Monday morning quarterbacking

Dear Friends,

Well the market is back in 'jolly mode' - the lesson goes: Bad economics is good for stocks(WSJ article)- and easy money will last forever. (Where did we hear that before? Oh, yes - the "Greenspan" put)

Now we have the Geithner/Bernanke put - leading into the FOMC last week, there was 'rational' people like me, who thought maybe, just maybe the FOMC could see how they are now creating the exact same mistakes Alan-I-am-the-most-useless-centralbanker-in-history-Greenspan did, by promising the market NO hikes - whatever happens ....

Geithner said it best this weekend: "If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater," he told reporters in Scotland. "It is too early to start to lean against recovery."

Ok, let me get this straight: So if we continue spending tax payers money then: we will have smaller deficit, lower unemployment, less business failures, and smaller ultimate bill for resurrecting the world? If that does happen I will be playing for Denmark upfront in the next World Cup in soccer in South Africa next year (despite my 45 yrs and less than fit fitness level)

I will let the "picture stand" for a few minutes so you, yourself, can contemplate how deeply misguided the Treasury Secretary is in even the most basic economic-one-on-one!

Another headliner being thay Goldman Sachs not only depend on cheap government money, but apperently they are also doing the work of God - at least that's what the CEO Blankfein says: http://www.dailyfinance.com/2009/11/09/goldman-sachs-is-doing-gods-work/ . Look I am a declared Agnostic, but with a firm believe in morale and the ten commandments, but telling someone you are doing the work of God is that on the border of blasfemi?

I refuse to be drawn into the discussion of what a serious CEO calling upon God in his defense for his industry does/tells me.... - as I remember a born again Christian President doing so for too long.......and the issue of everthing from Wars, violating individual rights......

The week-end did give some justification to my long held believe that over time justice will prevail:

 Warren Buffet got caught with his hands in the tax payers pockets, as he did not feel too big to take some tax credit from the US Government, making sure there is less money for the 10.2 mio. unemployed et al: http://online.wsj.com/article/SB125729682025626851.html and if you want facts, not CNBC hype maybe looking at this website could help level some of the God-like stature he likes to take upon himself. http://taxprof.typepad.com/taxprof_blog/2009/11/warren-buffett-.html

Last week was by all accounts an extremely expensive week for me, if nothing else, it shook my confidence as the Friday last big down close confirmed my long held view that a top was in place Mid-October, now it seems we need the classic re-test of old highs to see if there is more momentum above those levels - most of my positions is now under water, although still some distance away from the allowed 5% loss, but time-decay is very expensive.

The strategy for this week, will be to observe, recalibrate, because despite my lack of income from the portfolio last week, it is abundently clear to me that the financial market lives in a Fantasyland.... so while the market tracks higher, I will leave the final verdict to beyond the old highs, as I do firmly believe 10,2% unemployment is AN ISSUE - if nothing else to the miliions of families presently losing their jobs around the world.



My believe in mankind, the markets are positive, but we need the "forest fire" first, and if in the process people will start calling less on God, have higher morale standards, less leverage, and everyone will see how destructive egoism is, then I will be very pleased. On the issue of inspiration I found this link on a truely remarkable man: http://www.tradethepicture.com/2009/11/lewis-gordon-pugh-video/ His message is for the environment, but as a trader, a person, there is some very interesting lessons in this.....if only..

Safe trading,

Steen

FED's biggest problem is that the economic data is improving too fast - Macro Blog

On the eve of the FOMC meeting I will dare to suggest that the 'real issue' for FED is the fact that the data is better than expected!

Yes, lending is still weak, yes all in all housing is still dismal, and most of the improvement is in sentiment index', but... that the whole plan of Obama or the Harvard School of Economics as some people with tendencies for compartmental disorders.

Yes(again), you are reading this correct!

Obama has been successfull in creating the illusion of doing something, not unlike him winning the Nobel Prize on intentions alone!

He has now succeed in getting everyone to buy-into his 'hope' (Do not worry - it is ALL hope - no substance).

This leads me directly to todays FOMC meeting - the mere talk of EXIT STRATEGY gets people nervous, but it is hard for Fed to not change their communication:

1. Because its too tempting, always, for politicians and bureaucrats to take claim for something they nothing to do with (See chart below where US PMI surges past China and Europe)



Source: Societe General Cross Asset Research

2. It is paramount for Fed to create another illusion, the illusion that they have a plan for how to take the easy monetary policy back, for how to sell their old bikes, ladies hats on their balance sheet in the future.

