Few things are harder to put up with than the annoyance of a good example. Mark Twain.

REVIEW ON MACRO EVENT FROM LAST WEEK

The take is that for Q1-2009 data, news, and central banks action is “better than expected” – this is partly explained by the under-shooting/under-projections done after the miserable Q4, so for the first time in memory both the analyst’ and the economist' downgraded expected incoming data too low.

Despite this the “Green shoots” – the most popular word being used in the market now:


Source: Google Trend

The other “concern” we have on Q1 data is that the improvement in data is mainly in SURVEYS – which mathematically could not go further down due to their construction – but never the less it has to be said loud and clear that Q1 data has been than the expected, and it has given rise to increased hope of this being a real improvement in the economy. Basically the “bar was too low for Q1 – and looks to be too high for Q2”.

ECB did as little as they could without being “called” on their bluff – the 60 BLN. EUR buying is less than 0,5% of GDP (compared to 5% of GDP in the US & 8% in the UK equivalent QE easing) – so this was more a “statement” than a practical implications.

ECB/Europe remains solid behind on the Quantative Easing path, which could be major issue down the line, as competitive devaluations begins in earnest.

TECH. PATTERNS

There is serious divergence in NASDAQ stocks (Vs. the SPX index overall) – technology has been a leader through this crisis – now underperforming…… Short with stop 1% above old high should be stand alone trade for most medium term traders. (http://stockcharts.com/h-sc/ui?s=$NDX&p=D&b=5&g=0&id=p38716996235)

Click on chart for larger version:




The bullish sentiment has reached 90% …

Carry- trading in foreign exchange as a metric for RISK APPETITE has made a sharp correction over the last 48 hours – if confirmed this could be early signal.

880/895 remain key level SUPPORT for S&P – a two day close below could vindicate our present NEUTRAL/NEGATIVE bias stand on the allocation

DEFLATION/DISINFLATION vs. INFLATION

This weeks PPI & CPI will reignite focus on the waning inflation as PPI is expected to fall 3.7% % YoY top-line, while Core-CPI is down to minus 0.6% YoY - the market believes the "bottom line story in the Obama plan" is one of reflation and hence inside the next 12 month(as seen by FED funds 1 yr pricing in 50 bps hikes – in Swaps), but this seems way too early days for us.
Click on chart for larger version:


We have the position that the velocity of money is still falling faster than the “new” printing …”The hole is still big” and needs to be filled first before inflation takes off. We see at least 12-24 months of disinflation and then the REAL EXERCISE becomes for the Fed and the world’ central banks to take ALL of the monetary easing back.

The analogy becomes: “To put the tooth paste back into the tube!"– An exercise which is even more difficult than the analogy!!!!!! – we remain extremely skeptical to whether an accommodative Fed and White House is REALISTIC enough to see when the punch bowl needs to be taken away.

The lack of final demand in the world – note how shipping rates remains flat – is a concern and most of the EXPORT numbers still coming in from Japan, China, Vietnam etc clearly shows the IMPORT demand from Europe and the US is not there, yet……
Click on chart for larger version:


FIXED INCOME

We had long discussion on the “seasonal impact” of summer rallies, but somewhat agreed this year could be different – there is right now a clearly move towards much steeper yield curves, we are now almost at last year high in 2 y vs. 10 y US rates (now @ 235 vs 260 high last year), but on the other hand should equities start falling as predicted in our models, then there could be some safe haven – but in a world with ZERO front-end rates, allocation into fixed income must be seen almost exclusively as move to PROTECT/PRESERVE CAPITAL rather than value proposition.

There is a growing concern among us, that a US Dollar crisis could be the one catalyst which get these markets moving again – we have had remarkable low volatilities considering Swine Flue, Geithner plans 1- through- 50, Non-Farm et al – A break-out in volatility is very likely – and we note that USD vs. JPY is again on the move – almost 102 JPY per USD in early April now @ 96.60 – and if 93.80-ish goes we could have a 5th wave being in action indicating below 87.00 JPY per USD.

