torsdag den 20. december 2007

Why things can only get worse with Investment bank, there dont understand seems....

When you read this article you understand why Barclays is losing their shirt....

Volatility is only up because of hedging ? Where does volatility come from then? The Sky? or is it not the UNCERTAINTY about future path for economic numbers which create financial volatility.

Volatility is not a derivative of the financial market alone, its more a function of the UNKNOWN path rates, inflation and growth takes - so according to Barclays vols should go down in January, I, on the other hand, I, the farmers son, think they will go up.

Never in my time as a trader has there been more INSECURITY and UNCERTAINTY around.. hedging ? My foot..

Happy Holidays to you all and may the trading Gods be with you in 2008.

Steen Jakobsen

The Short View
By Gillian Tett

Published: December 20 2007 02:00 | Last updated: December 20 2007 02:00

Christmas is the season to watch reruns of old movies. But even before the holiday starts, financial markets are getting into this spirit.

Never mind that analysts are now muttering darkly that 2008 could produce stagflation - a concept that, until recently, seemed as dated as The Sound of Music . In the equity markets, another oldie is now back on investors' radar screens: equity market volatility.

Until recently, this was an issue that investors generally ignored, since volatility has been extraordinarily low in recent years. But in recent months, volatility indices have soared, both in terms of tangible market swings (measured as realised volatility) and in terms of the cost of buying insurance against these market swings (measured by so-called implied volatility). Indeed, the change of mood is so marked that volatility measures tracking volatility have leapt too.

So is this rerun back to stay? In the short term, perhaps not. Barclays Capital thinks that one reason implied volatility (or hedging costs) has risen this autumn is that investors have been trying to reduce their levels of risk, by hedging the equity positions they hold.

However, risk-averse behaviour typically peaks at the end of year, when investors square accounts. Thus Barclays suspects hedging activity will fall next month, prompting a temporary downturn in the implied volatility indices.

But in the longer term, there are signs that volatility is "entering a new regime", as Deutsche Bank says. After all, if you think that credit markets are even half-right in their current levels of gloom, equity prices look too high. That suggests implied equity volatility levels will probably start rising again once the January impact ebbs away. Savvy investors who want to hedge their equity positions might be wise to do this as soon as hangovers clear on January 1.

Med Venlig Hilsen | Yours Sincerely
Steen Jakobsen, Chief Investment Officer, Saxo Fund Management
Saxo Bank A/S -London
40 Bank Street, 26th Floor | Canary Wharf|London E14 5DA
Phone: +44 (0)207 151 2010 | Fax: +44 (0)207 151 2001
Please visit our website at:

mandag den 17. december 2007

Credit Crisis part II.... coming to theather near you...

Yes, there is big FOR SALE sign going on right now, the irony being that what we have seen so far was merely the beginning, the next move in the credit crisis will impact the prime lenders....

This is from internal note I sent out this morning>

Well, what can I say, seems someone been "stealing my research!"...

Now it even mainstream to publish this.... so when will Credit Crisis Round II come into play ones wonder....


