Definition of idiot: A person without learning; an ignorant; uneducated man; a simple man; a clown (Webster dictionary)

I think in these time where the US turns into a Socialist state - In a time where the public at large is being lied to again and again and again - In time of total distress we need to look at who we should trust or not - Paulson called upon us to 'trust him' ... being a simple guy I like to look at persons integrity and intellect before commiting my and other hard-earned tax money;

The following was sent to by a friend.. I think it will "let the picture stand.." as they say in TV....

Paulson on crisis et al:

April 2007
"I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained"

May 2007
"We think it is near the bottom. It will take a while to work its way through the system. Fortunately for us, we have a very diverse, healthy economy. There are other things that are positive that are offsetting that.

…So my very strong view is that we are near the bottom and that this will be contained as — the housing will be contained, and we're fortunate that we have a diverse, healthy economy."

August 2007

"There's a wake-up call, and there's an adjustment to this repricing of risk, but I see the underlying economy as being very healthy,"
Paulson added that he did not see anything that caused him to reconsider his view that the economic damage from the housing correction was "largely contained," despite losses in a number of financial institutions and a long period for subprime issues to move through the economy.

Oct 2007
"I have no interest in bailing out lenders or property speculators."
" I can't think of any situation where the backdrop of the global economy was as healthy as it is today,"

May 2008
"'The worst is likely to be behind us,' Paulson told the paper, in one of the most optimistic comments by a top U.S. finance official since sub-prime mortgage losses set a domino effect in motion in mid 2007.
Paulson said it would take 'some months longer' for the situation to stabilize and cautioned there would likely be further 'bumps along the road'.

http://tinyurl.com/4pekqo

Liar, Liar.....

I shall keep it short as I am onroute to beautiful Dublin and then my London office, but here is my internal note from this morning as always remain "defensively aggresive"...

The financial landscape is being reshaped almost daily, but there is a few "knowns" from here forward:

The conversion of GS & MS to banks means their leverage will be reduced from 40-50 to 1 to 10 to 1. This is major LIQUIDITY ISSUE, as most hedge funds use Investment banks for prime brokerage. This forces the leverage down for hedge funds - first derivative being excess volatility as seen lately in t-bonds, crude and eurusd. Long-term it will decimate the "population" of hedge fund AND their return (less leverage - less ability to outperform)

CDS market is in total disarray - relevant? Absolutely - this is a 70 trillion US Dollar market according to BIS - there are NO RULES, and all CDS will have to be closed with issuer (Imagine where the bids are for closing out? Guess? Real bid minus 50%?) ---- this has extreme issue on ALL MAJOR BANKS in the world. If Mark-to-Market on those bids it will erode capital reserves(if any left) even further - solvency still major issue for financials

The 1987 crash happened mainly due to illiquidity in hedging (among other things the program trading..) - we have signs the CDS market could take us close to the brink, most likely around Mid-Oct..

My sources expect at least 10% redemptions from hedge funds (main index down > 5% this month alone) --- equal to 200 bln. US Dollar.. IF this happens we will see more selling of in US dollars, EMG, stocks........

The week-end plan takes US' Debt-to-GDP Italy's level - and its VERY likely US Government debt can trade below Corporate Debt (Yes, it has happened before in US history!)
I see 780 S&P - 8/10% US yield (next 18 month) --- US dollar will fall 25% from here (Note Singapore have publicly stated they will stop investment in overseas market and invest more in Asia - as per my note from Singapore)

There is major liquidity crisis in many money markets - the Swedish money market almost at standstill this morning.......

Most credit, swap and CDS spreads back to at or above pre-plan level - not good sign.....
Biggest risk now: is serious recession and that retail investors have finally realise the havoc caused.

All in all - there was plenty of "hope" but as least so far it has not helped the market......

I am officially advising being "defensively aggresive" - scaling positions to volatility, and from risk point of view, we need to keep alertness especially on spill-over effects from CDS and money-markets. The biggest risk remains in my opinion illiquidity of forward swap as single risk - but so far... everything ok there... relatively..

Best wishes,

Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com


Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.

Please read our full disclaimer.

Goodbye my lover...... http://www.youtube.com/watch?v=wVyggTKDcOE

Yes, this is the end of the capitalist system as we knew it, yes it is the end of levels playing fields, yes it is the introduction of the Socialisme .... We won so much, we lost!

