Thursday, November 20, 2008

The nine worst words: We are the government, we are here to help - Ronald Reagan




Today from Sydney - Australia - I am watchting the late US session from Hunter Valley, and it seems our final minimum target of 765.00 is within reach on deal/no deal package for auto-industry.

Radio silence & either you are pregnant or not

Why is it the world continue to have this "half-pregnant" atttitude to intervention? I was on small hedge fund panel the other day and made my usual simplistic presentation of the world, pointing out this crisis can be dealt with two ways:

1. The slow grinding, extended version, which is more expensive as errors upon errors are compounded to even bigger cost, when Mr. and Mrs Dirigisme Brown & Sarkozy continues to lead 'new' era state-capitalism where we selectively safe some individual stocks and industries due to 'national champion' status.... as said my Christmas wish remains that policy makers and politicians gets forced to do one or two year(s) of radio silence.

2. The hard and quick solution. Penalise bad behaviour and let industries die which have no competitiveness - this is the tough medicine but ultimately we need to own up to the fact that the only way to deal with this crisis will be to get saving rates up with the cost of serious dent on growth, stock markets and sentiment, but we need the micro economic agents (investors and consumers) to readjust their behaviour in order to get ahead of the crisis.

The policy makers and politicians creates so much 'noise' that the investors and consumers falsely continues to believe this crisis is something which can be dealt with from the top - and hence they delay their adjustment.

Having done my above 'spiel'; I had every single panel colleague go: I agree and disagree with what Steen just said! C'mon!

Maybe the 'good' news is that the crisis is now so total in impact that they(investors + consumers) will be forced to react despite the inadequate policy makers.

Evolution tends to happen from periods of stress rather than success, when we need to - we will respond to the challenges and this time is no different.

Interlectual capital, i.e our adoptiveness and brain power will take us through this period, but investors and consumers need to stop talking/acting and presenting themselves as believing in this "half pregnant" theory of intervention. Either you believe in it or not, you can't have it both ways.

The fundamentals for strong US dollar

I had lunch, as always, with Barclays Economist Peter Redward on Wednesday and we both had a stronger US dollar on our minds; Peter, who you should all follow, had a couple of interesting views:

1. The weaker oil improves US terms of trade, impacting trade and current account positively

2. The depression-consumer means they no longer using their credit cards, and with this the import is collapsing (seen the amount of cars stored at Long Beach?) - again improving the terms of trade.

3. US now got pretty much ZERO interest rates, but UK, ECB, Scandinavia, Australia, New Zealand still needs to deaccelerate (cutting rates to zero).... hence even from interest rate perspective there will be support.

It is interesting how a deal; being long US Dollar, have moved from being based on a balance sheet funding story to now being a real fundamental story (let me hasten to add that both Peter and I realise there is devaluation risk long-term, i.e 18-24 month from now on the US Dollar) as the world gets the US disease.

One of our Outragous Prediction could very well end up being EUR/USD in 0.9500 next year.

Strategy

Nothing changed our end:

Short NZDUSD, EURUSD, EURJPY, STOXX50 and GOLD. Long Fixed income and cash(75%). Applying our 25% into negative outlook views.

We may soon need to re-set our S&P500 call as 765.00 comes closer... the banking sector and mortgage sector across US and Europe is dying a slow and painful death. I am extremely bearish on banks at large for every day they are getting closer to the insolvency cheered on by a policy response which is so out of touch it makes one want to weep.

Safe trading,

Steen

2 comments:

Anonymous said...

Hello Steen, it appears savings for US consumers alreay doubled at 2% (can you confirm this?), excess reserves are at an all time highs and a mild stimulus of 240 billion/year (u$d 2/gallon less at the pump) will soon be working its way into the economy. In addition, new starts at record low will also soon start eating into inventory setting up a bottom balancing demand/supply. It looks some better news may be around the corner (a month or two from now). And I am not counting the stimulus package being work out in Congress. What do you think?

Quarrel said...

Hey Steen,

Welcome to Australia!

You have at least one loyal reader on this side of the world :)

Thanks for the commentary - always great.



--Q