Chasing the end consumer....where is he? Have you seen him?

Todays investment meeting was short, but productive:

We ended up chasing the end consumer of all the "good" and goods that this fiscal stimulus has and will produce.

It is all well and good to analyse things getting better - it's even correct, from the stand-point of corporate earnings, but.... who is this end user? Where does he/she live?

Clearly the US consumer no longer wants to be part of the game of chicken, as their "balance sheet" is in such a bad state: lower house prices, eroded pension funds, and outlook to lower real earnings & potential unemployment

The money is on China and Japan to create more domestic demand - and I am sure it will produce more final demand, but the problem being... their saving rate is 40% or more, so it takes a lot of Chinese to replace just one US consumer.

Chart China - getting bigger GDP but spend less as percentage of GDP (source: David Rosenberg, Gluskin Sheff)

(Click on chart for larger version)

Fortunately China is factor rich on people, but I doubt the local peasants, celebrating the 60th year Anniversary of PROC (http://tinyurl.com/ycorzmo) this week is too concerned about these matters, but the cheerleaders of the world keeps talking about the amazing Chinese story....but may I ask again? Who is buying their stuff.

Looking at the incoming data it is becoming clear that the velocity of improvement is at best stagnant and at worst falling - the past two weeks has not done much good on the upside, except maybe for the 20K better jobless claims last week. The worst being the renewed slow homes sales...

It is also very interesting to note that the main benchmarks of bubble/euphoria/China: Copper, Gold and Crude are all "correcting" their up-move - this could be merely a small correction inside major cycle, but being the concerned chap I'm - I got feeling market is long, very long.....all of the above assets.

Chart 2: Copper, Crude & Shanghai

Our main conclusion remains this:

• Market trades on momentum (nothing wrong with that per se..... although it is EXTREMELY tiresome for old man like me.....)


• It's impossible to define top in place presently (You can do all sorts of analysis, but from technical and valuation perspective it remains a two sided story)


• We note data & commodities does not like last two weeks(see chart)

In the equity space, our resident equity guy, Mr. Carsten Høgh, claims: Nothing is cheap any longer, and that caused some tactical talks on whether stock managers would move to "defend" their positions as we enter Q4?

The fact that most of their "profit" this year has come from low quality stocks with no or small earnings - and from increases in multiples (S&P has moved from P/E of 10 to 18 today.....) would indicate some willingness to scale-down their holdings based on Carsten premise: If it's not cheap, it's close to being expensive - We have expectation that there will be move away from cyclicals and into Big Cap again (Tesco, Wal-Mart, Colgate, Coke, H&M, Diago etc.).

The overriding strong argument for buying stocks remains: cheap funding (read: liquidity), cheap US Dollar and cheap talk in Washington (Obama promises alto - but have much of the items on the G-20 can he ACTUALLY get through Congress?).....which are all good arguments, we have some idea, still, that the next two weeks will be the peak (Read old blog: http://steenjakobsen.blogspot.com/2009/09/next-big-trend-shift-comes-in-october.html)

We are getting close to this END DATE.... and our cyclical model indicated going in to Monday that the markets was slightly oversold, but the key for the next two weeks becomes how much further we can move up before the market finally puts in medium-term top........ We look at Fridays number as as a potential "game breaker" - but as always... it's not a science but more of guess.

STRATEGY:

We remain light in risk and we will be looking to increase negative play as Non.farm is out........for now... the momentum rules..

Safe trading,

Steen Jakobsen

Politics is war without bloodshed while war is politics with bloodshed.Mao

The week-end macro blog today with guest commentary by my friend Yoshi.

Yoshi wrote me nice e-mail last night and the content is the first real "new" research/analysis I have seen in years - you can always trust Yoshi for clear and concise thinking, but first to the order of G-20 communique:

Full text: http://www.pittsburghsummit.gov/mediacenter/129639.htm

Commentaries:

http://www.reuters.com/article/businessNews/idUSTRE58P04Z20090926

The statement was longer than normal and full of promises... the headlines was as expected but the sub-text left me with feeling that the exit strategy is further ahead than market presently perceive it to be...

