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

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

For all the write-downs, this is the reaction?

I am beginning to get fed up with my sales people "feeding" me one sub-prime story after the other. I understand they are merely trying to do their best, but they are hit by "home bias". The fact we rarely are able to put perspective on too much data when it deals with something close to us.

I often find people who should be expert on their own country, or stock, tend to over-analyse the situation ending up with a negative bias.

As for the banks sales people, they are tired of the outlook for their bonus' being cut due to lousy business models and lack of risk control. The American banks being the worst, and US investment banks the pit of the pits.

I must also admit my good friends in the investment banks have been able to keep myself in the "dark corner". I have listen, I am positioned, and I have done my research, but... what the investment banks and certainly the media forget is that for the deficiencies of the investment banks, the CORPORATES are full of cash, so much that dividends and buy-back programs are on full speed ahead -

The private equity guys are full of cash, but having to reload their model, as 25% cash down is a little to cheap for the banks, so they will regenerate by doing smaller and more capitalised buying, and finally my good friends in SWF will ALWAYS be willing to listen to new investments, in particular if its NONE US dollar, equity-or commodity related.

Yes, Dr. Watson, it is that elementary. To asses the picture you nedd ALL the information, as important as the bank are, the corporate are the NERVE of the system presently.

I will have to admit that the darker sides ofme are seriously concerned about the day the consumers UNITE and stops spending money, but looking at brands like Puma, BMW reporting this morning, it AINT happening right now, as their numbers continue to perform on the upside.

I guess the good news overall here is; The exodus of good traders and managers from the banks have left, the banking industry with extremely weak top management, look how hard it is to find someone who will run Merrill or Citigroup!, and have put the hedge fund industry in place as the REAL bankers of the 21st century.

That's good news as banks should facilitate not take risk - the new banking model will be one of simplicity unlike the present status of the BoA, Citigroup and Barclays today.

On to the markets;

There are two very likely new developments in the markets which needs to be confirmed but let me take a stap at it>

Fixed Income, the US 2-10 continues to rise, now trading 66 bps, indicating the world is joining me in being concerned about the reflation of the US economy. It also seems that the almost perfect mean-reversion in 10y yield continues to unfold as nice little sinus- function.



If I am right we should move towards 4.7000 yield inside the next 1 to 1.5 month. How could can I think the US yield is going up when media is talking about further cuts?

Well, I think the concern of the weak US dollar is beginning to dawn on even the crazy Central Bankers, I would not be surprised in Bernanke, the central bank, not the alias for the US dollar, begins taking back some of the downside concern.

The Fed is clearly trying to please the market but setting a rate which will continue status qou. That's a discipline he learned from the tosser Greenspan, but what we really need is a dose of Volcker. To earn credibility not only with Wall Street, but with central bankers and investors a like, they should RAISE rates, making the US dollar more attractive as portfolio currency and securing that long-term rates in the US remain in "range" rather than drift between RECESSION and INFLATION.

My point being, the market now will have to change theme to INFLATION. The CPI exl and incl. all the crap they play with means nothing. Gold is at 27 year high, Crude at all time high, food prices continues higher, so much that Mexico's Central banker claims he can not control his inflation due to food prices going up!

China owns the key to the future financial path;

If... they continue to support their currency being "weak" the spill over into the domestic economy will be one of HYPER INFLATION ultimately. The can control the prices and the reporting of those, but keeping a current account surplus in the size they do its a NEGATIVE unless the currency is allowed to appreciate.

So the only way to "safe" this semi Ponzi scheme of bartering, will be for one off Chinese revaluation, which will make the transition period longer.....

Simply put; Gold, crude, commodities, the US dollar is telling me and the US Fed that, either you increase the ATTRACTIVENESS of owning US dollar NOW or we will devalue you into the ground ( i.e REAL US dollar crisis).

The 1st reaction before final collapse of the US dollar must be the market taking the long-end of the US higher, based on inflation and weak US dollar. Hence my surprisingly negative view on 10y notes (prices)....

We are positioned through big 109.50 and 110.50 puts....

The equity market on the other hand, needs one of two days of consolidation, above these levels< 1510 for S&P and 7.859 for DAX. If they manage that I see final 5th wave blow off, as the market is postioned for CRISIS and negative year end.

The earnings have come in better than expected, the write down bigger than expected, but if Citibanks writing of 4, 10, 14, 20 bln. can not get this market into negative what can then?

I think there is growing believe that the US is not as bad as market fears, and also remember, the 1st almost the most difficult (Yes, it is, for everything in life!! ;-)) 2nd time we adopt quicker and better as we got reference frame.

I know I risk looking like the idiot I am but going out talking about major move in November and December, but I have spend considerable time on this and in the end, compounding the divind yield, the buy backs, the SWF's and the corporate and prviate equity people being FULL of cash, the market is not ready yet.... WHEN and that's when unemployment start to rise, you got your signal.....

Positions:

Short 10 y notes.
Long GBP p USD c, 2 weeks
Short EURSEK
LONG USD c NOK p
Long Dax
Long DBA (Agriculture ETF)
Long 2/10 US
Long USD.JPY

Performance> still -185 bps since 1st draft.. getting no where.

Good luck and.... be careful out there..