Tuesday, October 21, 2008

The spread of evil is the sympton of a vacuum - Ayn Rand

The spread of evil is the symptom of a vacuum. whenever evil wins, it is only by default: by the moral failure of those who evade the fact that there can be no compromise on basic principles.
Ayn Rand (1905 - 1982), Capitalism: The Unknown Ideal, 1966


(Click on chart to get bigger version)




I really should not be showing you this chart from my Chief Economist David Karsbøl - it shows how some trades have become so out of whack that there is great oppertunities in the market.

BAA - or Moody's BAA-rated bonds pays more than 500 bps over US Treasuries(I.e: Yield > 900 bps p.a) with defaults never higher than 4% ! The only issue being our negative equity bias, but this is one of the trades you need to put on.

We are working on making synthetic ETF ratio which can cover this one for more direct access - otherwise check out:

HYG: http://stockcharts.com/h-sc/ui?s=HYG&p=D&b=5&g=0&id=p42658334577 or
LQD: http://stockcharts.com/h-sc/ui?s=LQD&p=D&b=5&g=0&id=p42658334577


Another thing you need to watch is this word:
Dirigisme (http://en.wikipedia.org/wiki/Dirigisme)

Sarkozy has turned out to be more Socialist than any prior President - my friend Henri Foch send me this email today and unlike me, Henri is not person to get "carried away".....:
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Europe is getting protectionist as the French President suggests creating a fund to nationalise key industries. He mentioned two reasons why to create this fund:

- To gains increasing influence on the economy in order to guide it.
- To avoid foreign investors buying European industries for the cheap

Sarkozy suggested that Europe could run a 'different monetary policy' without violating the independence of the ECB. In order to achieve this he plans introducing an economic council / government which ‘should discuss with the ECB’

After the comment, European shares declined, CEE and other EMK currencies have come under pressure. The quality of the comment is poor and super EUR bearish.
=============================================================

I am sure Sarkozy like Putin soon will be proclaiming: "There is NO CRISIS in France" its a conspiracy of the hedge funds, the Liberitarians and the Economists.... sure is ....

Why are "facts" are so oversold in todays market? Fear, greed, stupidity ? Mankind is supposed to learn from their experiences, that's why we "rule the earth" is it not -

I must say I am getting more and more depressed about the intellectual part of finance (How about that for a contradiction in terms!) - there is too much BETA around........ Beta must die --- Destruction of Capital as per Schumpeter must play out .

Strategy:


FX: We remain short our EURUSD based on:

  • Technical 1.3260 was next line the sand. John Hardy, my chartist looks for 1.2700 - and he has been hot recently, so we move our 1.3000 target to 1.2700 minimum
  • Fiscal stimulus in the US - Bernanke seems to want job with new administration as he "sanctioned" fiscal plan to the tune of 300 bln. USD in Congress yesterday (mind you getting Bernanke's blessing is the kiss of dead!)
  • Europe deleveraging needs to run longer and deeper than the US.

We are looking to add short HUF & LVL vs. basket of CHF and USD

Fixed Income

As printed above - we like Corporate bonds from the "distance" - getting closer - looking to trigger.........

We like TIPS http://stockcharts.com/h-sc/ui?s=TIP&p=D&b=5&g=0&id=p42658334577

Bunds - we are long 116.00 calls for Friday - sold our cash today.

Commodities

We are short GOLD, mostly because I am enforcing the view on the team but in my metrics - fiscal deficits needs to be financed, why not sell something which does not work as inflation hedge, carries no value except illussion of storage - i.e gold reserves to finance the purchase on government bonds .. ?

Target: 700.00 still....

Equities

This is your Captain - we are flying in a straight line towards 765.00 - we do expect some turbulence along the way, so please remain seated at all times during the flight - Thank you for flying with us.

Cash: 85% still - Full Investment Meeting report tomorrow from me...

Finally, my friend, teammate and sparrings partner Jesper Christiansen have launched his own blog - although more "dark visioned" than me, he offers this from different angle than me - try his blog: http://mrtitrading.blogspot.com/

Safe Trading

Steen

4 comments:

Bill Luby said...

Nice work, as always, Steen. I particularly enjoyed the graphics.

Thanks for sharing some of your thinking.

Cheers,

-Bill

Anonymous said...

Hi Steen.

Speaking of socialists, and cartoon characters. Did you notice the comments from G.Brown? where he said: "The world needs an early warning system to prevent future banking crisis"

What does he intend to do? Build a tall tower with the largest binoculars ever, facing Barclays Offices?

Furthermore, weren't people already warning about this, few years back, while the crowd was having an affair with Goldilocks?
They where ridiculed as being doom and gloom, fear mongers, Uber Bears, and called all sorts of names.

Scary stuff indeed, ridiculous but scary. The "New Deal" will pale in comparison to what is coming.

Anonymous said...

How do you get short LVL? We tried this earlier in the year via options and NDFs, and were basically told by several banks/brokers, "there's no market".

Saxo Macro said...

We trade LVL through the Scandinavian banks..