The financeminister was instructed to work on a transparent plan for exit strategies in their November meeting - and the world "leader" (sorry I can't write it without putting " " around it as it's joke to call them world leaders....) believes growth is back at 3% plus - and certainly the year-on-year numbers vs last year looks good......

Which way to play this? I don't know but.....good friend of mine commented: "... the only way for this to be done in good order would be to let all of the programs run out of time.....".. so the way to monitor this will be to make table of "initiatives" and watch last "sell-date".. if this is THE PLAN, then we are losing a lot of stimulus over the next 3-6 month, and this I think is main point to take away..

Enough about my thought here is Yoshi e-mail to me (which I took the liberty of making public before getting Yoshi's approval - but I deemed the email to be in the interest of the national security :-)

Nice week-end and safe trading,

Steen

===========================================

Hi Steen,

I'm fine and amazed at how foolish this mkt is. We are on the verge of
protectionism and in the beginning of the end to the foreign capital
to the US (the Asians are serious about developing their domestic
consumer mkts, which will be far less open than the US).

I really think Obama will go down as even more corrupt than Bush and
his biggest mistake is Geithner who is closer to the powerfuls since
Summers will not pass any confirmation hearing in the Congress.

Right now, my biggest immediate concern is the CFTC's position
restriction on the futures when the interest rate differentials (one
of the major reasons the Asians would hold the USD) are gone. The USD
denominated commodities were acting as the balance to offset the
declining interest income and weaker USD. When the US increases tax to
eliminate the tax rate difference, then fait accompli to the USD.

I am amazed they are even talking about Tobin tax as if someone is
making sure the USD will be dead unless the US wants a new currency to
fraud its way out of the impossible USD liability.

Now, the Europeans are joining in on the protectionism (tariffs on the
Chinese aluminum foil and seamless steel pipes). There is a real
chance the Japanese (they have been quietly reducing the UST holding
for the last ten years) will sell the UST since their trade surplus
with the US is declining and Japan will need any available capital
including its reserve to pay for their domestic needs: free high
school education, the serious pension shortfall for the fastest aging
population and the DPJ's "Welfare Economy" policies.

The serious point regarding China and Japan is they are shifting their
economic models to more domestic oriented economies because they've
given up on the US consumers. If Japan, with the only 10% of the
Chinese population and much smaller land and even smaller natural
resources, would say they accept a strong yen, more domestic
consumption and Asian Economic Comunity, it would only mean one thing.
The US is becoming a liability to them. Look around in Asia, the
Chinese yuan & the Japanese yen swap lines with other central banks
are being extended like a spider web and they are talking about
establishing the Asian Monetary Fund.

As soon as Japan accepts China should take the leading role in the
Asian Economic Comunity and Asian Monetary Fund, I believe they will
becme a reality. It is natural that China leads Asia and would be more
acceptable to other Asian nations because of the stigma atached to
Japan like Germany in the EU.

These developments in Asia are not a part of the Team America. It's a defence mechanism to prepare for the harsh world to come. That's why I think we are near the flexion point in this mkt.

Yoshi

The golden rule is that there are no golden rules. Bernard Shaw

Short blog today as I waste my time waiting for the mighty policy makers utter their final communique nonsense. http://www.guardian.co.uk/world/2009/sep/25/g20-communique-Pittsburgh

This morning we had a "heated" argument in the office, the resident GOLD BUG Carsten was soooooo keen for me to read part of speech given by the mighty hedge fund manager John Paulson on gold.

The sentence which was supposed to get me excited read: "...and he observed that if one thinks about gold in a three or five-year time horizon (instead of hour-to-hour/day-to-day/week-to-week), the probability increases of gold being higher over time (most likely, much higher)"

What total load of nonsense! The probability of gold going up in 1 min, 30 min, 1 hours, 1 day, 1 month or 1 year is EXACTLY the same - there is no carry rates in Gold so even the Hold-and-keep argument is nonsense, but as this was said by the billionaire Paulson it be must right ????

This type of argument typifies all of us - we are arguing circular : There are NO.. and I mean NO real new analysis coming to the market, so instead we rank the quotes from the investment gurus according to their latest position bias. Makes sense. If its higher buy more. End of argument.

