Tuesday, September 4, 2007

Do I owe Bernanke an apology?

The jury is still out, but Bennie even telling the market that the moral hazards was the markets issue to deal with not his, was pretty surprising! Bennie definitely gained some delta on my rating radar, but he is still public servant and the Bush/Bennie show was coordinated to almost perfection for most impact.

However, the real dilemma remains the sceptisme with which the fixed income market treats this event. They are telling us, bail-out, go to life boats, while the stocks market guys are enjoying their Martinis on the sun deck, seeing no icebergs or anything in the horizon which should get them take of the party cloth!

Is this is a matter of eventually, the stock market understand that when there are NO funding, there are no party, or is it the "doom sayers" of credit who needs to get a life?

For me its neither or, as both things are facts. Fact is EMG and Carry trading is back in full swing. Fact is there will be both earnings issues and down-turns in the economy, but....the real impact is on the consumers and here I am very pessimistic.

Two in three Americans thinks the US in a recession, according to WSJ poll!
The leverage consumer is stuck; the food bill is exploding, the gas bill..exploding, the rent bill... exploding, and the real income is flat, so this credit crisis is in REAL TERMS a surcharge tax on the consumers (the very reason Bush is trying to "help out")....

From an allocation point of view September have by far the worst seasonal returns:

ADVFN’s analysis found that the FTSE 100 drops an average of 1.37% during September, making it the month that sees the worst market performance of the year. (http://www.growingbusiness.co.uk/September_worst_month_for_stock_market.YeISIT1op7A9-A.html)

This makes me maintain my extreme long cash position: 60% - the bulk of my allocated assets are in Asia, mining and Asia real estate:

Aberdeen Global - An Asia Pacific fund YTD: +13.14%
Merrill Lynch World Mining fund - YTD: 32.86%
Morgan Stanley Asian Prop. - YTD: 10.19%

Even though these trades are part of leverage trades is for the long term. Mining have excellent supply-demand function, demand exceeding supply, Asia as whole will do more "internal investment" amoung each other, something the SWF(Sovereign Wealth Fund) will escalate, and property, well Asia is cheap vis-a-vis more developped economies and as the population grows, and gets richer so does their housing demand.

I am also long technology relative to banking. I was net negative banking but have shifted in to more balanced approach, as I really dont have any gauge on who "wins" the above conflict; the fixed income guys or the stock guys...

Either way the next directional move will be BIG in velocity and in re-valuation as;

1. IF.. stock gets fixed income guys convinved ... there will have to be bought a lot of stock to get portfolios back to neutral weights....
2. However..if fixed income prevails, there is serious revaluation needed. The present forward earnings have hardly budged. In other words the E in the P/E have remained untouched by the credit, add ot this that margin at cyclical peak, and you have dynamic cocktail.

In closing; Im long gamma downside in stocks, I cant afford not to be, looking to way of increasing long US dollar exposure.......neutral fixed income, neutral energy, and looking to sell both grains and energy.

A very confused .....Steen.... safe trading... and as always... toss a dice and you will most likely do better than me..


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