The measure of who we are is what we do with what we have. Vince Lombardi

Investment meeting

Economics:

The incoming data has stabilised in velocity but the expected improvement is not coming. Yesterday "worse than expected".... Industrial Production, Empire State Index, and Net long-term TIC flows once again raises our alert to the lack of tracktion for what can only be described as the Mother-of-all-fiscal stimulus' in the US and abroad.

The same pattern emerges from Europe - and we are left wondering if the AMEX announcement of February deliquent loans rise to 5.3% is the first sign of the financial industry now having to pay the final price of this cycle, namely the loss on their private clients? Still to early to judge, but not imcompasing this final loss into the rallying financial sector stocks could be grave mistake.

Conclusion: Stabilised but economic data impact on overall market direction relatively benign.....

Technical levels:

Looking at our quick-and-dirty scan of the market: http://tinyurl.com/dhbbd9 ...It could seems the momentum if somewhat going out of the market (It could also merely be pre-FOMC and G-20 meeting profit taking....)...

We also note, if nothing else, that the VIX volatility has not follow through on the downside creating "Noise divergence", but it was also noted the VIX failed to rise significantly with the new low 666.00 ish - is this sign of VIX losing its "powers"?

http://stockcharts.com/charts/gallery.html?$VIX

The internal expected reference remains 805.00 ish ..... we opted for keeping the exposure in place awaiting the FOMC announcement tomorrow. (To QE or not to QE - that's the question)

In currency-land, as I touched yesterday we are at a cross road - taking out 1.3100 on London close would make me go flat again, untill then I remain with 1.2000 target, although the Investment Committee at at large was more "open" to downside of the US Dollar.

The month-end effect should not be ignored... where the "benchmarkers" generally needs to buy US Dollar, but the end game of "competitive devaluation of the US Dollar" has in many peoples mind moved forward in particular if the FOMC tomorrow openly embrace the QE or more correct to launch the biggest helicopter in their fleet and start printing money in earnest, which QE end of is and always will be.

Conclusion:

Disappointment with the lack of EMG follow considering the "positive IMF noise".... EURUSD @ 1.3100 on close the key reversal point, Scandies looks good, but firm close below 10.90 EURSEK and USDSEK below 8.5000 would help.....

Macro themes

• G-20: Not much to add- the hope factor is high, and I remind myself it is not what they say they will do, but what they ACTUALLY do do which is important. Many fortunes has been lost on promises delivered by policy makers.


• China: We note China market was down while rest of G-20 was up, and now overnight it was up while G-20 was down? Coincidence? Probably - what I am hearing from China is surprisingly that the Politburo uses the stock market as GAUGE for their policies.. and once again... as domestic chinese investors you are offered two products: 1. Saving in state owned banks with NEGATIVE REAL RATES of 3-5% OR....2. play the markets? Which one will you chose?


• Quantative Easing in the US and ECB(FOMC meeting)..... Our FI manager had strong feeling for potential for ECB lead qualitative-easing (note the difference)... i.e buying of selective papers which is deemed too cheap - an analogy to off-the-runs in the US..... This could very well happen, although from DOGMATIC POLICY point of views it will be hard for BUBA to swallow... the argument certainly both qualified and correct for risk purposes... Why buy Corp Credit at 5.00-7.00% when you can get Ireland, Greece et al at LIBOR +400 ? At least these countries can TAX themselves out of trouble not so for corporates... so really we are saying is that SOVEREIGN offer better value than both corporate spreads and short-term equities (We agreed QE impact on stocks depended more on the mood of the day than a rational reaction, although creating more debt should mean widening credit-spreads, CDS-levels, and weaker US Dollar). Ultimately whether they move to QE or similar drastic action tomorrow (as insiders indicate)....is at best a guess at worst a hope...


• EEC. IMF is coming - and if so, market feels vindicated to thinking Eastern Europe is saved, maybe, just maybe the truth is a little more complexed...but watch the IMF development closely...

Conclusion: We deemed doing anything before FOMC would be too risky, but also agreed on contigency plans for should FOMC come out and play ball with the hopers - then some serious rebalancing could be in order....for now its awaiting more inteligence but watching several key indicators break or fail.

Strategy:

We remain very conservative with cash/fixed income representing approx. 55-60% of exposure, we have some direct- and indirect exposure in equity.....for our benchmark we have moved slightly out of risk aversion, but by small steps - transperency a need.....

Safe trading,

Steen Jakobsen