This should be tied in with the massive shortening of term debt-structure which has been happening in the US: (see link below)

• Maturity of outstanding US Debt is down to 50 mth from 70 month
• Almost 50% of debt is due in the next 12 month (Will Fed hike making it more expensive for themselves to refinance?

http://fabiusmaximus.wordpress.com/2009/10/30/maturity/

It seems that the thinking in Fed is to 'pre-alert'the market, to communicate is the tool. Some observers Financial Times, and other insiders feels this meeting is too early - but that is it imminent.

http://blogs.ft.com/money-supply/2009/11/04/the-fed-and-its-extended-period-language/
 

Another interesting aspect as pointed out by the excellent research done by Societe Generale Cross Asset Research is the fact the world has a potential for a "decoupling"  (See PMI chart above)

Where early on it seemed the US was lagging China and Europe, it is now clearly the US which is in the lead as seen by recent surge in PMI data!

This would be major game changer - as the US Dollar has become the funding currency of choice.

Imagine if the market would/should/could starts repricing a rising rate structure in the US (it sort of makes sense the US needs to pay more...) while Europe lags - that seems to call more for 1.10 EURUSD than 1.70/1.80 which the consensus in the market.?

At the end of the day the market is in my opinion unprepared for the next move(s) in monetary policy, fiscal stimulus & geo-events.

In other words: Across all products VOLATILITY IS TOO LOW relative the uncertainty of path, which is the true volatility curve.

FOMC tonight I have no clue about - the way the market is setting itself up indicates to me there is 60/40 chance of major disappointment for the RISK-ON people, but as it is always the case with central banks, politicians and people in general: It is not what they say but what they ACTUALLY do do which decides......

Strategy:

Still same positions - massive P&L swings - but will await tonight & most likely Friday Non-farm before moving from aggressively short this market back to neutral. Justice will prevail! :-)

Safe trading,

Steen

The revaluation of the banks on life-lines?

...and C gets the RBS-disease(http://tinyurl.com/yzcaazv) - there is clearly some new valuation of the major banks on life-lines going on! -

It kick-started last weekend with the too big to fail discussion (http://tinyurl.com/ykezcmd)

Then ING(http://tinyurl.com/yfl3hlm) was forced by the EU commission to downsize balance sheet by 40% and sell their insurance business....

This morning RBS announced that the EU deal will mean divestment beyond their core-strategy - AND - Darling - yes it is a name - will tomorrow announce his plan for "dealing" with new banks, branches, competition - but will end up with 85% of RBS - what a joke. C under pressure tonight:

http://www.freestockcharts.com?emailChartID=1ec46577-cc11-4bb8-9703-2a259e9126cd


Fed not helping but for once talking common sense:

Comments from Fed's Greenlee:

U.S. banks face risks from souring loans, particularly for commercial
property, and some banks may face capital adequacy problems, a Federal
Reserve official said on Monday.
  "Credit losses at banking organizations continued to rise (in the
second quarter), and banks face risks of sizeable additional credit
losses given the outlook for production and employment," said Jon
Greenlee, associate director of the Fed's Division of Banking
Supervision and Regulation.
  Greenlee's comments were in testimony prepared for delivery to a
House of Representatives Oversight and Government Reform subcommittee.
  "Poor loan quality, subpar earnings, and uncertainty about future
conditions raise questions about capital adequacy for some
institutions," he said.

Strategy: Still the same - we believe mid-October was top - target: 930/40 minimu in S&P

Safe trading

Steen Jakobsen

Quick Friday S&P chart for perspective..

Silence is Golden

The market is now slightly oversold on my model - the top seems to be firmly in place and now we will await end-of-month-buying or not.

No doubt many fund managers are 'screen watching' over the next 48 hrs, potentially having to act on Monday should we take out 1050 in earnest.

It's not easy being a fund manager these days, actually never is, but 2009 the story very quickly became one of:

In 2008 we had the worst financial crisis, probably ever, and as expected 2009 became the worst year on the real economy. The numbers, the long line of unemployed confirms it.

