Let the games begin! There are NO RESET buttons on an economy!

Dear Investors,

This rally is now entering an extremely dangerous phase - the cyclial turning point July 5/7th is near, plus the believe in a magic reset button for the economy is failing....in other words: I am going net short and looking to built maximum short exposure between now and end of first week of July.

www.steenjakobsen.blogspot.com

Nice week-end,

Steen Jakobsen

If in doubt tell the truth - Mark Twain

BoA now more owned by Government than private shareholders - what is wrong in the State of Boa? http://tinyurl.com/9mvknv

Doesn't the American tax payer have the right to know where the money goes? Apperently not according to Fed! This is scary....scary... please spend six minutes on this: http://tinyurl.com/ytn8ru

C - as in Citigroup begins to look, smell and feel like LEH did - an arrogant management, a business model which has never worked, a board full of incompetence - and now they release their numbers today - look at the chart---- http://tinyurl.com/693pla

(Click on chart for larger version)

My friend Jesper Christiansen (http://mrtitrading.blogspot.com/) and I spend some time this morning over coffee trying for once to be constructive - at least on the crisis ;-)...

Let us put the overall economy and investment cycle into a perspective:

(Click on chart for larger version)




We are in the "Winter" mode of the Kondradratiev cycle(http://tinyurl.com/2xxsj2)

You know I am no believer in any specific model, but this model shows a few key things:

1. Where we are in the business cycle
2. How we will find bottom in economy
3. The impact on policies

We are moving into: plant closings, unemployment, debt defaults, beggar thy neighbor, competitive devaluations - in other words:

The "fundamental" problem for the world is that the consumer is INSOLVENT (there is no pend up demand with negative saving rates and a massive debt mountain to service) - to remedy this issue we need to see serious write-down of debt........making the debt mountain smaller.

How do we achieve this?

Firstly, the investors owning the debt needs to take a loss - there is a reason why they have been paid a high interest (yes, this includes the "articially safe havens" of mortgage bond as well) and hereby taking away the uncertainty which end of the day is probably the worst negative factor on every single decision big and small.

Secondly, the total debt burden needs to reduced - someone has to pay - and it should not be the future generations as every single "recovery plan" dictates right now

Thirdly, we need to stop Government & Policy makers from spending money on unproductive projects like keeping Detroit a live, paving roads, subsidising this and that - remember one US Dollar spend in public regime goes from one being spend in private.

Fourthly, the resolution to Detroit and similar problems is to make it go into Chap. 7 or 11 - then buy out the best most productive component reapply them somewhere else - guarantee mimimum social standards and then critically give 3-5 year tax reduction to start-ups, make funding capital available for new business, short-term subsidise redeployment of laid-off works... this way you support the actual tax payers directly through security, potential job growth...and not through roads, and keeping jobs which ultimately will disappear.

Evolutions dictates that "destruction of capital" will happen for us to see a new better world, rest assure I am VERY positive on long-term growth, employment and market returns, but first the world needs to own up to the fact we are in the "Winter phase" ... then we need to apply our IC, interlectual capital, to solve this crisis.

The beauty being the very reason we survive is our always positive outlook, and I am 100 pct certain if "people" & investors where told the REAL TRUTH, i.e. how bad things are - they would adjust accordingly and we would be out of this crisis very quickly, but unfortunately we need to take serious detour due to policy makers and politicians which must rank the most incompetent in history....

Strategy

We have restarted our negative equity market outlook by bying some out-the-money DAX puts on S&P equivalent rate of 850.00. I feel too nakes with no downside on, but this is small position and I stand by my overall view that into Obama Inaugaration market will be volatile both ways....

We are still short EURUSD - we saw 1.3020 low post ECB meeting - Trichet talks rubbish - as per usual, EUR rates is going to zero.. he knows, I know, and you should certainly know....

I am slightly concerned about fixed income (Europe) - Bunds - the high yesterday had both divergence and "spinning top" making for excellent risk reward selling here @ 125.90 with stop above high yesterday plus margin of error. (High: 126.53 - suggest stop 126.70)

Otherwise we are sticking to low exposure due to upcoming event risk...............

Safe trading,

Nice weekend



Steen

Service in New York ? You kidding me?

Yes, it would have been a joke less than three month ago - but seems the crisis bites here - yesterday arriving in New York I had my taxi driver volentarily waiting for me while I checked in at the hotel before going to first meeting !!!!

I lived in New York for more than three years in late 1990s and never got anything but abuse day-in-day out!

Everything is 40/50% off on December 1st! Talk about crisis - and on top of that plenty of buy three pay for two deals ..... I am not the big shopper but this is close to bargain values.....

On the other hand something never change:I was "listening" to three New Yorkers discuss the world affairs and its striking how simple and full of themselves they are - Obama is "accepted" but only due to PC - political correctness - there is terrible jokes and one liners which not even I will commit to papers flying around - I must say all of the sudden I remember why I both hate and love New York.

It is great place to visit and the Americans are at large the nicest people but in a very strange way New Yorkers are the most "narrowminded" people I meet during my travels around the world. They make George from Seinfeld sound and look like a true globetrotter.....:

http://www.youtube.com/watch?v=1gjxnxKmaVQ

There is pain here, lots of pain, no one paying school fees, the Wall Street Trophy Wifes are unhappy - there is even rumors they are marrying for looks now! ----imaging sinking so low!

Paulson & Bernanke, aka The Muppet Show, goes on TV yesterday and the market sinks, and I mean sinks as they open their mouths - dealing rooms are "begging" and I mean "begging" them to shut up .........another new low for politicians and policy makers ? Absolutely! Please watch this old video:

http://www.youtube.com/watch?v=heBxMzSAuKY&feature=related

Meanwhile in Fixed Income Land - there is massive fight in on- and off the run 10 year notes, the market makers sitting tight(long the papers) while the hedge funds and bond funds sits shorts the deliverable - there is sooooo much cheap, risk free arbritrage available - but NO ONE and I mean no one to do the deals due to lack of balance sheet - there is so big deals to be had that it screams to me that this market is far worse shape than anyone even willing to earn up to...... Fixed income could catapult itself this week - yes even after 6 figures move yesterday.....watch as we move into futures roll.....

Also redemptions continues:

//www.efinancialnews.com/usedition/specialfeatures/content/3352639983/

Sitting next to senior executive in Pharma on the plane over - he was "desperate" in a positive way - saying there is NO WAY in Hell he could raise new money, but at the same time he was shown better deals than ever in his history as executive, so much so that he had hired senior banker to do his M & A - and that's fortunately the bright light here:

The well managed companies are starting to be shown the good deals - at least outside banking - meanwhile back in banking-land I keep getting pummeled for stating the obvious - banks should and will fail with or without protections from Governments - this is merely 6th inning (there are 9 innings in Baseball) - as my fellow traveler from pharma stated : I am a doctor I believe in evolution, the stronger must survive!

http://online.wsj.com/article/SB122818833059071519.html?mod=googlenews_wsj

Strategy:

Still @ 75% cash/short-term fixed income, and applying the remaining 25% into NEGATIVE market views: short eurchf, short Stoxx50, long Stoxx50 puts, short EURUSD(still), short NZD in options, still down-side in Gold.......

We remain with our S&P500 in 500 and all Westerns world interest rates in ZERO....this is the 5th wave starting - the worst one......I have been on the road extensively last one month and there is only one uniform message: This stinks ........

Safe trading,

Steen