All you need in this life is ignorance and confidence; then success is sure. Mark Twain

This week-end I "wasted" some time reading Bill Gross' (I like the double meaning of Gross!) newest writing on why we should bail him and his investors out: http://tinyurl.com/cjqxya

I will have to warn you its waste of time, but its kind of interesting to see how a well paid, "well respected" investor like Mr. Pimco seems to think that the solution to all the problems in the world is for the US Government to buy asset he is long - there is no talk of the small matter of funding this small exercise- only then notion that spending money is good.

I guess its the financial equivalent of "The boy with the Golden trousers (http://tinyurl.com/dnhqz3).......

I find its perplexing that in a time where we need everyone to think positively about solutions then Wall Street and its derivatives continues to look for ways of lining their pockets with state subsidised money. For the record Gross is even intellectually wrong: In order to stop the rot in the financial markets we need to reduce debt to equity not increase Mr. Gross.....

Only by governments taking the ultimate loss' on their plans/packages will we get the economy flowing again.....but do not let facts disturb your arguments.

I am just back from longer business trip to: France, Switzerland, UK and Dubai. Different parts of the business cycle obviously but everywhere there is now clear indication that the word CRISIS is well established, in the UK so much that in the local bookstore, they now have whole sections titled: Dealing with the Financial Crisis..sign of the times I guess.

From Davos I get same reports; everyone is reporting how negative everyone is but they are all taking this as an indication the low is in ? I never really understood these types of arguments: Why get the supposely smartest people in the world to meet up and talk openly about the economic affairs only to dismiss them ?

Anyway I am with Soros (as always). Read this great FT piece please, pretty please: http://tinyurl.com/cyq7rr - explains a lot of things even for simple people like me.

David Karsbøl, my Chief Economist, have updated his excellent leading indicator model for World GDP Growth per Capita and the result is NOT GOOD.. it looks like we could see - 2.0% this year - first time in history- so in other words - be my guest fade the facts and the smart guys, I hope it works - but as always hope belongs in Church.


(Click on chart for bigger version)

Why there may not be "bubble" in yields

Everyone and his brother is subscribing to the concept that yields are too low, especially in government bonds. (http://tinyurl.com/calo3u)

....but it's all based on the concepts off:

1. Fiscal & Monetary policy works


2. Inflation

My firm believe remains that in times of rising unemployment levels everything becomes binary: its all ZERO and ONES.

If you lose your job you do not care where interest are going, what Bernanke thinks, What Obama does - No you want your job back and now!

Effectively right now we are in the path of the cycle where everything is ZERO's:

• Consumer confidence - 0


• Unemployment - 0


• Business margins -0


• Faith in banking system - 0


• Ability to maintain your job - 0


• Interest in Fed - 0


• Faith in Fed - 0

I think you get the picture - we got excess capacity in all business sectors, we got government busy printing & spending money not dealing with the problem, but getting reelected .......this is the true ingredients for deflation large -... meaning inflation will be ZERO at best minus 1% at worst(?).......

So now if monetary & fiscal policy have less tracktion plus DEFLATION....... a yield of 2.5% becomes 3.5% after inflation - I think it will compete very nicely with the return on the stock markets will considerable less volatility.

This picture is even confirmed technically. Below is the 10y notes yield in the US - it looks to me like we are in the 4th wave - looking for 300 bps roughtly before we make it into new lows for bonds... this also finally matches the theory of Q1 being excessive in issuance. I have been wrong before and carry no predictability but for now I will keep most of my money in fixed income as the alternative cost analysis (i.e being long stocks...) still costs me money.

(Click on chart for bigger version)

Strategy:

85% in cash/FI - short eurusd and eurjpy.... looking for break of 800-ish to sell S&P... still target for S&P @ 650-690.

Safe trading,

Steen

Back to basics....

Finally back from a busy travelling schedule ....... lots of ideas and thoughts... but for now I will once again do the easy thing and give you my interview done w. Bloomberg this week......

More here tomorrow/Monday.....


http://www.truveo.com/Investment-Strategy/id/229188125

Safe trading,

Steen

Hope is gone and fear is in....

Seems "fear" theme is back in fashion - Deutsche Bank(http://tinyurl.com/6vojqu) got the bulls nervous yesterday - and this morning I keep getting rumours of Boa and C getting "nationalised" this week-end (Listen: they are already de facto exactly that).... nice lead-up to Obama's Inaugaration next week.

