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

Too many people are thinking of security instead of opportunity. They seem more afraid of life than death.

Too many people are thinking of security instead of opportunity. They seem more afraid of life than death.
James F. Byrnes (1879 - 1972)


Dear Investors,

S&P from here 800 or 1200? (click chart to get larger version)

We are in period which mildy could be said to be "volatile", but we are getting towards the total panic needed in every crisis. I will not try to be brave or give any advice but I will give you my scenario for this tumultous time.

1. To stop this crisis the Government & Central Banks needs to get ahead of the curve not behind. This entails giving LARGER THAN exepected rate cuts, bigger than expected capital injections into banks - and redoing their communication policy - broadbased comments are not appreciate in a market market looking for laser-precise answers to the enigmas of the financial markets


2. Adding stocks to my personal account going from 99.5% cash to 50% cash-I have been - remains 85% in cash in my funds- and in the PA account I have been 99.5% long cash - I have this morning added a number of stocks onto the PA account -( pardon this being danish stocks but my private bank does not seem to have noticed there is equity markets outside Denmark) - but I added: Danske @ 88.00, Novo @ 263, Maersk B @ 34.500. I have NO PREDICTIVE POWERS - but really - if you like me, have been 100% cash for the last year you need to start allocating somewhere... I am starting now (For disclaiming purposes I also added Danske & Barclays to my hedge fund accounts...)


3. The outlook from here is a bifurcation: Either bounce to 1200-1300 or direct to sub-800......(check the chart)


4. Carnage is fully pricing collapse now - remember a while back I wrote about this mechanical fund who in their September newsletter proclaimed: "It is dangerous to be in the market, it is even more dangerous to not be in the market!" - I kid you not that fund is now down 70% for the year - so my point is: The last of the "remain invested jerks" are disappearing - the financials market equivalent of a clown sorry joke: Jim Cramer wants to sell all my stocks and go to cash! (He is ALWAYS wrong - only beaten by Greenspan, who is the best inverse indicator ever)


5. The policy reaction function is different in the US and Europe. One must acknowledge that Europe have greater power to do "UK like" baning bail-outs than the US - All options are open to Europe but due to the idiotic EMU construction it does lack European Treasury to co-ordinate anything - meaning it look and feels like piece-meal solutions, but at least they are not bounded by Congress. In the US Bernanke & Paulson are limited by needing broadbased political support - and we know how that works in the US --- or rather how that DOES NOT work - the US election cycle could... and I mean could mean we need to BUY EUROPE vs US - the trigger would be full fletched banking support in Europe which US can't copy ==> outflow from investors -- I am getting closer and closer to triggering UPSIDE EURUSD based on this.

Strategy

Despite being almost the parma bear on this- I simply can not be NET SHORT stocks any longer , so... I remain 85% long cash, but I am now using the 15% to buy UPSIDE STRATEGIES... on S&P, USDJPY and banking shares........

In our Weekly Investment meeting we came up with three "premises" which one needs to learn, respect and understand:

1. Cost of funding drives market & valuations (old fixed income theorem now moved into fx, equity and commodity)


2. Price of liquidity essential and REAL PRICE (tax on money)


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

I will let Mark Twain end this blog: "I am more concerned with the return of my money than the return on my money".

Good luck,

Steen

Where is the Market Going ?

(click on chart to enlarge!)

Monday, Monday, .......Midday update

Classic fund manager dilemma - although this is not like anything I have seen before in my career, I feel tempted to go square from short everything more on a gut feeling than anything else - and trust me gut feelings are overrated so I will stick to our key targets (see below)

Massive rate cuts are coming - maybe even before the open today or tomorrow open - The authorities thinks in steps:

1. Bail-out

2. Rate cuts

3. Direct intervention (in bonds and stocks)....

We did step 1.) now and step 2.) is coming if not working either - we will move to step 3.) which will be unprecedented in Europe & North America but not in Asia....

The reaction off rate cuts could be: 2 min.'s rally or a longer bounce based on cheaper funding - there may still be pockets of desperation but it will be cheaper.....

I maintain as per my blog Friday - merely refinancing/bailing-out mortgage portion of risk will only help temporarily - We know the banks are "misrepresenting" the trust, this morning papers full of how Lehman told the less than honest truth about their true need of capital.

Direction key determinator will be bond market, and probably Bunds... if we are going to see action 2.) and 3.) we need furhter flight to quality.

Statewide banking guarantees - well ,well, it will not work - when everybody does the "arbitrage" goes away, its against EU regulation, it increases financial long-term burden(more debt), Widens funding rates for governments(through higher bonds premium) and it floats capital market with bonds..... Ergo: back to square one... but it does mean banks can keep their depositors, it also ironically means there is LESS CHANCE of bail-out for next bank in trouble - as the customers are already safed, why safe the bank frame-work?

Short-selling ban will by "law" disappear three days after President sign bail-out into law - Will be interesting - my estimate it will increase liquidity and get volatility back down, plus obvisously take CDS spreads down, as they have been the short financial proxy of choice.

Strategy:

Cash 90% - now, +5%
Small long US dollars versus EUR
Was small short european stocks - but awaiting resolution on rates...
Long Dec - EDZ
Long CHF vs GBP options
Small, small upside option on stocks...

We are entering the acceleration part of this market, one which creates more losers than winners...........I am keeping my powder dry - awaiting better risk/reward.

Our KEY targets remains:

S&P 867-00 (Was 1100 untill early August)
EUR 1.3500 - almost reached, we move it down to 1.30000
Yield 10 yr - when the US dollar hoarding done we expect the final bubble of this cycle: low interest rates to start playing for real. We see LT rates in the US in 8-10% in 2009....
GOLD --- 1000 US Dollars
Crude- 80-100 for balance of this crisis, then 200 US Dollars next year.

Trade smaller size, be active, be prudent, listen not to what they say, but observe what they do....

Steen

Leh: promises, promises ==> Fed will be busy this week-end AGAIN!

This was not what the market needed - Lehman makes promises they can not keep - here is prime example of a Management team who though they were Gods - Hubris !

It is a pitty - I got great friends and coverage from Lehman people - but the end game is near.

Paulson/Bernanke will be in the basement printing some more money this p.m

Be careful fellow investors, really careful..... Lehman CDS (Corporate Default Swaps):


LEH now @ 530 - yday: @ 475 : day b4 yday: @ 350

(Click on chart for bigger version)