I think it is time for people to find the annual survey from Barron's on mutual funds - the one that states: Always sell the best performing managers in a quarter and buy the bottom performing manager - It's a mean-reverting game when it comes to "guessing" correctly - Even futurist miss 99% of all their calls......

On the note of Gold I will issue STERN warning on potential for all of you/them being disappointed:

CHART 1: Gold daily (XAUUSD).. Trend line - 10 days exit comes in a 990.00 - so does old top from June...in other words be forewarned - should gold close below 889.00 we could see some stops get started on the down-side. (Click on chart to enlarge)

Also, one of the top players in commodity trading: Larry Williams, whom I am lucky enough to share information with, he has a stern warning in his latest update video: http://www.ireallytrade.com/TVStation/LarryTV.html

Finally,

There is clearly a consensus in the world presently that 50% of the world's GDP is in an inflationary paradigm(US, UK, China and Japan), while other 50% of will use "deflation" as the path to normality. This being mainly ECB and Europe.

The argument makes sense: Europe has the worst demographics and needs to increase competitiveness this will happen in deflationary environment as low growth enforces lower salaries, redundant industries disappear.......

The problem though remains: Who will buy the worlds goods?

Last a link with my very own top ranked guru: Julian Robertson (listen please)

http://www.fundmymutualfund.com/2009/09/julian-robertson-us-may-face-armageddon.html

Safe trading,

Steen Jakobsen

Pigs can't fly or can they?

The gathering of policy makers in Pittsburgh (http://blog.pittsburghsummit.gov/index.php/blog/entry/sustainable_growth/) as of tonight reminded me of the "classic discussion" of whether pigs can fly or not? (http://tinyurl.com/ycfzb43)

Flying pigs aside - I'm being told from some reliable sources that today the S&P is up in 101% of the time, when S&P has been down on Fed day.... Yes, the counting rules in this world of arcane nonsense. I also note that Premier Brown is getting seriously "dumped" by his American sweetheart (http://www.guardian.co.uk/politics/blog/2009/sep/24/brown-obama-snub-michael-white) - which is for me quite interesting as if..... Brown calls an election the opposition has promised to test the Lisbon Accord with voters - With Ireland voting on October 2nd the EU could be much closer to ...serious crisis than presently priced in..

Well on to the matter at hand the G-20 - here is my two cents, and it's two cents worth:

• The mere fact Merkel says there will no deal on Tobin tax at this G-20 meeting disgust me more than I can even tell you.. (http://en.wikipedia.org/wiki/Tobin_tax) . We are much closer to having the policy makers do a serious mistake than at any time in my trading life. Policy makers are high on their "success" (Creating articificial growth via expansion in public sector demand and state supported free trading regimes for banks..) - Any trader will tell you the most dangerous time to trade is when you feel invincible - statistically you have biggest chance of losing big after winning big. We are, in my simple and obscure thinking, very close to see a live experiment of "the law of unintended consequences"..... Odds: 75% of something "stupid" to happen


• US dollar risk - do not ignore the French "sources" calling for weaker EUR/USD - anything north of 1.3000 in EUR/USD is a total joke and merely pushes European growth behind the rest of world quarter-by-quarter cyclically. You may not want to own US Dollar, but owning EUR will for the balance of this year could be worse...... G-20 needs to address - or rather return - to the "strong US dollar policy" - Summers/Geithner must understand that to continue to be competitive creating demand for US asset you need stronger/stable currency - otherwise the US dollar soon becomes the G-20 equivalent of Zimbabwe. If any surprises comes out of the G-20 the most likely candidate will be "clearer" views on the levels of currency in my opinion. Odds: Less than 20 pct.