We need to monitor trade weighted US index for sign of stress, and we acknowledge that FX could be trigger point for both sides of the risk trade – and this morning the Financial Times carries an interesting article on US rating:

http://tinyurl.com/re447o
Click on chart for larger version:




ALLOCATIONS

The focus was to stay with the conservative allocation – our internal numbers clearly shows that since low in March, our “stand” has been expensive relatively vs. our benchmark, but it is important for us all to remember investing is a Marathon not a sprint, despite the increasing pressure from retail & broker level to enforce further allocation – there is also BIG JOB at hand to align our portfolio more correctly – and this will have major priority through the next two to three weeks.

CONCLUSION

We remain with the 40/60 split – we acknowledge and respect the improvement in data, but we also “understand” the bar was set up low –In terms of relative rotation – we were hurt by underweight Sweden, something which does not make STRATEGIC sense as our clients have home bias.

We see approximately 20% risk of further upside – and here 950/1050 broad range should cap for balance of 2009 – while break below 895/880 could be first warning signal for the long to exit.


Steen Jakobsen

Weekly Investment meeting...

Finally back to order in the small investment world of Saxo Bank - we had long meeting where we touched on most of the intervention for this past week... - Is it not ironic that 20 bln. here and there has become something "normal" in this market?

I find it terrible and I must say I tip my hat to the brave people seeing this Citibank bail-out as something positive.

Looking at the lead into this week-end it seems Citi's DTA, or more precisely their 'Deferred Tax Asset' was the key issue - being more than 19% (vs. maximum ceiling of 10% of Tier 1 capital)....and 80% of all their tangible assets. I am not tax or accountant specialist but from what I read and being told Citi's Tier 1 capital was mostly........fantasy.... DTA can only be used as capital if expected to be used inside one year - Citi is hardly going to start making money inside this year, next, or even the next five years!

More troublesome for me being, I doubt C is alone using this arcane way of creating Tier 1 capital.

Hence despite being happy for my friends at Citi being saved(for now). I remain extremely bearish on financial stocks especially considering the new Mr. Dirigisme of America: Incoming Treasury Secretary Geithner, seems more than willing to "force" banks to comply with his and his Masters agenda. In other words: Bernanke is bad, Greenspan the worst, but the new Mr. G. looks, sounds and smells a lot like the old guys.

Having learned his craft with Kissinger, Greenspan and Summers it is hardly a surprise he does not represent change but rather mirrors his Master left-leaning interventionist agenda, which I understand from US electorate point of view, but one I can not recommend, not that anyone cares about my opinion in these "small matters". Mind you I will be in the US next week to take a more close look on things in New York and Alabama.

The Investment Committee remained at 75% cash- We clearly see some signs of oversold and crisis fatique, but the with volatility of VIX bigger than 80% the market has simply become one big lottery ticket, where you need 80 pct luck and 20 pct guts rather than models or even rational behavior.

The three driving premises for our research remains:

1. Cost of funding drives market and valuations
2. Price of liquidity new unknown (tax on money)
3. No prior analogy historically will work (because this is different, very different)
   

We note the markets are extremely oversold but we also find it hard to find ANY economic reasoning for turning positive or even neutral on the markets.

The 25% invested is being changed around slightly - we have abandon our short Gold, and we recognize our long TIPS not exactly on the roll, on the other hand our long Government Fixed Income and cash still makes our portfolio massively outperform our alternative models - at least for now.

We reached our minimum target of 765.00 and we are in the process of looking for new targets -We stick with a simple S&P500 in 500 -

Looking into 2009 we are preparing ourselves for furher deleveraging - it seems to us the world, slowly, very slowly is figuring out why this credit creation not only was excessive but also directly damaging for long-term growth and behaviour.

We see credit spreads and mortgage spreads widen further into month-end and certainly into year-end - this will become the negative gravity of the markets, while the oversoldness will be the postive force.

Strategy:

We are almost back to neutral:

FX: short NZD (1 month option put) , small short EURUSD from here (1.2892) - we are looking to buy EURDKK again as we do not see Denmark escaping the Norway/Sweden turmoil in environment of widening spreads across all fixed income classes.

EQ: We sold into the close today @ 851.00 ( 1/2 ATR stop)... long STOXX50 puts...

COM: We were long Gold puts now worthless...

We will watch the market for opportunistic moves, but we are in game of protecting our relative ok year rather than being aggressive - as said, this market is for gamblers not investors or even traders.

Be safe and must Dirigisme go away,

Steen

Meetings are indispensable when you don't want to do anything.