ECB's Trichet - I have to laugh - he sits and it seems honestly says: Inflation will be rising again this year? Mr. Trichet - which planet are you from?

1. Greece, Spain and Portugal in such dire straits its getting their currency debt downgraded
2. Italy is mere days away from same....
3. Eastern European Pre-ins countries collapsing day-by-day (Take a look at banks with exposure to Baltic region ---- ouch!)
4. Export growth ...which was Asia only in the last three years - has collapsed --- China calls on growth all of the sudden in line with our Outragous predictions ttp://tinyurl.com/84mv7x
5. PMI leading indicators tells us unemployment will reach 10% minimum this year..

Keep it coming Trichet --- it will only make EURUSD go quicker to 0.9500.....!!!

I maintain very defensive stance - feels naked with no equity short exposure (S&P @ 820.00) - but promised myself that 910-00 could happen........only short EUR/USD from here......

I am doing a few speeches next few weeks.. if anyone want to have a look at it feel to download from here: http://drop.io/z8p0m5v# (password: tosser)

Watch this week-end - it feels like the week ahead of Lehman.....

Safe trading,

Steen

PS: A few people been asking to our Macro Performance so here goes:

2008: +700 bps

2009 YTD: + 250 bps

Tactical note: Now from short back to Neutral

We have enjoyed a nice run from 935-00 to 835-00 (short the S&P) and hence we have taking almost all our positions of today except short EURUSD……we took off: Short gold, short eurchf, long bunds, short S&P and Stoxx50.. .

It is as much “money management” as a believe in that the market could bounce from here – but clearly the market is now closer aligned to us on the present themes:

1. China growth an issue – export/import numbers have now confirmed our view…•


2. Europe in trouble on credit (Portugal, Greece and Spain --- downgrades and potential downgrades)


3. Obama premium should not exist --- (our new catch line on this being: The Obama plan is like jump starting a car UP a hill!)……


4. January effect is a concept, and nothing more than a concept..

Upcoming events which we need to gauge before recomminting…

1. TARP – 2nd installment – by asking President Bush to ask for the money, Obama initiated a 15 days period inside which Congress needs to approve. Right now it looks there is Sunday vote(coming Sunday) but he is already facing rebellion from leading Democrats! (Click on Rebellion for link) http://tinyurl.com/a6ntaq


2. ECB announcement – despite ECB should go 50-75 bps tomorrow and at next meeting – they will go 25-50 bps, Pause, cut, Pause, cut, Pause… Trichet loves to hear himself talk, but the game is changing and fast.


3. Redemptions – January 15th widely rumoured to be “magic date” •


4. My friend and S&P guru Drew Baptiste of Morgan Stanley tells me 810/820 and 835 ish…. First tactical target(From Drew’s email) S&P Micro to Near Term (871.79 CASH 862.50 SPH9) Off the 942.00 rebound high (January 6th = current 2009 high), SPH9 is declining in an “impulsive fashion” to date (a still unfolding five-wave sequence). Yesterday and again today in the Globex session, SPH9 traded up to proposed micro term resistance at 875+-2 before turning down. The next level to further expose the downside is 855+-2 (5 week low), a break of which exposes a minor cluster at 838.50 / 836.00, ahead of what T.A.G. views as a near term ACTION / REACTION area at 820 / 810. T.A.G. will reassess the current Near Term Bear Mode above 877 / 880.
   

Having a nice profit in January drives this move, but post-analysis as seen above seems to support taking one or two days for thoughts.

Positions:

Cash @ 95% - short EURUSD

Safe trading,
Steen

Monday morning quarterbacking...

We saw horrible 7.2% unemployment, and market thought it was better than expected! Tell that to the 525.000 who yet again lost their jobs last month, please!

Fact is and remains, every single month for a long, long time there will be net loss of jobs and the impact on our mood, consumption, sex life and other important stuff has not even started to be realised by the always happy Wall Street crowd.