From The Sunday Times
December 16, 2007

Can this be the worst crisis in 35 years?
John Waples, Business Editor
HOW is this for a dichotomy of views: "This is the worst financial crisis since 1972." Not my words, but those from the chairman's mouth at one of our biggest banks. And then, at the other end of the scale, the chief executive of a mid-sized corporate-finance house who pointed to a raft of takeovers taking place and suggested that if share prices stay this low, there will be a lot more deals next year.
The first "off record" conversation was deeply disturbing. He believed this financial crisis would spill well into 2008, the write-offs from the big banks would continue – particularly if rating agencies downgraded debt – and the only way out was for a number of banks to raise fresh funds in the market. He said last week's $100 billion bail-out from the world's central banks would not be enough.
The bigger concern, he said, was if the credit crisis spilt over into the wider economy, dragging America into recession and then seeped into the rest of the world. If this happens, then not even China will escape. Unlike Black Monday in October 1987, this time there has not been a stock-market crash, instead it looks like a deep and more prolonged slide.
As a result there are some painful facts – big corporates are now paying closer attention to their fixed and variable cost bases, and redundancies are inevitable in the new year.
A lot of the companies bought over the past two years are no longer worth what they were acquired for. This will lead to a further set of write-offs from banks. At the very simplest, this is because the take-out multiples that were being offered even eight months ago are no longer available.
On the more positive side, the views of the mid-sized broker should not be ignored. Share prices in companies in the FTSE 250 and under are being pummelled on even a whiff of negative news. But you just have to look at those that have received bids, such as Northgate, the information-solutions firm, Kiln, the insurer, and Close Brothers, the corporate-finance house, to see that buyers are seeing value at these levels.
Among Britain's top 200 quoted companies, nearly 10% now have dividend yields higher than interest rates. That suggests that investors are growing increasingly concerned that the dividends and growth cannot be maintained, or that stocks are merely oversold. If there is a conclusion to be drawn from this, it is that polarisation of opinion will continue: the big banks have more pain to come and shares will continue to be smacked. But there is still value to be found.
Beware the gnomes
IF the government starts to tinker with the tax treatment of offshore trusts held by rich foreigners living in Britain, it will undo all the success achieved over the past decade in establishing London's status as a world financial centre.
Our ability to attract the cream of world finance is down to the lenient way we treat the tax affairs of nondomiciles. This has resulted in the City being the envy of rivals New York, Frankfurt and Paris.
But, as my colleague Ben Laurance explains on page 7, that status is now at risk. This opportunity has not been lost on Switzerland. Zurich is working particularly hard to attract big corporates and the super-rich. It is negotiating bespoke tax deals and is starting to attract the attention of the private equity and hedge-fund world, as well as the big firms that want to cut their corporation-tax bills. It is a threat we should wake up to.

fredag den 14. december 2007

How to trade noise?

Short Friday notice:

Retail Sales yesterday does change the agenda slightly, for the Goldie-lock people this is sign growth could be some 50 bps higher than expected at the start of the week, but to me, the ever sceptic of any numbers from the US, its bound to be revised down to norm later. PPI also surprised on the upside, and how could it not?

Inflation is real... unlike sighthing of Elvis, but using the core-inflation measure is like pretending Elvis does live!......Anyhow;


Still feel we have 4th wave correction type on our hands.. something like 1440-00 in the Dec future 1430-00 in the SPC.

Fixed income:

Bought myself some gamma and direction yday - feel market will prove Fed wrong on growth, but not on inflation, but mostly its bet on more "satefy" runs to come with S&P testing the above low, plus banking sector results starting to come in now, and with LEH+BoA not doing much to help the issue on crisis.


Still long the US dollar trade, as I write we break last weeks low of 1.4525 - looks to me like there will end of year demand, and I stick by my earlier analysis, when Jan-Nov is down for US dollar, then in 7/8 December is opposite, and DON'T forget EURO is now FUNDING currency....

Long USDNOK, USDCAD, EURGBP.................


Long crude, long grains... need say no more....

Nice week-end


onsdag den 12. december 2007

Who takes the most drug Fed or the long only equity types?

I am sorry but I have to copy and paste this from the highly entertaining Fintag commentary:

Bernanke: Here, take some more drugs. They are on the house.
Dow: But this stuff isn't good enough. I want my money back.
Bernanke: It is all I have for another couple of months.
Dow: We need strong stuff. The kind that sets our hearts fluttering.
Bernanke: If I gave you more, the USD would collapse.
Dow: Stuff the dollar.
Bernanke: And Chinese inflation is reaching a decade high and we are importing it too.
Dow: I want to get to 14000 again. What is wrong with you?
Bernanke: I am doing the best I can to get 3M libor down but it won't shift.
Dow: Bring back Greenspan. Bring back Greenspan.

Yes, both Fed and market is on drugs, the action this morning in New York, merely shift the addiction from one type of drugs to another, some people would say they(The Fed) moved from heroin to methadone, but the real issue and what people tend to forget is that methadone ADDICTIVE as well!

Helping the bank industry by printing yet more money is going to do ZERO, ZILST, NIL, NOTHING to the overall climate - sure the banks should "theoretically" do better, but note the brackets around the T-word!

The massive up and down volatility is a clear indication of complete and utter lost ness on behalf of the market and to me, and I am prone to the negative analysis of the world that I do admit, its tell sign of far worse things to come.

Today, the day after Fed and this morning’s major ‘surprise’ liquidity injection, you know where the markets went?

Nowhere - we had a lot of noise, lots of loses I am sure, but at the end of day it is exactly where I found it this morning before opening the blinds to the beautiful ocean view in my Copenhagen office.... so in other words "much ado about nothing"......

If I was Bernanke, and not I am NOT a school teacher like him!, I would be extremely disappointed in the market reaction, at the time of writing S&P is lower than before the announcement 1492.00 vs. 1489 right now.