Meetings are indispensable when you don't want to do anything.
John Kenneth Galbraith (1908 - 2006)

This week has the G-20 meeting in Washington as the big highlight - even President George W. Bush will leave his ranch in Texas to attend!

We had our Weekly Investment Meeting this morning and unlike last few meetings we had some "clarity" in our assessment;

1. Financial Solvency is yet again an issue - AIG, Fannie Mae et al all were "maybe" solvent for about two month but with stock markets down 25% plus in September and as credit spreads continues to be elevated they now need further capital.
2. Private consumer solvency is now main issue - yes, interest rates have come down, taking off pressure momentarily, but now the private sector is starting to pay the price: net net we are now worse of than when it was merely a financial sector insolvency. Basically we now got both major parts of the financial sector and the private consumer being insolvent at the same time
3. ==> We are entering final leg of the deleveraging proces

The political reaction to the above will be what we call the "50/50" solution:

50% of the insolvency will be solved through additional capital injection

50% through easier accounting rules, solvency calculations, tax deferences et al.

Problem with this being it as per usual does nothing to the real issue: the solvency - the model used right now is one based on "hope".

Hope the markets will correct and then improve market valuations through better asset prices - good thing religion is so popular these days!

The G-20 meeting does seem to have some "real soluations" on the table - the latest one which Wall Street Journal picked up yesterday does make some sense to me: Spain's Bank Capital Cushion Offer a Model to Policy Makers: http://tinyurl.com/6x6lms

The argument being that the accounting rule change in 2004, which made the companies only take loss' when incurred made sure the leverage increased dramatically, without making provisions for future loss' - should be unwinded.

The Spanish model will give some "cushions" against loss - the issue with this being it INCREASES THE LACK OF TRANSPERENCY - actually almost everthing policy makers does from TARP to accounting changes works the same way: Adding layers of non-transperency!

Back to our Investment meeting:

The investment meeting had following conclusion:

The three driving premises for our research remains:

1. Cost of funding drives market and valuations
2. Price of liquidity new unknown (tax on money)
3. No prior analogy historically will work (because this is different, very different)

The market has re-entered negative bias - we still look for minimum 765.00 in S&P.

We remain at 75% cash but now we use the 25% for downside plays in markets

We favor being short stock markets, long US dollar (US Dollar balance sheet issue is back with year-end), short commodities and long fixed income.

Our asset allocation model (100% mechanical expects 1 month return of:)

MSCI World: -0.77%,MSCI EMG: -0.84%, Commodities: -1.22%, and Bonds: +0.87%

The model allocates as follows: Short 10% MSCI, Short 34% MSCI EMG, short 7% commodities and long 47% bonds - this is our WORST Scenario: OUTRGIHT bearish. The model is based on our leading Global Indicator Model - and regression analysis of expected return. It is not an exact science, but its a mechanical way of getting expected returns from one consistent source. The expected return from this allocation is: +1.75%

Economics

Incoming data continues to accelerate negatively - our model and forecast does not see any improvement in the next month.

The political landscape is getting more complicated. Treasury only got 40 bln. US Dollar left on the initial 150 bln. USD - and Paulson will soon be back in Congress asking for more, and the Democrats wants him to "fix" the auto-industry - making the bill bigger and bigger.

The fastest deaccelerating economies remains Sweden & Australia (hence best government bond buys).

Fixed Income

Credit remain scarce - credit spreads are not really moving - market starting to look at year-end balance sheet, and we expect serious deteriation of credit facilities and more and more corporate blow-ups like Circuit City yesterday.

We like Bunds over Treasuries. We like TIPS still.

Equity

Earnings forecast still too high - market looking for +15% 2008/2009 earnings. Per share it is at least 35-40% too high - I remain extremely sceptical on all earning forcasts with a positive sign on them - the insolvent private consumer is going to hurt EVERYONE in the business cycle, seems the analyst' have not been in out shopping recently.

I have to warn you - this is only the beginning - the next few month will be the worst part of this cycle - as several forces works against the markets:

• Bankrupt consumers
• Insolvent banks
• No credit creation
• Policy solutions based on hope
• The "everything is "really"cheap "relatively" clowns
• High expectations to G-20 meeting & incoming President Obama

We are short Stoxx50 & S&P. No longs at all.

