et al.

Commodities

Considering the amount of "liquidity" floating in the system it is disappointing that commodities can not get a bid. The reason for this is relatively simple - China has stopped buying and storing - hence the small demand. Shipping rates confirmes this.

Gold - the team likes gold, but are slightly disappointed in lack of follow through above 1.000 US Dollar - I remain extremely sceptical, but need to reasses this view is US Dollar becomes crisis currency.

We note the extreme condition in Natural Gas - and the continued bid in Sugar.....

OVERALL CONCLUSION:


Allocation:

Beta allocation: @ 75%

The Alpha part needs to look at downside protection.

The strategy being to slowly take Beta down to 25% over the coming
three/four weeks...
Currency allocation: Short US Dollar, long SEK, long small JPY

This is no time for heroes..... be long, be happy....

Safe trading,

Steen (Jesper & Carsten)

The next big trend shift comes in October- It will be political driven.. this is the 9th inning...

Thousands Rally in Capital to Protest Big Government :

http://www.nytimes.com/2009/09/13/us/politics/13protestweb.html

Seems the Americans finally feels hurt enough to start protesting....

The political headwinds of Obama seems to increase - haven't check the databases but this kind of rating can not be good for markets medium term!-

With the desperate Obama back from holiday(he increasingly looks more and more like a ONE-TERM President)....... this could one very interesting autumn.... looks to me like we could see more upside in September (past the G-20 in Pittsburgh which will follow up on the April text...)....before the topsometime in October with major volatility and trend reversals going on...

G-20 is all in on "talking markets back up). Read this status report on London G20 meeting ahead of this months.....(http://www.g20.org/Documents/20090905_G20_progress_update_London_Fin_Mins_final.pdf) and understand how committed they are to do exactly this in the order mentioned:

• Restore confidence, growth and job - ticked.... they feel its done
• Repair the financial system to restore spending - ticked - although Options ARM's and write downs still only 1 trl. US vs the IMF suggested 2.5 trl peak next year
• Strengthen financial regulations to rebuild trust - THIS IS NEW 1stpriority..... (note also Germany's new over this week-end: http://www.ft.com/cms/s/0/4038e1fe-9f09-11de-8013-00144feabdc0.html?nclick_check=1)
• Fund and reform our intern. financial institution to overcome thiscrisis and prevent future ones.... blabla.

The US consumer has been announced dead - the world global governments have decided to take their place on the demand, but now national budgets are close to exploding and Spain(with Ireland) has shown early lead by increasing tax by a full 1,5% of GDP (http://www.eyeonspain.com/blogs/SpanishBusinessNews/2229/spain-raises-taxes-as-budget-crisis-deepens.aspx)... more is coming to all of us...

Now... with Options ARM recast ( look at the word it explains itself -something needs to re-classified (Please, please read this link...: http://www.realtytrac.com/ContentManagement/RealtyTracLibrary.aspx?channelid=8&ItemID=5159)), the fiscal inbalance stretched, the politicians losing the game despite giving voters (read: bankers) everything they asked - the game is in its 9th innning, but where is the new trend / the break away ?

I have always thought and learned that MARKET TRENDS are dictated by POLICY CHANGES (always for the worse) .... so with Pittsburgh G-20 coming up, we are to be alert, flexible to where the next MEGA TREND comes from...

Personal feeling is that the DEMAND FUNCTION of resetting loans can ignite higher rates, that the Japanese talking about independent foreign policy from the US this week-end, could mean that we have come full circle:

This latest boom was based on the US consuming goods, and ASIA consuming BONDS to store the surplus - now we know the US consumer is gone, so why is rates still so low ?

Next move is to see Asian and Middle East selling bonds - it has
started as it can clearly be seen by the accelerating weak US Dollar
...

Finally, please read this excellent piece on my good friend Daniel Arbess of Perella Weinberg - a well deserved praise of him - not only a good trader but a perfect Gentleman...

http://www.absolutereturn-alpha.com/Article/2280854/Profiles/Dan-Arbess-to-Chrysler-from-Skoda.html

Safe trading,

Steen

Ireland, a two speed Europe and October 2nd new EVENT risk day

I will not claim to be an expert on Ireland...more so on EU ... but as macro manager the October 2nd Irish Lisbon Referendum has EVENT RISK written all over it..