• Bonus regulation. Who cares to be honest? My trading presently does not exactly create expectations of a bonus. Seriously though, up-and-to the financial crisis the bonus culture could be rationalised(Close system with shareholders sharing risk/reward), but now.... with pretty much all the banks being public owned - it is, us, the tax payers who pay for dealers taking risk which is pre-guaranteed to work (The Central Bank lends the banks @ 0% - then they turn around and by leveraged Government Bonds @ 3-4 pct... if there ever was a FREE LUNCH this is it - and it constitutes a MAJOR MORAL RISK. There will be strong wording and it will ruin the bonus culture for better or worse. The bankers got too greedy - and all of the sudden the whole reason we have this recession is bonus!!!!!!! AW.. OCFGG##¤¤¤¤¤ - What a load of rubbish! - This nightmare we are in is based on: wrong policy decisions (Read: Alan-I-will-lower-rates-at-any-sign of trouble-Greenspan)


• Volatility -promise me one thing, please! DO-NOT-GO-HOME-SHORT-VOLATILITY(gamma) over the G-20. There is only one way for rest of the year - serious elevated levels of volatility - Volatility is uncertainty of paths - This week-end could become the financial market equivalent of Churchill's: The darkest hour (http://en.wikipedia.org/wiki/The_Darkest_Hour)

Strategy:

This simple, humiliated, trader is still in strategic mode: short 1 unit S&P, 1 unit EURUSD and looking for volatility plays for next month.

Safe trading,

Steen

It's all circular.. Mini macro note

Short note leading to "exciting" end to the week with FOMC (tonight), G-20 from tomorrow onwards, and Sundays German Election. We had our weekly investment yesterday and it was not much of an event to be honest - I will write the usual log for it later tomorrow, but bottom line

There are no signs of this "liquidity driven" market stopping for now..

Going into Fed and G-20 we note with some surprise a couple of central bank moves: Bank of Canada announced yesterday on their web-site:

BANK OF CANADA TO END TERM LOAN FACILITY OCTOBER 28
BANK OF CANADA TO END PRIVATE SECTOR PRA PROGRAM OCTOBER 27
BANK OF CANADA MAKES LIQUIDITY PROGRAM ANNOUNCEMENT ON WEB SITE
BANK OF CANADA TO END TERM LOAN FACILITY OCTOBER 2
BANK OF CANADA TO END PRIVATE SECTOR PRA PROGRAM OCTOBER
BANK OF CANADA SIGNALS END TO SOME EMERGENCY LIQUIDITY PROGRAM

Bank of Norway the today announced they were considering hiking rate

These are early leaders but it is clear indication that most centralbanks are now at least considering their exit strategy. This is ONE MAJOR MACRO change which needs to be monitored into-FOMC and G-20 - the consensus is for all meetings to "promote and confirm the bias for no-exit and loose monetary policy". Risk is for less "bearish comments" than expected...

The second and more relevant issue is the US Dollar: There is NO sentiment or positions supporting the US Dollar.... but with Gold above 1.000 US dollars and US Dollar falling each and every day the central bankers can not IGNORE the warning signals.

The risk from here is that the central bankers realise that a strong US dollar will be in the interest of the US. The only way to hold down the 10 year yield (as proxy for funding price of US deficit) will be to make the US dollar stronger in order for foreign investor to at least make money on the currency. Clinton understood this - and so did Summers who has major role in the new joke of an administation

I expect some periphael changes in US willingness to accept continued weaker US Dollar - if not at the G-20 then in Fed official comments...

Buy some 3 month USD c EUR p.. here - Europe is toast @ 1.4800, but as Jesper correctly says: Who cares? The politicians are afraid to do the right things as waning growth and rising unemployment are more "tangible" issues to deal with..

Strategy:

Remains the same - looking to exit long and go short...but I'm alone

Safe trading

Some links for you:

Fed said to start talks with dealers on using reverse repos

http://www.bloomberg.com/apps/news?pid=20601087&sid=ax.FBWNLB5_o

Stock rally will end within six months, Tice says:

http://bloomberg.com/apps/news?pid=20601087&sid=a5viQG5nbLkg

FX Concepts: S&P has 2 weeks 'til tumble starts'

http://www.reuters.com/article/reutersEdge/idUSTRE58L2D020090922?sp=true

The Fed's dollar conundrum

http://money.cnn.com/2009/09/22/news/economy/fed.financing.fortune/index.htm?postversion=2009092217

Safe trading,

Steen

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)