This weekends plan is the financial equivalent of Homeland Security Act - and Fed is the Guantanamo - a place where there is no law - no respect for human interest:

Link on code of law :

http://online.wsj.com/article/SB122204156493561237.html?mod=googlenews_wsj
http://seekingalpha.com/article/96573-the-bailout-is-no-less-than-a-threat-to-the-rule-of-law

I am on TEMPORARY buying strike for all US assets. I will not/can not buy any asset from country with no code of law - The US has joined Russia on my list of countries I can not go long.

From 10.000 feet this plan:

Helps the financial institution by virtue of a plan so big its makes the Marshall plan look small - that's the back-stop for financials ...for now

Solvency still the issue at large - I do not believe you get better solvency by introducing measures which is normally safed for war-times - on contraire!

Quit a few countries has issue "threaths" to shut up or ..... --- my own compliance department already been here once this morning, but... let me say this: If there EVER was a time to write/speak and protest against what happens it's now!

This helps the wrong people - AGAIN - the croonies of Wall Street and London City gets help - where is the help for airlines industry, the car industry? There are still 4.5 mio. unsold homes - and with the US issuing unsellable debt which will take long-term US yields to 10% I do not see relief on the horizon.

Short selling ban ? What a joke! Read this 1929 Editorial from *New York Times: http://bigpicture.typepad.com/comments/2008/09/short-selling-o.html

The next phase is the real economy effects. I am afraid the private investor will use any rally to sell his stock portfolio (note: I certainly think he should) - and now me and my friends in the hedge fund industry will not be the bid - so expect extreme illiqudity and no bids for the poor private investors.

Be long gold, chf, jpy, crude(maybe?), cds on us assets, SHORT US dollar, short US debt(10% is coming to Theathre near you)

We were lucky to cover all shorts Thursday - on Friday we re-established 25% of max short US stocks, we bought CHF, and EUR..... we will sell US Teasuries today, buy gold and await transperency - we are on de facto buying strike - we can not go long ANY US assets for this month and next......we are 85% long cash - rest is used in NEGATIVE option plays.

Let me end by once again saying: I am no predictive powers, I hope I am totally wrong, that I am too negative, but anyone who have spent five minutes reading Thomas Kuhn's; The Structure of Scientific Revolutions (http://en.wikipedia.org/wiki/Paradigm) - knows and identifies this a true PARADIGM SHIFT. When you take this fact to the next level, it becomes a utterly dire outlook.

Finally, spend 20 minutes on this interview and learn something:

http://www.pbs.org/moyers/journal/09192008/watch2.htmlLink to prediction: http://www.prospect.org/cs/articles?article=bubble_and_bail

Be safe;


Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com/


Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.

Please read our full disclaimer.

URGENT - this is the best 20 min you can spend..

Dear Friends,

Promise me you will listen to this - someone who knows, understand AND predicted this week...
(thkx for link Jesper)

Critical interview w. someone who predicted this - and who have lived long enough to see this and... maybe worse...

http://www.pbs.org/moyers/journal/09192008/watch2.html


Link to prediction: http://www.prospect.org/cs/articles?article=bubble_and_bail

Illusion is the first of all pleasures. - Oscar Wilde

Dear Mr. Paulson,

You are not fooling me - you may fool the market but not me!

Take 100s of billions of"toxic waste"from private sector and move them into the public sector and you still got billisions of toxic waste.

Only difference is the debt is now financed by a currency upon it reads: "in God we trust" - ergo the only colleteral value is the blessing of God

Please do not issue Jihad or similar on me for talking about God - I admit I am a total ignorant in everything religious having grown up in the Land of Free Porn!)

The Resolution trust is one step forward - if - you want to spend tax payers money - certainly beat propping up US investment banks........but as they say in German: "aber dabei....."

- The mess left by Lehman going bankrupt is still being felt in the micro-world of PrimeBrokerage....

- There seems to be issues with margin payments across different counterparties..... everything is a mess. (No wonder with minimum two new GOVERNMENT bail-outs per day!)

- The Democrats will work for: plan which safeguard Main street from Wall Street.. (Pelosi)

Even this "hard" working fund manager is somewhat at loss keeping up with the breaking news, but apart from this being more dramatic than ERM crisis in 1992 - then at least we knew when Bank of England broke everything was going to be over....)..... -this crisis has so many dimensions that I must/should/could write a book about it.

At the centre of this book would be: Greed is good, too much greed is very bad.