I have in my primitive way tried to do a few links which could help out forbackground (Bottom of the blog)

Market risk:

• EUR currency risk clearly,
• Government Fixed Income spreads could expand & CDS the sam
  

----------------------------------------------------------------------------------

Presently travelling in Ireland - and I found to my own surprise that the upcoming poll (October 2nd) on the Lisbon II agreement is in serious danger of being derailed despite ALL of the special deals done by the EU to get this through...

Below there is series of links with the last one - the new website by Irish Times being the most up to date... the issue here:

IF ---- Ireland votes NO again Europe is effectively in a position where it needs to move to a two speed set-up, as the Lisbon agreement is ratification of serious of changes... among them EU President ....

A two speed Europe.. is one step closer to... my ultimate call of a Europe being broken up... although thisi s 20 years from now.. ---- DO NOT forget that even the most simple monetary unions in history ultimately ALWAY breaks up as the economic headwinds comes in....

but.. it also a serious blow to a more competitite Europe etc..

This is NOT yet on anyone radar - to be honest it was not on mine,
before coming to Ireland yesterday...

Otherwise:

Took profit on most positions on the lows yesterday... but now in the process of reselling...GBPUSD, S&P, DAX, and buying fixed income... yday was 90% down day, so either we get strong Friday rebound or there is imminent test of 980 critical support coming....

Safe trading,

Steen


http://www.irishtimes.com/newspaper/ireland/2009/0903/1224253745004.html

http://en.wikipedia.org/wiki/Treaty_of_Lisbon

http://www.ireland.com/home/Latest_opinion_poll_shows_FF_support_record_low/maxi/fast/news/irnews/237610

http://www.independent.ie/national-news/lisbon-poll-reveals-growing-optimism-on-economic-crisis-1873250.html

http://www.irishtimes.com/indepth/lisbon2009/

Time flies like an arrow. Fruit flies like a banana. Groucho Marx (1890 - 1977)

Well it's now September...and market is busy trying to figure out which is more important:

The negative falling Chinese market (down more than 20% from peak...Chart: http://tinyurl.com/n784hw Hang Seng divergence vs. S&P ...

or the rising FEEL-GOOD-FACTORS as seen in the economic data....

Now let's start with the "improving data" :

First, data is late, very late relative to the decision making of a macro speculator - so late that they are largely uninteresting, this does not mean there is not people and investors looking over each and every data point - but let's face it: if you inflate an economy with TRILLIONS of US dollars the data will improve - the surprise is to some extent that they are not even better - the fact sentiment indicators now shows the economy is out of recession, is...at best useless - at worst confusing.

Bank lending and housing market is still falling, yes the fall is slowing, but there is NO CAPITAL incentive to neither increase balance sheet of the banks or.....for the home buyers to increase their bids - even 1-timers tax credit is hard sell, and when the first level of sales is done, the banks have plenty of homes on their books to sell.... please do NOT let yourself get carried away with this nonsense.

The sentiment data is now the most bullish in years..... my friends, neighbours and their dogs are all telling me how much money they are making in the markets (you seem to have forgotten the fact they lost 70% last year...but short-term memories are good for "investors"....)

Check this blog on the very issue: HTTP://www.tradersnarrative.com/will-september-kill-the-rally-2912.html

I can't say we are printing money, but somehow we are keeping an even keel in this market, waiting, waiting and waiting for some final direction to play out.........The fixed income market is stubbornly bid - and lately we have noticed FI carries more weight than other markets... we also

note how Crude is leading forex/equity: HTTP://twitpic.com/fz41k/full

The commitment is relatively low, but here is the present positioning:

Short S&P, Short DAX, short shipping, short Norway Index... - all with medium conviction. Entry levels relatively ok - leaving room for......stop loss --- Stop Loss.. two closings above high..

Short GBP/USD - short since 1.65ish - target 1.35/1.40 minimum - The UK is falling out of bed - as confirmed by PMI today..... also long DXY (US Dollar index)

Commodities: Short Crude since 64ish....

Fixed income: Long 90% of cash in short-term Danish Government bonds and small long Bunds...

August performance was small down......The Puma Macro and other funds will launch later this month with daily pricing...

Safe trading,

Steen

FOMC, FOMC and FOMC

The issue as an investor right now is between.......

The need for intervention to work

The world needs a good close to 2009 - the time buying and excessive public spending is a project which can not be seen as failing (that it will fail.... is different agenda all together..)...