Commodities:

Crude should hit 50.00$ - Gold below 680.00 - There is no value in commodities in this part of the cycle.

Conclusion

The meeting had higher conviction rate - we are now yet again outright short the markets - break of 895.00 on the close will confirm intermediate top in place - in STOXX50 this translates to 2540.00. Watch VIX above 63.00/64.00 will confirm next bearish leg has started.

We are: Short Stoxx50, long EURHUF, short EURCHF, short EURUSD, long Bunds - looking to sell crude, to buy some Private Equity & TIPS.

This is extremely important week.

Finally,

I am just back from Dubai - I had the pleasure of spending the Sunday in the Desert - you must try it - makes you realise how insignificant ones life is in the grand scheme of things - but what a place, the quietness and light... amazing.

Safe trading,

Steen

Prediction is very difficult, especially about the future. Niels Bohr

Prediction is very difficult, especially about the future.
Niels Bohr (1885 - 1962)

There is clearly now some established ranges in place in the S&P500 between 860 and 1060 on the downside, bias for me is still "south".

Right now I am watching my friend Drew Baptiste 987.00 level as key trigger for whether long or short, and remains with our negative bias meaning potential for minimum 767.00 based on the trading theme process moving from recession into depression.

I have said continuesly that the stock market performance for Q4-2008 and Q1-2009 will be based on the "perception" of either recession or depression. Despite my own bias towards recession, a severe one, it is more and more clear in the public domain and incoming economic data confirms that the worsening data is accelerating not stabilising.

The best point is our own internal model designed by our Chief Economist David Karsbøl, which measure key indicators. This model has been excellent in catching the trend of incoming data.

Saxo Bank Fundamental Index (Click to enlarge)


The conclusion:

For now we are moving into a "perceptional depression" from a fully priced recession - market impact is retest of low(potential for new lows) & much lower short-term interest rates.

In Europe, and in EURUSD I have become very negative short-term based on the increased pressure for much lower rates in ECB (& BOE).

I can not say I am fan of Kaletsky of The Times in London as he continues to act and speak like a person who uses history to explain the future, which is simply not do-able in my investment world: (http://business.timesonline.co.uk/tol/business/columnists/article4974535.ece)

To remind you our three premises are:

• Cost of funding - drives market and valuations


• Price of liquidity new unknown (tax on money)


• No prior analogy historically will work (because this is different, very different)

Despite this he has an interesting argument: If we assume UK has one of the most leverage economies in the world, then why does it not have the lowest interest rate?

His argument can be read and seen in the above link, but there is some truth in this and the investment outlook conclusion must be:.......Much lower front-end rates.

I hear you already, but it is already priced in! No! Not to the full "depression" extend: UK in 1.00%, USin 0.5 %, Australia in 1.00% etc, not possible? Sure it is, in a depression its all new rules, when you fight to survive as a country, a company and on a personal level. As President Reagan said: "A recession is when your neightbour lose his job, a depression is when you lose yours".

Unemployment rates across the world, will unfortunate rise to at least 1992 levels, and I remember being a young man coming out of a tube at Hammersmith Station in London in 1992, and hearing the newspaper salesman shout: Evening Standard: 3 million unemployed in the UK, Read all about it..........and if you do not trust me on the pain of the UK consumer check this cool site by the BBC http://news.bbc.co.uk/1/hi/business/7457886.stm

Strategy:

Foreign Exchange:

Short EURUSD @ 1.3500 - fancy new lows beyond 1.3260. My chartist John Hardy is very bearish....

Still small long USDJPY through options, mostly as "insurance".

Fixed Income:

We continue to flex between deflation and inflation, right now this a.m, we bought back our short Treasuries around 112 25/32 - looking for some erosion into the Washington Mutual CDS auction tomorrow, plus acceleration of down-side for economics.

We are also looking for post Investment Meeting tomorrow to put on some 1.00 pct UK rates by Q1-2009.

I remain sceptical of lending the US money @ 4.00%, so net long is not happening here......

Equity:

We took profit on ALL our long positions including value trades like banks, pharma, and shipping making a 7%-17% return on them - why?

Well, the "needle" has clearly moved to 60% odds depression from 40% in the last few weeks.. which we now take consequences from.