Each morning I download on my Ipod with:NBC Nightly news http://tinyurl.com/4skdwu, PBS Nightreport http://tinyurl.com/76qgop, ABC, Bloomberg, CNBC etc business podcasts and listen to them in my car......and every single morning I get the same message: Stimulus will work, they(the idiots in Congress, Fed and White House) are doing the right thing, this is all or nothing, corporate balancesheets are solid, market will not go down, January effect etc etc. --- all of it based on H.O.P.E none of it based on sound fundamementals analysis, opportunity costs or even funding costs.

From the perspective of being a simple hedge fund manager I always have to look at opportunity cost - could I be placed differently, what are my competition making......and hence last week decreased our cash (to 75%) in order to go short the market - something we did hesitantly as we felt market strongly believes in Obama and his merry men.

Being the cynic I am: Tell me, if all this Obama Circus was going to be good why is the market then down YTD ? Why did we never ever have a Election rally? Obama is a salesman, and where I come from we do not like salespeople - they talk too much and they crowd-you-out in the B.S they think they need to sell you on......(often not even understanding what they are selling in the process.....)

Furthermore lets talk about his plan ! He wants to spend 700-1.000 bln. US Dollar (this is US tax payers money) on infrastructure, alternative energy- but where is the solution for Medicare and Social Security? Actuarians on Medicare (http://tinyurl.com/7d3lzz) said last week that they would run out of money inside seven years - and this was before all the "depressions" the good people of the US labor market will get over the next six month.

I hate to be negative, but in a world so full of hope, and little realisme I want to warn of the clear and present danger of misinterpreting government money with good money. This will NOT work - the state can not allocate efficiently, neither can they increase productivity or intellectual capital (a contradiction in terms for public sector)........

Tactically we, as you know, we went short last week - we maintain this - we did however today take profit in Gold @ 824.80 from short @ 854.00 - we took profit on our 125.00 calls ( 77 ticks) vs 25 paid - and we took off short EURCHF & EURJPY ---- we maintain very large exposure to both short stock market and long JPY and USD... vs. EUR..... in options (striked 89.00 and 1.2800)......

Going into ECB I think IMF's stern warning this morning (http://tinyurl.com/983aoz) plus S&P talk of Spain downgrade on currency debt talks for (http://tinyurl.com/8wjgxt) will mean:

1. Italy will be downgraded next
2. ECB to realise this is NO game and what is needed is serious moves on monetary policy ....... now is the time for Europe to forget they do not have common Treasury and come up with serious MONETARY EASING in the face of collapsing demand.....here, there and everywhere....
   
   Safe trading - I hope for sake of most people I am wrong...
   
   Steen

Once I make up my mind, I'm full of indecision. Oscar Lavant

Sorry dear readers been trying to start on this blog like 50 times this week alone, but I am "sucked" out of anything intelligent to say it in this January madness, but a few things:

• Tactical change in S&P 500. We came into this year as everyone else pretty bullish buying the Obama effect - being scared of all the money the US will spend et al, but our technical model indicated strong risk and hence we change the risk to NET SHORT S&P via 870 put in Feb @ 27 $ & net long 850 March @ 33 with spot reference 935-00.

Click on chart to get bigger version

• Tactical change in EUR/USD. Similar argument purely short-term on tech. picture with 1.3800 now top formation and stop loss level....and with massive improvement in terms of trade and EURO soon going into negative spin....I feel short EUR worth it while from here (@ 1.3710) .... short cash and long some 3week options EUR p)

My dominant "theme" is sceptisme to all the bullish interpretations being delivered to me from all sources - if Obama and his plan was this good why is S&P then unchanged on the first 5 days of trading ? Do we not pride ourselves of being ahead of the curve? Or rather ahead of the positive thinking?

Unemployment will play big this year - not as in tomorrrow numbers but it will main theme for: People losing their jobs, politicians, police (social unrest?), central bankers (who shouldt keep their jobs) and media. Market is still too complacent on where we go from here, but more on this tomorrow.......

A sick - yes this time for real Jakobsen signs off...

Steen

An optimist stays up to see the New Year in. A pessimist waits to make sure the old one leaves.

Dear Investors,

Finally back into the rhytme of work again - must say holidays can be too long these days! Stunning weather, the market is happy and it looks like everyone got the same scenario for 2009 in place - tough first half-half then "flying through" 2nd half...I am not committed yet, having been one of the biggest bears for years, I must remain focused on seeing/understanding the catalysts for 2009, first up being the incoming President and next weeks Unemployment rate.