This entails the "smart money" is betting that the O-team will do ANYTHING to keep the momentum going into mid-term election and the agenda being one of FIGHTING BUSINESS - which mimicks the F.D.R - New Deal version 2.0 (do yourself favor and read F.D.R's inauguration speech)....

This could mean sell-off post FOMC today, but "quality buying" below ---- then rally into close of 2009 ....and then in 2010/2011 we will resume NEGATIVE tractions and new lows in the market...

The need for gravity to work

The buying of time is running out, the gap betwen "presumed" impact and realised is still huge and growing ... unemployment is rising.. everywhere, credit not reaching the consumers, and the new new growth is sub 2.0% looking 5-10 years forward. My favourite economist, John Makin, goes as far as saying 1% 2nd half 2009 growth is unrealistic, and that -2% is likely. http://www.aei.org/docLib/08-EO-Aug-2009g.pdf

The critical level of 1000-1050 reached and many "guru's" now looking for top in place..

We will focus on FOMC for now - and keeping things light... but here as few thoughts:


Agriculture:

We like it again, both from momentum but also fundamental value. China's growth is tax on farming prices - expect steep rise in autumn. Long DBA.

Fixed Income:

Still long Danish Fixed Income...

Foreign Exchange:

Strongest view: Short GBP - into quantative easing .... also long DXY (US Dollar index over FOMC for break - or stop out if FED goes further into QE)....

Like NOK - looking to short AUD....

Commodities:

Can not buy GOLD when we now world is entering long-term negative growth cycle, with excess capacity everywhere.... risk of crude like long pain..... was short took it back pre- FOMC

Crude: Short... for now.. .cyclical - but likes long-term prices action...

OVERALL:

Cold as ice, slowing getting into market, but it is hard to restart the engines ...also as we were so wrong during the summer months.....

Safe trading,

Steen

Tactical note: Now from short back to Neutral

We have enjoyed a nice run from 935-00 to 835-00 (short the S&P) and hence we have taking almost all our positions of today except short EURUSD……we took off: Short gold, short eurchf, long bunds, short S&P and Stoxx50.. .

It is as much “money management” as a believe in that the market could bounce from here – but clearly the market is now closer aligned to us on the present themes:

1. China growth an issue – export/import numbers have now confirmed our view…•


2. Europe in trouble on credit (Portugal, Greece and Spain --- downgrades and potential downgrades)


3. Obama premium should not exist --- (our new catch line on this being: The Obama plan is like jump starting a car UP a hill!)……


4. January effect is a concept, and nothing more than a concept..

Upcoming events which we need to gauge before recomminting…

1. TARP – 2nd installment – by asking President Bush to ask for the money, Obama initiated a 15 days period inside which Congress needs to approve. Right now it looks there is Sunday vote(coming Sunday) but he is already facing rebellion from leading Democrats! (Click on Rebellion for link) http://tinyurl.com/a6ntaq


2. ECB announcement – despite ECB should go 50-75 bps tomorrow and at next meeting – they will go 25-50 bps, Pause, cut, Pause, cut, Pause… Trichet loves to hear himself talk, but the game is changing and fast.


3. Redemptions – January 15th widely rumoured to be “magic date” •


4. My friend and S&P guru Drew Baptiste of Morgan Stanley tells me 810/820 and 835 ish…. First tactical target(From Drew’s email) S&P Micro to Near Term (871.79 CASH 862.50 SPH9) Off the 942.00 rebound high (January 6th = current 2009 high), SPH9 is declining in an “impulsive fashion” to date (a still unfolding five-wave sequence). Yesterday and again today in the Globex session, SPH9 traded up to proposed micro term resistance at 875+-2 before turning down. The next level to further expose the downside is 855+-2 (5 week low), a break of which exposes a minor cluster at 838.50 / 836.00, ahead of what T.A.G. views as a near term ACTION / REACTION area at 820 / 810. T.A.G. will reassess the current Near Term Bear Mode above 877 / 880.
   

Having a nice profit in January drives this move, but post-analysis as seen above seems to support taking one or two days for thoughts.

Positions:

Cash @ 95% - short EURUSD

Safe trading,
Steen

Monday morning quarterbacking...

We saw horrible 7.2% unemployment, and market thought it was better than expected! Tell that to the 525.000 who yet again lost their jobs last month, please!