Commodities:

Short Gold, very bearish.... target sub-700.

ALL in all we are in for exciting week, the financial panic has been avoided, but will we be able to avoid economic disaster? We think so, but right now price action and incoming data dictates us to at least believe it could be DEPRESSION´which is incoming.

Finally, spend 10 minutes reading this unique commentary by Ms Scwartz, 92 years old: Bernanke is fighting the last war. http://online.wsj.com/article/SB122428279231046053.html?mod=special_page_campaign2008_mostpop##

Safe trading,

Steen

Weekly Macro Meeting

The three PREMISES:

• Cost of funding for drives market and valuations
• Price of liquidity new unknown (tax on money)
• No prior analogy historically will work (because this is different, very different)
  

Conclusion:

Last week: We are seeing the financial effect now impacting the economic situation - making this the "worst part of the curve".

This week: We have moved into grey-zone between recession and depression ==> Bias on downside increasing

Allocation:
Last week: Watch the transitions period - we are clearly policy dependent. We maintain 85% cash = EXTREMELY DEFENSIVE

This week: We called the transition - although the Social democratic Nationalisation has created pressure in EEC and EMG countries as they stand outside the "circling of the wagons".

We maintain 85% cash - but up from intraweek 65% - as we need further information to make long-term call.

Keeping cash @ 85% is not only impossible in order to make excess return, it is also extremely punitive in general allocation theory, but this is not time for being brave, rather it is time to look for opportunities, so as negative as we are - we are looking to reduce our cash portion relative quickly should we get more transparency.

Targets:

S&P 500: Down to test our long-term minimum target of <765-00>

Fed funds: 0.50% by Q2 2009 /ECB: 1.50% by Q2 2009 /10y yield: 4.5-5.0% by Q2 2009 /2y yield: 1.00% by Q2 2009

Crude: 50-60 by Q1 2009 /Gold: 750 by Q1 2009 =========================================================

Economics

Bias: Negative growth & inflation

David Karsbøls economic forecasting model continue to fall indicating waning growth & inflation
Key leading indicators all point to lower growth

Fed 1 years forward expected rate is +26 bps - which we deem to be too high - We expect further cuts in Fed funds

EDCB 1 year forward expected is -121 bps - which we also deem to high - We expect minimum 250 bps cuts from ECB

Australia and any commodity country will decelerate the most - we are entering bust-cycle for commodities, which will hurt these countries

On the premise of "cost of capital", I.e savings we favour economic relative performance from: Switzerland, Singapore, China, & China - and underperformance from: UK, Scandinavia, Spain, Portugal, USA, Canada, Australia, New Zealand
=========================================================

FixedIncome

Bias: Neutral

Banks can not releverage their balance sheet meaning less demand for Government issuances
Central banks will need to buy their own government bonds as no one else will!!!!

High Yield is still struggling - Corporate leverage spreads widening - Financial tightening - 8 year Ford pay 27% yield

Danish Mortgages: Still under pressure - Lack of guarantee in mortgages makes for widening spreads plus weaker DKK currency

Still favour BUNDS over Treasuries

We will go long TIPS (ETF: TIP US ) - as breakeven has gone negative - indicating NO INFLATION expectations

=========================================================

Equity

Bias: Negative

Our team does not believe earning actual results to be major theme - although there are low expectations

The key driver in equity will be: Hedge Fund Redemption. There is talk of > 200 bln. US Dollar and most of it in November & December

Using our three premises sectors to be overweight are: Utilities & Telecom. Underweight's are: Energy sector and consumer cyclical

There is some silver lining in equities - looking at P/E based on trend earnings (I.e smoothed earnings) we are trading all BEAR MARKET LOWS: Presently 12,2x versus previous lows of 15.7x(2002), 14.2x(1990), and 13.7x(1987).

The issue being where the E in P/E should be priced...but in terms of medium- and long-term allocation we need to move into equities soon or we lose upside allocation potential

=========================================================

Commodities

Bias: Negative

Gold: The governments will need to sell out of their stocks plus if we should be buying Gold as inflation hedge, then with break-even turning negative, we should be selling Gold. We are net short GOLD through medium term Put bought.