We have de facto ZIP (Zero Interest Policy) with all the risk of deflation ........the numbers looks bleak. It's almost certain 2009 will be best worst economic year since the 1930s, this does not, however, secure 2009 as a bad equity year per se... the balance will be between looking into the future and finding earnings, tracktions for credit and the extremely low interest rates on US debt or looking into the abyss...

A few things stands out as being in "riot" mode:

• Private Equity is "toast" - no hidding there. I really enjoy this piece by Michael Wolff from Vanity Fair:http://www.vanityfair.com/politics/features/2009/02/wolff200902
• US yield @ ZERO percent - while the CDS on US Debt risis and credit rating overall falls ...? Makes no sense, there will be price to be paid..I am sincerely concerned about continued talks of Overseas Foreign Banks selling of both agencies and treasuries overall ( http://seekingalpha.com/article/110873-who-s-piloting-u-s-treasury-bonds-flight-to-safety)
• EURO strength... with major Euro sceptic Vaclav Klaus taking the presidency from the ever self-promoting Sakozy there could major change in the "economic tunes" of Europe....so far there seems to be this crazy ideas Europe is in a better place... not so.. EURUSD down to 1.000 will be one of the major moves this year.. http://www.timesonline.co.uk/tol/news/world/europe/article5430362.ece
• Volatility will continue to be high.... I expect major ranges to remain in place for this year..I am still in process of looking at technical levels, but my friend Jesper gave me headstart by point to these amazing charts, which tells a story most counters DO NOT want to engage in: http://dshort.com/ (please do yourself the honor of clicking on ALL the charts to get enlarged version..its simply....terrifying who little REAL RETURN stocks have given!)
• Believe in Obama and a planned economy....I still do not understand why a capitlist society just rolls over and accepts general government intervention at large. Major banks in the US, UK, Denmark and elsewhere preaches Capitalisme and reacts with Socialisme. The talk of this working must stop and now... 2009 clearly will show how infrastructure projects DOES NOT solve the worlds issue, that we need serious Destruction of Capital for this game to continue..........

Strategy

I will ignore what everyone else thinks.. and start on the basis of our economic models which show pain is coming fast and furious in the incoming data sets - this will lead to further policy responses of infrastructure and spending future generations money they dont have.

There will be EURO fatigque and it will come early on, as market finally sees how changing Sarkozy for Klaus is not constructive for EUR values - the data for Europe will show how dogmatic the ECB and its merry chairman Trichet has been and unemployment will hit 10% in Q2 2009.......Europe finally paying the full-price for the FULL STOP on consumption......

No one I know feels good about the future..... not even my always miserable friends, thats not a good sign for markets and even less so for the consumption and risk taking which needs to be reestablished.

End of the day when you take TRILLIONS aways in private credit and substitute it with public credit, then the smart guys/girls will recognize it for what it is..... crowding out of private capital.........so unless you vote Socialist 2009 can become Annus Horribilies for us all.

Safe trading,

Steen

Aren't we forgeting the true meaning of Christmas? You know, the birth of Santa. Bart Simpson. Weekly Investment Meeting

The three driving PREMISES 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)

Conclusion

Zero visibility from here - main topics for 2009 being:

Negatives:

• Unemployment - we see >10% in both Europe and the US (see more under overall conclusion) - and losing your job makes people STOP ...stop living, stop buying, stop thinking... making it binary - while in the Ivory Tower of the banks they talk like its continues process - its not! You lose your job, you lose it...
• Low oil prices - the impact could be massive on Social tension, geopolitcal risks and earnings power for EMG countries and companies. No one seems willing and able to imagine <20>
• China growh makes it to zero - A story I have carried around since my Asia trip - seems banks now overtaking me..all of the sudden China not growing is the new Black, but even with growth at 3-5% China will be losing jobs, millions of jobs...and the 2009 will be real test for the THIRD WAY (you all know what happened to the 3rd way of Clinton, Merkel and Clinton)

Positives

• Psychology so negative it can work positively for the market. If there is 100.000 jobs right now in Bank of America and 30.000 needs to go - then 100.000 are afraid and living like they will lose their job, but when job cuts are done theoretically the 70.000 will start spending again. (The risk being 30.000 jobs become 50 or 60.000 later on)
• Q1 2009 circumstantial evidence would suggest there is "plenty of cash" on the sidelines, some of this should be deployed when we go into 2009?
• Fed/Treasury plans does work. Unrealistic but let us put it up there. Fed takes rates to zero, start engaging in Investment Grade, they borrow not 3 trillion but 10 trillion of the future earnings of America... and it works!!! Hurrah!!!