Fact is and remains, every single month for a long, long time there will be net loss of jobs and the impact on our mood, consumption, sex life and other important stuff has not even started to be realised by the always happy Wall Street crowd.

Each morning I download on my Ipod with:NBC Nightly news http://tinyurl.com/4skdwu, PBS Nightreport http://tinyurl.com/76qgop, ABC, Bloomberg, CNBC etc business podcasts and listen to them in my car......and every single morning I get the same message: Stimulus will work, they(the idiots in Congress, Fed and White House) are doing the right thing, this is all or nothing, corporate balancesheets are solid, market will not go down, January effect etc etc. --- all of it based on H.O.P.E none of it based on sound fundamementals analysis, opportunity costs or even funding costs.

From the perspective of being a simple hedge fund manager I always have to look at opportunity cost - could I be placed differently, what are my competition making......and hence last week decreased our cash (to 75%) in order to go short the market - something we did hesitantly as we felt market strongly believes in Obama and his merry men.

Being the cynic I am: Tell me, if all this Obama Circus was going to be good why is the market then down YTD ? Why did we never ever have a Election rally? Obama is a salesman, and where I come from we do not like salespeople - they talk too much and they crowd-you-out in the B.S they think they need to sell you on......(often not even understanding what they are selling in the process.....)

Furthermore lets talk about his plan ! He wants to spend 700-1.000 bln. US Dollar (this is US tax payers money) on infrastructure, alternative energy- but where is the solution for Medicare and Social Security? Actuarians on Medicare (http://tinyurl.com/7d3lzz) said last week that they would run out of money inside seven years - and this was before all the "depressions" the good people of the US labor market will get over the next six month.

I hate to be negative, but in a world so full of hope, and little realisme I want to warn of the clear and present danger of misinterpreting government money with good money. This will NOT work - the state can not allocate efficiently, neither can they increase productivity or intellectual capital (a contradiction in terms for public sector)........

Tactically we, as you know, we went short last week - we maintain this - we did however today take profit in Gold @ 824.80 from short @ 854.00 - we took profit on our 125.00 calls ( 77 ticks) vs 25 paid - and we took off short EURCHF & EURJPY ---- we maintain very large exposure to both short stock market and long JPY and USD... vs. EUR..... in options (striked 89.00 and 1.2800)......

Going into ECB I think IMF's stern warning this morning (http://tinyurl.com/983aoz) plus S&P talk of Spain downgrade on currency debt talks for (http://tinyurl.com/8wjgxt) will mean:

1. Italy will be downgraded next
2. ECB to realise this is NO game and what is needed is serious moves on monetary policy ....... now is the time for Europe to forget they do not have common Treasury and come up with serious MONETARY EASING in the face of collapsing demand.....here, there and everywhere....
   
   Safe trading - I hope for sake of most people I am wrong...
   
   Steen

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

Monday morning quarterbacking..again...

Watched some good old American football yesterday and Monday morning quaterbacking was certainly part of the speakers "game".......anyway kind of interesting how Bernie Madoff all of the sudden becomes front-line news, not as much because of the size, big as it is at 50 bln. $, but due to the fact no one seemed willing to "call the bluff".....It sad to see "innocent" people getting hurt, but this is really the part of cycle we are.... where EVERYONE who could/should pay pays...

Why did Madoff' game got called? Redemptions! It was not due diligence, it was not financial oversight, it was not even the SEC!

No, everyone thought this was cleaner than clean, despite the performance being a serious anormally not even copied by the great George Soros ......I believe the side-effects from this will be much bigger than market willing to acknowledge as it is another blow to the confidence of ANY FINANCIAL institution - if there is not any any confidence left, what is the "goodwill" on their balance then?

EUR is flying, of course, but we took profit too early as the game continues - I see the weaker US Dollar as the market call on the Ponzi-scheme directed by Bush, Paulson & Bernanke - some nice gentleman from Barclays sales-team claimed today they were doing a good job! I do not know if this was based on him being nervous about keeping his job or his firm believe that offering "public money" for private would work wonders.. ????

EUR is going to get US disease on growth..or lack of it.. but for now we are in a December EUR rally which could easily see 1.3700 and 1.4000 on-route to our tactical call change as of last week....... of 1.5000

Stock market - in broad based consolidation - got feeling with the US Dollar starting to weaken that post FOMC, there could be a price to paid for the stock market, but as some of you have commented maybe I am tooooo negative for my own good. Investment meeting tomorrow... we start @ 90% cash, rest in negative markets positions.....full disclosure tomorrow.

