The spread of evil is the sympton of a vacuum - Ayn Rand

The spread of evil is the symptom of a vacuum. whenever evil wins, it is only by default: by the moral failure of those who evade the fact that there can be no compromise on basic principles.
Ayn Rand (1905 - 1982), Capitalism: The Unknown Ideal, 1966


(Click on chart to get bigger version)




I really should not be showing you this chart from my Chief Economist David Karsbøl - it shows how some trades have become so out of whack that there is great oppertunities in the market.

BAA - or Moody's BAA-rated bonds pays more than 500 bps over US Treasuries(I.e: Yield > 900 bps p.a) with defaults never higher than 4% ! The only issue being our negative equity bias, but this is one of the trades you need to put on.

We are working on making synthetic ETF ratio which can cover this one for more direct access - otherwise check out:

HYG: http://stockcharts.com/h-sc/ui?s=HYG&p=D&b=5&g=0&id=p42658334577 or
LQD: http://stockcharts.com/h-sc/ui?s=LQD&p=D&b=5&g=0&id=p42658334577


Another thing you need to watch is this word:
Dirigisme (http://en.wikipedia.org/wiki/Dirigisme)

Sarkozy has turned out to be more Socialist than any prior President - my friend Henri Foch send me this email today and unlike me, Henri is not person to get "carried away".....:
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Europe is getting protectionist as the French President suggests creating a fund to nationalise key industries. He mentioned two reasons why to create this fund:

- To gains increasing influence on the economy in order to guide it.
- To avoid foreign investors buying European industries for the cheap

Sarkozy suggested that Europe could run a 'different monetary policy' without violating the independence of the ECB. In order to achieve this he plans introducing an economic council / government which ‘should discuss with the ECB’

After the comment, European shares declined, CEE and other EMK currencies have come under pressure. The quality of the comment is poor and super EUR bearish.
=============================================================

I am sure Sarkozy like Putin soon will be proclaiming: "There is NO CRISIS in France" its a conspiracy of the hedge funds, the Liberitarians and the Economists.... sure is ....

Why are "facts" are so oversold in todays market? Fear, greed, stupidity ? Mankind is supposed to learn from their experiences, that's why we "rule the earth" is it not -

I must say I am getting more and more depressed about the intellectual part of finance (How about that for a contradiction in terms!) - there is too much BETA around........ Beta must die --- Destruction of Capital as per Schumpeter must play out .

Strategy:

FX: We remain short our EURUSD based on:

• Technical 1.3260 was next line the sand. John Hardy, my chartist looks for 1.2700 - and he has been hot recently, so we move our 1.3000 target to 1.2700 minimum
• Fiscal stimulus in the US - Bernanke seems to want job with new administration as he "sanctioned" fiscal plan to the tune of 300 bln. USD in Congress yesterday (mind you getting Bernanke's blessing is the kiss of dead!)
• Europe deleveraging needs to run longer and deeper than the US.

We are looking to add short HUF & LVL vs. basket of CHF and USD

Fixed Income

As printed above - we like Corporate bonds from the "distance" - getting closer - looking to trigger.........

We like TIPS http://stockcharts.com/h-sc/ui?s=TIP&p=D&b=5&g=0&id=p42658334577

Bunds - we are long 116.00 calls for Friday - sold our cash today.

Commodities

We are short GOLD, mostly because I am enforcing the view on the team but in my metrics - fiscal deficits needs to be financed, why not sell something which does not work as inflation hedge, carries no value except illussion of storage - i.e gold reserves to finance the purchase on government bonds .. ?

Target: 700.00 still....

Equities

This is your Captain - we are flying in a straight line towards 765.00 - we do expect some turbulence along the way, so please remain seated at all times during the flight - Thank you for flying with us.

Cash: 85% still - Full Investment Meeting report tomorrow from me...

Finally, my friend, teammate and sparrings partner Jesper Christiansen have launched his own blog - although more "dark visioned" than me, he offers this from different angle than me - try his blog: http://mrtitrading.blogspot.com/

Safe Trading

Steen

Central bankers are lost... totally lost....AGAIN..

My "models" are very close to confirming a BEAR MARKET. No less, no more. The key final ingredients will be Bernanke's speech tonight - if the market, as it has done in the past, sell of during and after his finish, we will have first real bear market since 2000.

The only thing that will be able to help this market out is rumors. Rumors of Sovereign Wealth Funds (One wonders why considering their track record so far!!!), and inter-meeting rumors of cuts.

Having said all thay I am still in NEUTRAL mode - there is to much consensus in the market, which concerns me always. No less after having read the F.T piece about Ray Dalio of Bridgewater: http://tinyurl.com/3dgapx - he made it his business to NEVER correlate with other managers, something I have always done, but to much less success than Bridgewater!

Strategy trading:

Fixed Income

Unchanged. Still waiting for cycle change in yields - we are close to breaking triple bottom, but for now holding out for "surprise" upside either through more liquidity (read: reflation) or better than expected US data.

Foreign Exchange

Long AUD.CAD - starting to accelerate - looks fine.

Long EUR P, 1.44 (spot @ 1.4710) 1 month

Long JPY C, 104 (spot @ 108.25) 2 weeks

Long EURSEK, and Long NOKSEK.

NOKSEK flirting with 1.20000 today, break should lead to 1.2500. In times of recession these two economies are VERY different.

Sweden is VERY open economy, with most of the Swedish companies being US dependent. This could be seen through Q3-4 in 2007 when the Swedish stock market significantly underperformed other European Indices. This is continuing, and as a rule to exception Riksbank is more negative than the local banks, leaving door open for much, much higher EURSEK.

Norway on the other hand, will see demand for oil and fish, BUT.. if oil starts to react to RECESSION fear, it should also find support around 7.90000.....

Commodities

My biggest change - I have been drumming for GRAINS and Crude for almost two years now, but now I am getting square.

It has to be said I am a very defensive fund manager, but the upcoming USDA Crop report tomorrow got me worried. Following the "real experts" it seems we, the financial people are, too bullish in the wrong time of year. An excellent link http://www.agriculture.com/ag/

I sold my long time holding of DBA yesterday @ 34.45 -

I also as stated yesterday sold Crude(Feb) @ 96.95 - We have been trading in- and out so we are now comfortable short from 103 USD net, which have taken us above the critical 102 $ line.

Remember the play here is merely for Crude to "catch up" with the recession story - another way to play this could be to short SHIPPING........

Equity

Tried the long side into close yesterday, did not feel right and our model continues to ask us to wait for confirmation, which I will respect.

Early last week I put downside break @ 60/40, it is now 75/25, we really need "something tangible" from Bernanke tonight, next week in Congress or at the next meeting. Note that market got 50 bps @ 75% probability, almost destined to disappoint.

OVERALL

Still in day-by-day play, but getting feeling new trend emerging... Crude right now trading 93.70, having broken critical 95.55 - and gold offered to... 850/55 test will be critical, I am net buyer net seller, but not before those levels.

Theme: Recession light - and the repricing needed plus re-coupling, the US is not, not alone in lower growth rates..

I am attending conference tomorrow with Lawrence Summers, sponsored by Skagen Fonds, I am looking forward to asking him about "strong US dollar policy" if I get the chance....

Stay lucky,

Steen