I have put our target out before but for now we remain with key predictions of:

1. S&P500 will see 500.00 in 2009
2. Yield in Europe & US will go to zero
3. China growth will be less than 3%
4. Tension in the EU will increase
5. Oil goes below 30.00 maybe even 20.00 US dollars
6. EUR/USD will see both 0.9500 and 1.4000 in 2009?
7. EMG underperforms everything else...
8. Credit spreads will continue to widen.....

Investment meeting conclusion: There is some "nervousness" ahead of the FOMC on the text and its implications. It seems unlikely Fed will deliver more clarity if only because they do not have it themselves, but there will the usual: We will do whatever it takes to restart economy....market looking for minimum 50 bps. Meeting could disappoint.

We are still see incoming data being extremely negative, earnings likewise, and there is growing recognition of our own main theme: Unemployment - when this hit the "Street" it could take us down again to new lows.

Allocation:

This week: Unchanged 90% in cash, 10% deployed in negative stock markets.

Last week: Move from 70% to 90% based on lack of direction and incoming policy response being confusing.

Economics: (David Karsbøl)

• Economy in freefall
• Tankan worst in 30 years
• CPI drop today expected to +1.5% from 3.4% biggest drop ever (?)
• Empire Manu. contracting
• Every single indicator at multi year low, some of the indicators can not go further down due to the way they are constructed!
• Our weekly model remain low - staying low
• The US and Sweden the two most decelerating economies

Main themes: Lack of credit & unemployment rising

Fixed Income:(Jesper Christiansen)

• Where the Government is involved "value is being created"--- i.e lower spreads, but everything else is still showing pain, lots of pain
• Next move from Fed would be to enter Investment Grade and High Yield -- Q1 2009?
• Plenty of value prepositions. On-and-off-the-run Treasury gives you guaranteed 50 bps!
• TIPS underperforming
• US ABS almost unchanged - EUR ABS wider spreads
• Danish mortgage spreads more or less unchanged with refinancing over
• NOK and SEK putting pressure on DKK (deval in 2009?)
• US Government fixed income outperform EU on quantative easing, Trichet talks down rate expectations, massive supply in EU Gov. FI in January
• Credit spread making high after high - Deutsche Bank impact?
• Investment grade starting to do better - FDIC bonds included?

OVERALL: Our mechanical model maintains serious overweight, so do we: (check bottom part of this blog for models allocations) http://saxomacro.blogspot.com/2008/12/market-is-long-hope-hope-and-hopethe.html

Technical Input: (John Hardy - copy version available here: http://drop.io/itvld6d# password: saxobank

Stoxx50 and S&P: Waiting to Bearish stance. Failure to maintain upside break disappointing.

VIX: We need > 60% for bearish sentiment go gain tracktion.

10 yr US: Buy option for downside (price risk) ?

Yield curve in EU and US huge different. Europe is steepning while US is flattening.

EUR looks stretched.

Equity

• Market is historically fairyl priced, but based on forward earnings expensive
• Lack of credit remains key issue.
• Unemployment will hit earnings and consumptions.
• Commodity cycle repricing from recession to depression a negative?
• Low low physcology could lift the market.

Commodities

• Contango begs for being crude for delivery but no one got balance sheet to do so.
• Gold, Silver at breaking point failure would lead to big sell of.

OVERALL

End of the year, we are in wait-and-see mode, however almost as per usual we remain extremely negative on the outlook - believing there have not been a proper pricing of the impact on ACTUAL UNEMPLOYMENT ABOVE 10.0% into stock market and valuations of housing stocks.

There simply is not anything worse the losing your job, except death, and for some people losing their job would be equivalent of that!

When people lose their job everything stops for them. They do not care if stock market goes or down, that Wal-Mart has discount of 50%, that Bernanke talks positively, that the Government wants to help them, they need to be back at work that's it.........