Stepping back - I have been "gone" from the blog for a number of reasons, the main being I have done a few air miles of travels in the last month or so - dominantly to the Middle East region. Being an expert on nothing and novice on most things in life, I was struck by the firmness of the development in Middle East and Israel.

The vibes I am getting is similar to my early days as a trader in London. Yes, there is challenges but we can do anything, we are here to change things, to move towards a better place - something I find utterly missing in the US and certainly in Europe, in both places everyone and anyone is busy maintaining status quos, and should you think I am rambling about politics you are wrong.

I am talking about markets, businesses, growth, demographics. Ignore Middle East and Asia going forward and you doomed to underperform.

There is decoupling in the world, but it is not US versus the rest of the world, it's US+ Europe versus the rest of the world, and this will have major implications for our investment strategies going into 2008.

My good colleague Mr. John Hardy made an interesting analysis for me; The expected inflation adjusted return from 1919 to now is: +23 excl. dividend (per 5 years) - BUT... when the past 5 years performance has been greater than 50% - then the expected return drops to ZERO, ZILST, NIL, NOTHING...

I call it mean reversion - yes, stock market have positive drift, no it will not always go up, up and up! In order for long term returns to regress we need sub-par return. Now most people think I am lining up for major negative on stocks, I am not, what I am trying to say is:

1. Mean reversion needs to be respected. I.e. Excess return will be followed by sub-par return.

2. 2008 will be about stock picking - just circling 5 stocks in the F.T and then buy them to keep for 12 month only to cash in minimum 25% is gone and done.

3. The world will see slowdown in growth created partly by the credit crisis and partly by laws of maths, which will makes 2007 numbers hard to beat in 2008.

4. There is "forces”, and no they are not evil, in play, i.e.; the Sovereign Wealth Funds, SWF. This is a theme I have talked and written about all year:

Note that EVERY SINGLE time the markets need saving, who steps in to help? SWF! Elementary Dr. Watson....

So bottom line on stocks for me;

Fed is doing everything they can to mess this up. Today action was interesting, I am reminded of smoke and mirror tricks performed by illusionists!

Fact is NO ONE believes a word of what Bernanke says and does! (Am I the only who have noticed that EVERY TIME Bernanke is in the limelight the market reaction is negative?)

There is SWF bid below these markets.... 15-25% below - and add to this that most asset allocators are desperate to increase the weights of EQUITY relative to FIXED INCOME and we have firm bid tone, but... market will still come down 25% from the top, but in today market volatility that’s merely 2-3 days of trading range!

Another note for 2008 - AGRICULTURE, AGRICULTURE - the prices keep rising - today’s confirmation that Fed will continue to print money, secures the asset revaluation of tangible assets aka commodities. Fed is creating so much inflation overall and food inflation specifically that one has to consider getting these guys a calculus for XMAS present!

The food stock is lowest in decades, the totally un-scientific approach to alternative energy means most farmers rather plant to meet demand on ethanol than to feed the world.

Nice going Mr. and Mrs. Politician around the world. Let's see: Saving the eco system or making sure big parts of the world can be fed what's more important?

And…..drum roll…. the winner is? The Eco system....

Al Gore's Nobel Price makes the Nobel Price as credible as Bernanke makes the Fed the same - (Hint: this is ironic in the highest factor possible!)

Note this ticker down: DBA! Buy it keep it.....forever.....

Foreign exchange? Who cares really? US dollar should be stronger right now, but Bernanke insists of trying to make life difficult with his DEVALUATION of everything American - soon the market may show him the REAL LIVE version of life outside the classrooms in Princeton’s, by giving him serious US Dollar crisis.

My take is simple; The US Dollar outlook right now is BINARY - either Fed, and the US administration stops pretending to have strong US dollar policy or they will have REAL DEVALUATION with Middle East and Asia depegging in quick successions.

In worst case I will be taken back to my early trading days in London during ERM crisis in 1992, but this time The Bank of England will not have staring role, but the Fed, ECB, UAE, Saudi Arabia, Singapore, China will.

The time zone for these currencies not good for my health so let’s hope the path of least resistance leads the FED to announce a FULL STOP on printing money and Bernanke returns to the classrooms in the Princeton area.

My predictions have zero value in making money, my views are merely personal notes, and I hope at least I can provoke some responds.

Nice life...

Steen Jakobsen, Copenhagen December 12, 2007