Strategy

Keep powder dry to post FOMC - our indicator/model shows increased risk of sell-off as credit spreads continues to expand, short-term fixed income remains bid, US Dollar weakens, and foreign press officers throw shoes after the Prez Bush.........Calling him "a dog" would be considered a compliment for him in the US I guess... ? ;-)

Valuation hard to figure out.....but I am looking forward to the investment meeting and to measure our conservative stance vs. the alternative "normal allocation" in the last week, month and quarter.

Main concern remains the turn-of-the-year in the money markets, and into Q1 my counterpart risk. I got nasty feeling Lehman will not be last major institution to "die"........if the hope connected to Obama does not materilalise soon....this could get ugly....

Safe trading till tomorrow,

Steen

The nine worst words: We are the government, we are here to help - Ronald Reagan

Today from Sydney - Australia - I am watchting the late US session from Hunter Valley, and it seems our final minimum target of 765.00 is within reach on deal/no deal package for auto-industry.

Radio silence & either you are pregnant or not

Why is it the world continue to have this "half-pregnant" atttitude to intervention? I was on small hedge fund panel the other day and made my usual simplistic presentation of the world, pointing out this crisis can be dealt with two ways:

1. The slow grinding, extended version, which is more expensive as errors upon errors are compounded to even bigger cost, when Mr. and Mrs Dirigisme Brown & Sarkozy continues to lead 'new' era state-capitalism where we selectively safe some individual stocks and industries due to 'national champion' status.... as said my Christmas wish remains that policy makers and politicians gets forced to do one or two year(s) of radio silence.

2. The hard and quick solution. Penalise bad behaviour and let industries die which have no competitiveness - this is the tough medicine but ultimately we need to own up to the fact that the only way to deal with this crisis will be to get saving rates up with the cost of serious dent on growth, stock markets and sentiment, but we need the micro economic agents (investors and consumers) to readjust their behaviour in order to get ahead of the crisis.

The policy makers and politicians creates so much 'noise' that the investors and consumers falsely continues to believe this crisis is something which can be dealt with from the top - and hence they delay their adjustment.

Having done my above 'spiel'; I had every single panel colleague go: I agree and disagree with what Steen just said! C'mon!

Maybe the 'good' news is that the crisis is now so total in impact that they(investors + consumers) will be forced to react despite the inadequate policy makers.

Evolution tends to happen from periods of stress rather than success, when we need to - we will respond to the challenges and this time is no different.

Interlectual capital, i.e our adoptiveness and brain power will take us through this period, but investors and consumers need to stop talking/acting and presenting themselves as believing in this "half pregnant" theory of intervention. Either you believe in it or not, you can't have it both ways.

The fundamentals for strong US dollar

I had lunch, as always, with Barclays Economist Peter Redward on Wednesday and we both had a stronger US dollar on our minds; Peter, who you should all follow, had a couple of interesting views:

1. The weaker oil improves US terms of trade, impacting trade and current account positively

2. The depression-consumer means they no longer using their credit cards, and with this the import is collapsing (seen the amount of cars stored at Long Beach?) - again improving the terms of trade.

3. US now got pretty much ZERO interest rates, but UK, ECB, Scandinavia, Australia, New Zealand still needs to deaccelerate (cutting rates to zero).... hence even from interest rate perspective there will be support.

It is interesting how a deal; being long US Dollar, have moved from being based on a balance sheet funding story to now being a real fundamental story (let me hasten to add that both Peter and I realise there is devaluation risk long-term, i.e 18-24 month from now on the US Dollar) as the world gets the US disease.

One of our Outragous Prediction could very well end up being EUR/USD in 0.9500 next year.

Strategy

Nothing changed our end:

Short NZDUSD, EURUSD, EURJPY, STOXX50 and GOLD. Long Fixed income and cash(75%). Applying our 25% into negative outlook views.

We may soon need to re-set our S&P500 call as 765.00 comes closer... the banking sector and mortgage sector across US and Europe is dying a slow and painful death. I am extremely bearish on banks at large for every day they are getting closer to the insolvency cheered on by a policy response which is so out of touch it makes one want to weep.

Safe trading,

Steen