Obama gives us(US) hope, but is it enough, is it too late? I think so - I would love to the positive guy calling for higher markets, lower unemployment, but I am paid to be sceptical, paid to deliver real return (unlike Madoff's)....so for now I will be concerned, more concerned than ever before, but then again, I am merely a poor farmer boy from Denmark.

Safe trading,

Steen

Monday morning quarterbacking..again...

Watched some good old American football yesterday and Monday morning quaterbacking was certainly part of the speakers "game".......anyway kind of interesting how Bernie Madoff all of the sudden becomes front-line news, not as much because of the size, big as it is at 50 bln. $, but due to the fact no one seemed willing to "call the bluff".....It sad to see "innocent" people getting hurt, but this is really the part of cycle we are.... where EVERYONE who could/should pay pays...

Why did Madoff' game got called? Redemptions! It was not due diligence, it was not financial oversight, it was not even the SEC!

No, everyone thought this was cleaner than clean, despite the performance being a serious anormally not even copied by the great George Soros ......I believe the side-effects from this will be much bigger than market willing to acknowledge as it is another blow to the confidence of ANY FINANCIAL institution - if there is not any any confidence left, what is the "goodwill" on their balance then?

EUR is flying, of course, but we took profit too early as the game continues - I see the weaker US Dollar as the market call on the Ponzi-scheme directed by Bush, Paulson & Bernanke - some nice gentleman from Barclays sales-team claimed today they were doing a good job! I do not know if this was based on him being nervous about keeping his job or his firm believe that offering "public money" for private would work wonders.. ????

EUR is going to get US disease on growth..or lack of it.. but for now we are in a December EUR rally which could easily see 1.3700 and 1.4000 on-route to our tactical call change as of last week....... of 1.5000

Stock market - in broad based consolidation - got feeling with the US Dollar starting to weaken that post FOMC, there could be a price to paid for the stock market, but as some of you have commented maybe I am tooooo negative for my own good. Investment meeting tomorrow... we start @ 90% cash, rest in negative markets positions.....full disclosure tomorrow.

Strategy

Keep powder dry to post FOMC - our indicator/model shows increased risk of sell-off as credit spreads continues to expand, short-term fixed income remains bid, US Dollar weakens, and foreign press officers throw shoes after the Prez Bush.........Calling him "a dog" would be considered a compliment for him in the US I guess... ? ;-)

Valuation hard to figure out.....but I am looking forward to the investment meeting and to measure our conservative stance vs. the alternative "normal allocation" in the last week, month and quarter.

Main concern remains the turn-of-the-year in the money markets, and into Q1 my counterpart risk. I got nasty feeling Lehman will not be last major institution to "die"........if the hope connected to Obama does not materilalise soon....this could get ugly....

Safe trading till tomorrow,

Steen

Market is long: Hope, hope and hope....the cynic Friday comment

No one seems to care for 50 bln. $ fraud scandale, no one seems to notice Obama is knee-deep involved in Chicago and that ALL PRESS, ALL WEEKEND will be on him trying to explain away how apperently the 2nd most important man in the US.. the Chief of Staff got involved in Chicago... dodgy politics....

Washington wud not be able to sell a cold Coke in Sahara, but pretends things are good

Jamie Dimon, CEO JP Morgan pretty much tell the world Q4 is TOAST - and that they have serious issue with earnings and potentially capital... but still...market is long hope, hope and hope...

I bid you all a lovely week-end...and will not remind you that 2008 was the year of financial industry insolvency, it seems more and more 2009 will be the year of Consumer/Private insolvency, something much worse at its entails people losing their job.. as Reagan said: A recession is when your neightbour loses his job, a depression is when you lose your job... I am afraid...Depression is now the name of game - the key catalyst being EVERYONE on CNBC USA tells me its impossible.. making it a 99% certainty.........

