Self-denial is indulgence of a propensity to forego. Ambrose Bierce

Could not have said it better! Bernanke continues to mis-manage the US economy and now we are all at risk of losing out - this started as "Class-room" experiment for the Professor from Princeton, now it has become as matter of life and death - and Mr. Bernanke is still in self-denial.

If anyone things yesterday rally was not another heroin shot in the veins they need to go have their heads examined!

This morning several good natured people been sending me stories on how the world is now safe and how January 22nd was low for market - Please DO NOT SENT ME CRAP! I can read and I see plenty of fair weather comments day by day, I only need to read the investment banks research to find it. Like GS recommending going short basket of CDS on banks this week because risk is gone and Bernanke will safe the world. Be my guest!

25% of US investment banks would be out of business if it was not for two things:

1. Accouting. If they were to report as "normal" companies they would move into Chapter 11 - you merely need to add up tier two and tier three capital and put it in ratio to own capital and you will be shocked how tiny the capital of socalled "major" investment are. Look at Bear last week it had 11 billion capital reserve - now it is sold for 2 USD per stock !

2. The circling of the wagons - read my comment below - Bernanke firmly believe saving his friends on Wall Street, who have shown no integrity in paying themselves or taking fees, now they are begging to get simple deposits -

I predicts there will be STATE SPONSORED rescue fund for Bernanke's friend before the summer arrives - this combined with increased power of Sovereign Wealth Fund is the two single biggest steps back for the capitalistic world.

The truth is as much as Socialism failed on its inability to recognise market forces, now the Capitalistic is failing on morale hazard and the policy makers inability to "let live go on" - they feel empowered to "intervene" although history and even theory dictates they should go on holiday and leave out sign: "We have no clue - you sort it out !"

I am, as many of you know, Objectivist, the only, but big issue, I got with Ayn Rand is her morale concept - she believes even morale is self-regulating -

That's clearly not the case - people will steal if not punished, people will lie if they feel they can get away with it, it does not mean all people will do so, but you only need to read news clips from Wall Street banks this week and you can see my point - they are ALL fine!

Honesty not the buzz word in banking no more - once your word was your bond now your word is always a lie, and the receiver needs to analyse it - Sad, very sad.......

On to the markets - we had an excellent month, taking most of the risk of during Monday, now we are building positions again - yesterday was typical bear market bounce. I will qoute this again: Biggest market up days happens during bear markets! End of story.

When banks starts lending and trusting each other I will go neutral - understand this- As long as baning system does not work, nothing works. Think about how monetary policy works:

"Drug Barrons at Fed" tells market - rates are now set at 2.25% pct - we see risk to downside, so we are ready to cut more - next "normal" step is banks comes in - lend from Fed, leverage their balance sheets through lending out money, doing derivaties deals, taking postions in the market, so for each US dollar Fed lends out, the banks lend out another10-20 US dollar - BUT.... right now.. the banks takes ALL the money they can get from FED- but NEVER in the their wildest dream will the lend it out as their own balance is in a very bad state.

The falling stock market, mortgage market, loan market, the lack of liquidity means more and more asset on the banks balance day by day gets moved from tier 1, to tier 2, to tier3 capital- as there is NO markets.

I do know not if you realise this but.... the European Government Bond market has not been operating fully since Aug-Nov last year - in other words you can't get prices in anything between banks in even Government issued bonds !!!!!! Spread on Italy trades @ 60 bps, where as mortgage spread on Danish Bonds trades @ 40 bps.. makes sense ? NO! That's the reason YOU NEED TO BE FOREWARNED.

I am EXTREMELY negative - on fundamentals, but more because 98% of the market have not understood what I just wrote - after reading this - please spend 10 min. reading the crap research from investments banks and you wil see what I mean........this are guys who has gone from making 500K US average to being weeks away from losing their jobs - do you think you will get truth from them?

Sorry I am so harsh but this is NOT times for being sentimental - this market nervousness has only just started - this is the final wash out.

STRATEGY ---

We are going back into the market today with usual views:

Long JPY, short DAX and S&P, long t-Bonds, staying away from EURUSD but still feel there is more upside.....

Finally, I hope honestly I am wrong but at least mentally prepare you for the worst, that way you can transact not react when shit hits the fan.

As always I am merely poor farmers son from Denmark - I dont have any predictive power and have never even believed myself to have.

Stay lucky all.

Steen