Crude: Getting closer to "critical levels" for both producing countries and producing companies - 70 $ seems to have some budget rate implications - hence fall below could trigger two thins: 1.
Foreign Exchange

Bias: Neutral

US dollar: The US needs to fund themselves- there are two ways: 1. Much cheaper currency 2. Much higher yields - Second choice will not help the economy, hence must number one play - we are at turning point in this US Dollar strength, but we need further easing in US funding rates, and some better economic data to pull the trigger

JPY, CHF; Two best places to park your currency for now

EMG, EEC: Very very negative. The currencies is 100 pct correlated to their current account balances - with world slowing into recession/depression there will be more pain - unfortunately
Carry trading: Forget it!

=========================================================

OVERALL CONCLUSION

We fully realise keeping 85% in cash does not make you a lot of money, but with a performance of +400 bps YTD, and our benchmark down everything between 25% and 75% we simply do not feel this is the time to be brave.

We are more focused on finding long ideas in equity, corporate bonds and commodities than in continuing selling them down. We see and understand that in "normal times" this is cheap, but having premise number three: This is different, we have been able to navigate these troubled waters.

The Investment meeting was down right depressive for yours truly, who find himself the most "bullish" of all - but in respecting the framework and the lack of clarity we reassigned the extremely cautious weights to our portfolio.

For arguments sake let me tell you in "normal times" if we have no exposure we would to Beta exposure:

Equity: 35%
Fixed Income: 15%
Alternative Strategies: 20%
Private Equity: 20%
Real Estate: 10%
Cash: 0%

But clearly this is not a time like that.....

Have a nice week,
Med Venlig Hilsen Yours Sincerely Steen Jakobsen, Chief Investment Officer, Saxo Fund Management Saxo Bank A/S -London
40 Bank Street, 26th Floor Canary WharfLondon E14 5DA
Phone: +44 (0)207 151 2010 Fax: +44 (0)207 151 2001
Please visit our website at: http://www.saxobank.com/
Disclaimer
Trades in accordance with recommendations, especially in leveraged investments such as foreign exchange trading and investments in derivatives, can be very speculative and may result in losses as well as profits. Saxo Bank A/S shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information contained in this email.
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Sidelined for now...

Wednesday, May 7, 2008
Sidelined for now...

Been doing a lot of reading and research last 5-6 days and to be honest not really getting me anywhere - there are several conflicting themes playing out right now:

1. Inflation vs. Reflation. Clearly commodities are pointing to inflation risk, but market understand that ultimately commodity spikes leads to deflation rather than inflation, which is the scenario central banks wants the least.

The reflation scenario is based on that EMG countries, realising slower growth is busy ramping up demand through infrastructure investments, and in the US tax rebate and soon to be announced help in mortgages makes for perfect ingredients in reflation soup.

For now the reflation themes wins - but the risk being crude above 150, even towards 200 US dollars could reverse EVERYTHING back to credit crunch.

I take note that the US is building its strategic reserves in times of record high crude prices – and it seems from the “intelligence environment” that Bush has approved covert operation in Iran and that the Pakistan lease is getting shorter (Stratfor analysis). The main outside risk right now to the bullish market is on of geopolitic tensions in the Middle East, if so our year old call for 170 USD crude could be validated.

2. Coupling or decoupling. The bulls wants to believe in decoupling as it free up arguments for why you should be invested in EMG and Asia/Middle East.

The truth probably in the middle rather than either side. Europe clearly (Latest factory and retails data confirming IFO) in period of downward adjustment of growth forecast - while Asia is booming.

On the corporate level the managers are all guiding higher as they can not see things slowing(for now), which lead me to an excellent argument which Alain Bokobza, Head of European Equity & Cross Asset Strategy from Soc Gen made to me in private presentation today; the issue with corporate often more one of bottleneck than lack of orders, companies like Siemens guided lower due to constraints on delivering on orders(Which cost them fines) rather than lack of demand, the same goes for much of the infrastructure industry, but end of the day having orders, not being able to deliver will lead to lower margins, and this is before "recession cycle" really starts to impact demand/orders. The infrastructure business is problaby overvalued and overexposed, and that’s without considering the industries long term contracts with its lack of control over rising labor and input costs!

Growth and FX differences. The Middle East and Asia clearly needs to let their currencies strengthen or face further social unrest. The food crisis is now for real, the best and fastest way to limit the negative impact is to let currency go stronger - this will be followed by fiscal stimulus, probably in the shape of subsidies hands out (I see more and more talks about Alaskan like once-a-year dividend).