Strategy

Long 90% cash/fixed income - took profit on short cash S&P-500, took profit in the massive move in EURUSD.......took profit in Gold.....still MEGA long puts in STOXX50..... took profit in S&P500 put options (exp next Friday- decay starting to hurt).....and in our Allocation model we are:

All codes are Saxo system codes and number of shares/index based on 1mio EUR.....:

Short 12% S&P-500 (SP500.I) --- 145
Short 3% Stoxx50(Stoxx50e.I) --- 13
Short 3% Nikkei (NI225.I) --- 444
Long 3.5% Ultrashort MSCI Emerging market(EEV:arcx) --- 516
Long 5.0% Short DJ AIG Commodity Index(SALL:xlon) --- 520
Long 35% IShares 10-20 Y Treasury Bonds (TLH:acrx) --- 3838
Long 35% 7-10 Y Eur bons (IBCL:xlon) --- 2229

Safe trading,

Steen

Tactical change - EURUSD in 1.5000? The Silly Detroit business plan....and finally...The idiots on CNBC US ....

Dear Investor,

This is my note from this morning for internal use:

It is simply frightening the logics behind this Detroit plan – please read this transcript from Nightly Business News – under PBS in the US…….there is no way Detroit can have
5-6 pct growth in sales, cut cost by 50% and then maintain solvency….. but…. Politicians more than willing to use 13-15 bln on this --- I remember when 10 bln. US Dollars was a lot of money.. no more…..

We are in process of changing our EURUSD call to 1.5000 by Q1 next year…..here is why:

1. Fed to issue debt? No governance.. must be junior-debt to Treasury? So why? Plus as friend point out: if they issue debt surely there will be CDS on it – meaning direct “credibility measurement of Fed”.. not something I think Bernanke would want.....

2. Treasury Czar (where do this idiotic term come from ?)… listen market: We will issue 1-2 trln. US dollar….. WHAT!!!!!!!

3. Credibility – as much as I think EUROPE going to break-down – I must say I think the US is close to being TOTALLY INSOLVENT……..

4. Yields – interest differentials very negative for US Dollar..

5. GMAC will face Chap. 11 it seems….

6. Money market funds yielding close to zero..and not taking in new money (as it dilutes present holders…)

7. Sentiment – I cannot shake of the feeling the US is only in 2nd inning of double header (Thanks E..)……..

8. Positioning – my prop. Indicators indicates building momentum on upside in EURUSD …most people “fading this move”….

Please, please listen to this clowns...... please please do..and realise that listening to CNBC is absolutely guaranteed to lose you money:(Thkx Matt for link) www.youtube.com/watch?v=2I0QN-FYkpw

Finally... this is from PBS... very interesting conclusion:
=========================================================
NBR's Darren Gersh Gives GM's Financial Plan A Test Drive

PAUL KANGAS: If GM gets the money, what happens then? And just what is this company worth now, anyway? Good questions. So we decided it was time to get some better answers about what's behind the numbers GM sent to Congress. While Washington debates a bailout, we sent Darren Gersh to get some expert input from outside the beltway.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: To test drive GM's financial plan, I went to Dartmouth's Tuck School of Business and asked finance Professor Anant Sundaram to scrub the numbers the auto makers gave Congress. All right professor, so here is GM's term paper. Let's start with what grade would you give it.

ANANT SUNDARAM, FINANCE PROFESSOR, TUCK SCHOOL OF BUSINESS: If this was a term paper in my class, I would have to give it unfortunately, a "C" plus.

GERSH: Ouch.

SUNDARAM: The reason is there is lack of clarity. There is lack of consistency and the data, the methods, the approaches, are just not transparent.

GERSH: So this is kind of an all nighter?

SUNDARAM: Absolutely. Never happens at the Tuck School of Business though, but I have to say it has the feel of an all-nighter that was pulled with a drop dead deadline.

GERSH: In that all-nighter GM apparently left out a cash flow analysis, the gold standard of finance. So Sundaram did some detective work to estimate GM's revenues based on a chart on page 21. You can see all those details on our website, but here's the result.

SUNDARAM: Making certain very favorable assumptions, assumptions favorable to GM, if I were to back out a revenue forecast, essentially tells me that GM is expected to have about $136 billion in revenues in 2009, but they expect these revenues to increase to something in the $160 to $165 billion range by the end of year 2012.

GERSH: OK, so you've got the revenues up there. Now how aggressive is that assumption? How fast do they have revenues growing and have they done that before?

SUNDARAM: This revenue growth implicitly assumes something like 6 to 7 percent in compounded annual growth rate in revenues, which is a little bit on the optimistic side. Actually, if you look at how their revenues have grown in the last five years, it's been less than 1/2 percent per year, in fact closer to a 1/3 of a percent, so we are talking about growth rates being about 15 to 20 times what they have been in the recent past.