Then the different governments decided to spend 5%-6% of GDP to 'safe the world from breaking down' but all they really did was to circle the wagons on their croonie friends in Wall Street - that's not a political statement, merely a matter of fact.

Now at the end of 2009 the banks - the major banks- are making billions on tax subsidized trading revenue (borrowing at zero with Geithner/Bernanke and placing them in...... Bernanke/Geithner long bonds) - you could say the its look very much like what a certain Madoff was doing recently, but do not let the facts come in your way.

Along the way, there was a public apology from Mr. Greenspan, effectively renouncing his Ayn Rand - Objectisvim and 'Efficient Market Hyphothesis' along the way. For many of you this may be relatively irrelevant if not for the fact that the whole principle idea of letting the market rule themselves came out of these two central "theories" - which Greenspan wholeheartdly subscribed to.

http://www.disclose.tv/action/viewvideo/10908/Alan_Greenspan__I_was__terribly__wrong/

The only real issue with Ayn Rand and EMH being it leaves "morale" to the markets - and I must say: I have wrestled with the "morale" issue for a long time, but as its often the case in practical life, the answer came through observing the nature - in this case the banks, the politicians and the bureaucrats.

The conclusion: There is NO MORALE limit for people when they spend, invest, use other people money - I will even offer the preposition that man/woman generally have a lack of morale when it comes to dealing with money (and a lot of other stuff - which I will leave for your psychiatrist) but this old trader has lost all faith in the market place - the key issue remaining is the one of: What do you put in its place? I do not know - but 90% of financial people are talking non-sense, and 98% of what is produced in banks are waste not only time but also the paper its printed on - this a reality people needs to deal with, as the new world order in finance is not one where the government will come to rescue - ironic that the "free market system" most likely will be replaced by one where 'accountability' is the true measurement of success - lets see how is prepared for this down the line.

On the markets I have not traded for over a week really - got all the same positions as of last investment meeting - I'm surprised in two things:

The high level of GBP and oil keeping its bid tone - the rest is as expected and I will now await the month-end before putting further chips on the table (For those in doubt of my positions - follow the Twitters)

Safe trading,

Steen

When the fire breaks out the door will be to small for everyone to get out..

Dear Friends,

Above picture courtesy of my old friend: Ole Riis...

This is EXACTLY what I am talking about and today there is further evidence which needs to 'ADDED'

1. George Soros - like him or not he is the 'Champ' and probably the only person I ALWAYS listen to: http://www.investmentpostcards.com/2009/10/26/face-to-face-with-george-soros/


2. Bank of America breaking ALL support - this could be key.... http://www.freestockcharts.com/tweets/?chart=a3f16fa5-7e8d-4a38-a4e8-3168158165f5&refURL=http%3a%2f%2ffsc.bz%3a81%2f1NK


3. Dow Theory..continues.: http://stockcharts.com/scripts/php/candleglance.php?$TRAN,$INDU

Safe trading,

Steen Jakobsen

Red alert is warranted...

Now I will do something which very few in todays world dare to do: Offer an opinion - one which statistically has zero value - but one which I feel I must share with you - if nothing else because in investing it is better to be on the safe-side / taking profit than believing in this miracle.

I believe it was JP Morgan who said when asked: 'How did you become rich?" - 'I took my profit too early' - wise talk.

Two major issues:

Issue 1:

Dow Theory is trying to warn us and what surprises me is the lack of focus on this - my partner Jesper got his CNBC going all day and they keep talking about Microsoft beating expectations - no talk of guidance being lower - and ABSOLUTELY no talk on how Transport stocks are tanking - it does not get more ironic than this -as a few weeks back everyone talked about Warren Buffet's favourite economic indicator: Rail road freight - This market is UTTER JOKE - and if you did not yet watch the Frontline prgoram I linked yesterday then NOW IS TIME. The defense rest.

Dow & Dow Transport (click to enlarge)

Issue 2:

Cable(GBPUSD) volatility is a concern. This morning Cable made cycle high - and now leaving the office it has made a 'key-reversal' - traditionally an indication of weakness to come. I may be wrong, but as an experienced FX trader the up-down-up-down moves where speculators 'chase' momentum is sign we are going to see some major reversals soon. You be the judge:

GBPUSD Chart (Click to enlarge)

Safe trading,

Steen Jakobsen