Bottom line; one part of the world is facing rising inflation, the other likely to see deflation, and central banks are confused where to turn first.

Market positioning. Market is now long, and with good reason. Technically 1405 was line in the sand for S&P and next level should be 1450 - however with 100% support from Newsletter analyst’, the market is clearly committed after the 12% move from the lows. Why are we still hovering around 1417 if this was positive?K

Keep your eyes on The Congress, they are working hard to reduce the economic pain for Joe Average American, it will not be long before some kind of relieve in real estate is announced. Similar to Bill Gross I believe its imminent and the "cheapest" way to stop the ever falling housing market.

Fact is for now the Fed has done EVERYTHING to safe the banks, and close to NOTHING so safe the average American. Only 3 in 10 people in the latest Uni. of Michigan survey expected to spend their tax rebate, the rest would use the cheques to reduce debt - if that is NOT a sign of new times and trend in consumer spending, I do not know what is.

Conclusion. Rather than "betting the fund" on something I cant predict I remain open and ready to act, for now the upside looks more likely than downside, but the odds are 52/48 in my optic.Good luck,

Do I owe Bernanke an apology?

The jury is still out, but Bennie even telling the market that the moral hazards was the markets issue to deal with not his, was pretty surprising! Bennie definitely gained some delta on my rating radar, but he is still public servant and the Bush/Bennie show was coordinated to almost perfection for most impact.

However, the real dilemma remains the sceptisme with which the fixed income market treats this event. They are telling us, bail-out, go to life boats, while the stocks market guys are enjoying their Martinis on the sun deck, seeing no icebergs or anything in the horizon which should get them take of the party cloth!

Is this is a matter of eventually, the stock market understand that when there are NO funding, there are no party, or is it the "doom sayers" of credit who needs to get a life?

For me its neither or, as both things are facts. Fact is EMG and Carry trading is back in full swing. Fact is there will be both earnings issues and down-turns in the economy, but....the real impact is on the consumers and here I am very pessimistic.

Two in three Americans thinks the US in a recession, according to WSJ poll!
The leverage consumer is stuck; the food bill is exploding, the gas bill..exploding, the rent bill... exploding, and the real income is flat, so this credit crisis is in REAL TERMS a surcharge tax on the consumers (the very reason Bush is trying to "help out")....

From an allocation point of view September have by far the worst seasonal returns:

ADVFN’s analysis found that the FTSE 100 drops an average of 1.37% during September, making it the month that sees the worst market performance of the year. (http://www.growingbusiness.co.uk/September_worst_month_for_stock_market.YeISIT1op7A9-A.html)

This makes me maintain my extreme long cash position: 60% - the bulk of my allocated assets are in Asia, mining and Asia real estate:

Aberdeen Global - An Asia Pacific fund YTD: +13.14%
Merrill Lynch World Mining fund - YTD: 32.86%
Morgan Stanley Asian Prop. - YTD: 10.19%

Even though these trades are part of leverage trades is for the long term. Mining have excellent supply-demand function, demand exceeding supply, Asia as whole will do more "internal investment" amoung each other, something the SWF(Sovereign Wealth Fund) will escalate, and property, well Asia is cheap vis-a-vis more developped economies and as the population grows, and gets richer so does their housing demand.

I am also long technology relative to banking. I was net negative banking but have shifted in to more balanced approach, as I really dont have any gauge on who "wins" the above conflict; the fixed income guys or the stock guys...

Either way the next directional move will be BIG in velocity and in re-valuation as;

1. IF.. stock gets fixed income guys convinved ... there will have to be bought a lot of stock to get portfolios back to neutral weights....
2. However..if fixed income prevails, there is serious revaluation needed. The present forward earnings have hardly budged. In other words the E in the P/E have remained untouched by the credit, add ot this that margin at cyclical peak, and you have dynamic cocktail.

In closing; Im long gamma downside in stocks, I cant afford not to be, looking to way of increasing long US dollar exposure.......neutral fixed income, neutral energy, and looking to sell both grains and energy.

A very confused .....Steen.... safe trading... and as always... toss a dice and you will most likely do better than me..

Steen