GERSH: Sundaram points out GM plans to do that while cutting brands, employees and dealers, but if we assume the company hits that goal, we can put a value on GM. Sundaram cautions it's a rough estimate which compares GM to companies like Toyota and Honda. Bottom line: GM could be worth $50 billion to $80 billion after it has successfully restructured the company in 2012. And using some fancy math that we will spare you, Sundaram adjusts that figure back to get a value for GM today.

SUNDARAM: And essentially under some reasonable judgments one can make about discount rates and so forth for GM, suffice it to say that in today's value, this $50 to $80 billion by the year 2012 will probably be - we're talking about it being somewhere in between $32 billion to $50 billion range.

GERSH: But wait, GM owes banks and investors and its union $66 billion.

SUNDARAM: So if $66 billion were the claims against this company, then what we are saying is the value that is left over for equity holders is negative.

GERSH: Which is why GM is promising Congress it plans to negotiate a deal to cut its debt almost in half. So if you were the bank of Congress, the first amalgamated bank of Uncle Sam and this company comes to you and says, we want $12 to 18 billion? Would you give it to them?

SUNDARAM: I would hesitate to say yes, unless I'm convinced that they can get all the reductions, perhaps a little more than they're hoping for. If I were the car czar that they are thinking of putting in place, the issue that I'd be focused on night and day, 24/7, is the speed at which I can get the liability down to $34 billion or below, i.e. the negotiations with the lenders and labor.

GERSH: Consider those debt restructuring negotiations GM's real final exam, one it must ace to stay in business.

Darren Gersh, NIGHTLY BUSINESS REPORT, Hanover, New Hampshire.

Strategy:

We went long EURUSD @ 1.3098 (stop @ 1.3055 offered), Long Gold @ 816... (stop 793)...and we are short S&P cash @ 899.98... and VERY LONG puts in Stoxx50 and S&P.. into year-end....

I simply do not get this --- still @ 90% cash - with the 10% deployed negatively...

Safe trading,

Steen

China, China pants of fire......

My Chief Economist David Karsbøl has produced short piece on China growth - I remain extremely sceptical of the illussion of 8% even 5% growth in China - a lot of hope is built on China being able to pull demand with it and infrastructure et al... I will be surprised to see 5% growth, even 3% .... I think, unfortunately that China is going to have tough times ahead and as David points out the similarities with the US in the 1920s are more than relevant.

David Karsbøl, Chief Economist, Saxo Bank:

China, China, China. China has been THE story in the past five years. Who would not be invested in a country with minimum 10% growth per year, with a strongly growing consumption (at least sometime in the future), thousands and thousands of new millionaires and a voracious appetite on commodities? Everyone depended on China – both to get a return and to explain how the global growth could and would continue. Everyone wanted to go there, either physically or by investing.

Well, isn’t this exactly how investors were perceiving the United States in 1929 (albeit US growth was only averaging 4% p.a. before 1929, but it was still somewhat higher than in the rest of the world)?

There are more parallels: Both China and the US in 1929 experiences extremely strong growth rates (roaring twenties in the US) for almost a decade, which completely blinded observers. Both have had some of the world’s highest savings and investment rates in their boom periods. Both had significant current account surpluses that they tried to cope with (China by buying US Treasuries, the US by buying gold). Both were trying to uphold pegs to faltering and unsound assets: The US tried to prop up the GBP at a ridiculous rate after the re-peg to gold caused by WW1 inflation and China is now trying to peg to the USD, which despite the newfound strength is still trending lower and will end in catastrophe. For both of the countries and their boom periods, monetary policy was extremely expansive at the same time as the general price levels were flat to only moderately increasing, which led observes to erroneously conclude that monetary policy was “neutral”. Therefore, very big bubbles were allowed to evolve and burst.

In the 1930’s, the US was one of the economies worst hit by the crisis, because their monetary policy was taken to the farthest extremes. Chinese monetary policy has consistently been most extreme among the G20 countries. Over the past 10 years, annual M2 Money Supply growth in China has averaged +16%. That should be very frightening for the eternal China bulls. They will be lucky to see positive growth in the next three years.

David Karsbøl, December 11th, 2009