The Chinese use two brush strokes to write the word 'crisis

The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger - but recognize the opportunity. John F. Kennedy




This morning CRISIS version 1.0 hit european newspapers and media - for the first time every single media got SPECIAL EDITION on the crisis -
I find that somewhat positive as they so far have been talking about this AS IF... the crisis comes...

Second observation; what u dont die from you get stronger from?

The fact the market didnt total collapse this am in europe is good sign, same as asia... is there temp. lows in S&P in ?

Clearly the big losers are Paulson, Bush, and Washington, but cud the winner be "capitalisme" and the markets... ? I think so.. the plan would have been disaster.....


Other news:

• Ireland guarantees ALL bank deposits - wow, thats interesting.....
• Danish Nationalbank except all forms of collateral including old bicycles(i.e: non-traded stocks)
• O/N USD rates in 8-10% as we have turn money (September into October) - showing not enough collateral in the system for some of the banks.....
• This will be one of the worst month on record for hedge funds - we expect redemptions to exceed 10% of AUM at least , i.e more than 200 bln. US Dollars....

Strategy

We are trying to defend an excellent month by taking very small risk into the month-end - our primary focus has been stocks this month, next chapter in this story could very well the major move in the US dollar. Which way? Still unclear, the path of least resistance should be weaker US dollar based on their extreme need for funding from overseas, but for now it seems there is considerable repatriation going on from US based investors away from EMG back into the US, but to me this is merely matter of time, but tide is turning.

The issue as my good friend Lars keeps pointing out; the EUR is major disaster in every aspect, economically, cyclically, and policy-wise. Trichet will once again be forced to move away from his dogmatic views and into the REAL WORLD, as the Eruopean banks are collapsing one-by-one.

Left? CHF and JPY, I guess, if anyone can tell me what the Japanese investors will do the next three month, having savings exceeeding ALL THE SWF-funds in the world, I will tell you where the JPY (and US dollar goes)... keep me posted.

Moving into Q4 we could have potential for big positive return if the policy makers can stay away......Mind you the starting is low - the real deal though will be whether or not the REAL NEEDY, the US consumer with mortgages gets help or not - with the failure of the deal yesterday we are one step closer to proper solution - maybe?

Positions

Small long S&P from this morning, short T-bonds, long front-end US rates, long CHF vs GBP & EUR...

Good luck, and be safe

Tip of the Iceberg.....

Wikipedia on Iceberg:

Because the density of pure ice is about 920 kg/m³, and that of sea water about 1025 kg/m³, typically only one-tenth of the volume of an iceberg is above water. The shape of the remainder under the water can be difficult to surmise from looking at what is visible above the surface. This has led to the expression "tip of the iceberg", generally applied to a problem or difficulty, meaning that the visible trouble is only a small manifestation of a larger problem.


Listen that is the problem right now! Before Lehman went broke no one could even see the Iceberg on the horizon! Now everyone sees it, but very few are willing to acknowledge the fact what they see is only 10 pct of the real issue!

Lehman Senior Debt trades @ 12 cents on the US dollar from 95 cents! The only way it could happen would be fraud? Would it not? I am afraid anyone expecting money back from Lehman is going to have a hard time - but the issue with Lehman and why it still "plays" as a problem is the legal- and regulatory issues which Lehman showed the world.

Your Prime broker deal has no segregation of funds(unless you ask for it), investment banking as a supermarket model has died to be replaced by boutique-like-advice shops, there is no legal precedence on 80% of all issues related to Bear Stearn's and Lehman, the recovery rates used for modelling impact is clearly too low (again Leh senior debt pretty much worthless shows this!)... want me to go on ?

This is before we talk about European banks and their total lack of transparency! I am no longer allowed to mention names but there are major UK banks who are "hopers" - going to church on the week-end praying market will be up on the Monday!

The ECB changes of hair-cut on collateral will start off in February - ouch for Spanish, Italien and Portuguese banks , but bite me if this is not going to be changed before implemented.

If you have not noticed;..... the authorities and central banks have declared WAR on the banking crisis, even the stupid politicians seems to understand this ........changing the odds slightly away from short stocks, long fixed income towards long stocks and cash...

I am still 80% long cash - but as stated I have now net long exposure - mind you I will change inside one nano-second if the deal fails, but for now, the risk reward for being old, grumpy and shouting not worth it.

On a personal note today was not a day to remember...despite this I wish everyone a safe and nice week-end.

Steen

When it is time, it is time....

There is 90 pct chance the plan will be approved today or tomorrow.

The plan is still inconsistent and non-transperent but......I have covered all my short yesterday around 1185-1190 and increased my short US dollar position.

I see Q4 rally based on shortage in stocks - sell ban/long cash and oversupply in bonds....the 'price' will be paid in early 2009 where the mix of the plan, a new president, 8 pct yield will kill growth and margins.

Long t-bonds put, short us dollars vs euro, short eurchf......buying small upside stocks today.....biggest move could be long-end treasuries....

I am in Dublin Ireland so short note this morning;

I will finish with great qoute from marc faber(thkx jacob);

Investment analyst and entrepreneur Dr. Marc Faber concluded his monthly bulletin (June 2008) with the Following:

''The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala.
If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy.
The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part.'

Good day,
Steen

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