Monday, January 14, 2008

Recession, negativisme, and willing central banks..

There is no doubt more negative mood on the market than in a long, long time, probably since 1998. This move reminds me of 1998 as a matter fact; coming of the heels of Asian crisis, the Greenspan folks, reignited the great Debt cycle by producing some more money through the printing press - it eventually led to the IT bubble of 2000, but it "safed" the world economy, and gave the derivative of "deflation" through the Asian lower production cost.

The bulls will argue todays market is similar, it is only matter of getting the engines re-started, i.e: rate cuts from the Fed, some of the more optimistic even argue that the mere fact the banks are in trouble will only make the policy makers do more and deeper cuts. That is all fine, but how about the premise that bank are the very INSTRUMENT by which the policy makers express their wishes?

Investment banks are travelling to see ANYONE who have positive current account in order to offer them: "special prices for you my friend" - the very point being the need to cut their external balance sheet exposure and fast, otherwise the origination and other traditional high earners of the banks will dry up due to lack of "room" on the balance sheet.

Am I the only one raising an eyebrow to the almost begging like style the US Investment banks have when offering their company to Middle East and Chinese companies?

Less than one year ago it would have been unthinkable that the Chinese could buy billions worth of stock in a US bank, now it happens weekly, no questions asked. Is that what Paulson calls "movement on the Chinsese issue" when he is praising himself and the administration?

I don't feel comfortable about the Chinese agenda here, but in the investment banks, money is money for now, as they try to survive. Yes, survive, the banks are bleeding to death. This mornings story on UBS is simply disturbing, no less for someone like me who used to work there!

I spend Friday on a rare conference in Copenhagen, invited by Skagens Fonds, and I had a great time listening to Larry Summers and Swenson, from Yale Endowment. Both were formidable speakers, but Swenson left me, 'a market timer', confused on why I exist!

It was exciting stuff and Yale funds are only 40% in stock, 60% in alternatives! True diversifikation if anything - Swenson had several other common sense advice to offer, and I suggest you read up on his Yale model, as its truely exciting and with 16% net return for 25 years its beating S&P hands down.




This morning we closed all our positions.

We had some luck in Crude, short USDJPY and short STOXX50 last couple of days, and with rumors circulating on Friday that Fed is so desperate they could even more inter meeting, I think its time to take some chips of the table.
The positive drift of stocks should NOT be ignored, neither should the fact that most "recession" type like corrections are down about 25% from peak to through.
Right now DOW is down 10-11 pct. leaving us vulnerable for an additional 10-15 pct in the next move, I do however expect some 'rallying' from here in the market, and hence takes constructive stance on the market...

We are:

Long USDJPY @ 107.78

VERY short T-bonds through options

Short EURUSD @ 1.4880

Long S&P @ 1413.00

USDA report on Friday was simply stunning. Read it - and try to understand the ramification for grains and inflation in the world;

Good luck,


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