Gordon Gekko was wrong in The Wall Street movie... Greed is not good in the Investment banking sense as it covers for unlimited upside bonus' with limited down-side (read ZERO) impact on the CEO and headless Powerpoint producing salespeople selling deep-out-the-money strategies for in-the-money prices.

I am now more than crisis fatique - I am constructively fed up - thinking about closing down (and for the record I am up on month and year)..... and come back when Paulson and the other Socialist' are done writing cheques which certainly will bounce next year.

My good friend Scott made me smile - and it's so accurate to:

*BN 12:29 *TREASURY SAYS PLAN TO GUARANTEE NICE WEATHER FOREVER
*BN 12:29 *U.S. TREASURY TO INSURE PERSONAL HAPPINESS
*BN 12:29 *TREASURY TO USE UP MY TAX MONEY

Strategy:

We went 98% cash yday - only keeping very small options in place.... today (despite Friday being amateur day) we again went short:

Cash 80%
Short stocks 10%
Short US dollar; Long EUR and CHF: 10%

Keep safe everyone - this is the worst market conditions I have EVER seen and for those of you who havent met me... I don't have a lot of hair.... on that cheery note:

Happy week-end

Steen

Reality is close by....

This very simple fund manager have noticed one major change in the last 48 hours which I will call significant: More and more people have started, finally, to realise this is serious crisis - probably the worst crisis in my years in the market. That's a positive, because if we engage on the issue instead of disengaging there is fair chance REALITY will kick in.

I personally think we are 1-7 days away from getting change to marked-to-market practise - It does not make a lot of sense, even on a good day, to take somethingwhich is not priced relative to its intrinsic value. Take a house - even if a mortgage trades @ 20 cents in the US dollar, you would expect the house to trade 40-60% of price in sale?

The biggest joke is Morgan Stanley recent reporting - they made pretty much all their money from having issued debt - as this debt goes down they book the profit - they issue @100 - market is now 80- hence 20% profit - but the only problems being .. to take this profit.. you need to go bankrupt! Welcome to the world of finance.

This fund manager have reduced his EXTREMELY negative portfolio to 10% of Friday's position. There could be bounce or not - there could be more Socialist ideas like banning ALL short-selling etc - (for the record if anyone thinks banning short-selling helps the market - they need to get their school money back!).....

I am now 85% cash - and awaiting Monday --- still small long upside EURUSD, small downside in S&P - (deep-in-the-money Puts)...... rest I leave for the market to figure out.

I have become "crisis fatique" - and if even my local business newspaper have realised something is rotten in the state of Denmark - I will step aside......

This does not mean I have become positive- it merely indicates that too many indicators are at 10 standard deviations -reflecting lack of transparency even for veteran trader like myself.

Stay safe.

Steen

The world biggest hedge fund the US of A - -renamed: Leverage Ponzi Inc.

Quick-comment this am:

Subject: This is getting worse than 1992 ERM crisis - distrust at new highs

This is getting worse than the 1992 ERM crisis - distrust at new highs... I expect EXTREME US Dollar yield in money market to be main issue into turn of the month..- yes even bigger than HBOS, Barclays and BoA getting nationalised!

The maximum pain in any financial system is the lack of funding - the banks no longer trust each other at all. Everyone is refusing to lend outside overnight - but EVERYONE is willing to give Fx forwards EURUSD ..taking in US Dollar deposits @ 5% and higher (in 3.25%).... this morning market is paying into 1 mos!!!!! (I cant say this enough - this is WORST part of this cycle)......
EURUSD Basis swaps... new high -- Chart 1

(Click on chart for bigger picture)

...having lowered my S&P to 770... I am MAXIMUM negative on stocks - keep 75% cash!

AIG bail-out 85 bln. ==> Price: 850 over LIBOR - nice one... so they will run out money SLOWLY instead of this week--- Idiots...

US biggest hedge fund now .. 900 bln. of toxic waste - chronology: Save Inv. bank, Save Mortgage Inst., Save insurance, next? Leasing? Soon Fed will accept used cars as colleteral.... US hedge fund will bear the name: Leveraged Ponzi Inc -

if this market not realising this is BIGGEST CRISIS since 1987 it never will.. Asia paying 25% of o/n US this morning...? Remember IEP o/n in 25.000% ?

Good luck Ladies and the few Gents ...

Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com


Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.

Please read our full disclaimer.