onsdag den 30. januar 2008
Message in a bottle, message in a bottle - The Police
I most humbly apologies for not updating as stated, but let me explain my overall issues right now:
1. On one hand I think the biggest mispricing right now is the decoupling story. How Europe is not going to be hurt by the US cold. That's simply naive both academically but also based on history. The market has increased the probabilities of ECB cuts despite the Trichet talk. Right now market is pricing 65 bps (based on swap spreads). The European rate adjustment downwards has been a quick and steep as the US.
If this is your main driver for theme, then the logic would be to be long short end Europe, short European growth companies and certainly short banking/real estate........ This is my prime focus right now. Point being: The world is dissecting bad US news as their life depended on it, meanwhile the European data continues to deteriorate.
2. Long or short fixed income overall? The base argument, and my belief, that the credit crisis is bigger than market perceive it to be (more on this later) should make we want to be long and stay long fixed income across the curve.
The fact the banking industry can not leverage their balance sheet will make the central banks go even deeper than needed (and setting off inflation alarms!)........
On the other hand can I ignore monetary data, inflation core and gross, high gold prices, high commodity prices overall? Hardly, the day-to-day inflation is through the roof and works as direct tax on the consumers. The US been early in giving tax hands-out, but the fact is the 500 $ disappear into higher energy, food and loan payments.
We may be, as stated by George Soros, at the end of massive credit cycle, and getting ready for a wash-out. A wash-out which will be hugely positive. Imagine if the banks started allocating capital at highest marginal utility and not to highest greed factor!!!!!!!!
I have 100s of other issues on top of the two above, but seeking the answer to the equation makes me sway from bull to bear, and back. A situation I am increasingly getting feeling I share with even the super minds of this industry.
Why is it so important?
When fund managers like myself try to map out the world we like logic, mostly linear outcomes, what the world is giving us right now is a complex matrix of potential answers. The root of the problem not really the complexity of the problem, but more the dynamics of it.
Normally, as in since 1982, the central banks have applied more drugs for the sick patient - but has the patient become immune to this medicine by now?
Does the lack of banking edibility create bigger issues? The answer here is yes, the central banks (despite their short comings) have learned from the 1920s-1930s where policies were the reason for the crash. However, to me this begins to look a lot like the 1970s, where the central banks, main Fed, was to expansive fuelling inflation..........
1970s was about big business, big government, and if today's Sovereign Wealth Fund are not big government, I don't know what is. The Bush administration have made gigantic hole in the coffers to spend on wars....also big government. Inflation is REAL TERMS is rising, faster and faster... food prices is at all time high, and only going higher due to demographics, growth and eating habits....
So to cut a long story short, I am slowly, and as always step by step getting to the end conclusion that this time its different, it really is. It is at the end of a Super Credit Cycle, and should the Mononlines become downgraded before the rescue package is in place, then the banks will roll over and put aside an additional 50-100 bln. USD of risk.
Moving from day by day, to week by week now, main themes:
FX: Strong believer in cyclical US strength coming shortly - the US export alone will add 1.5% to growth in the US this year, and with Europe catching some of the US cold, the relative performance of the two currencies EUR and USD should line up better.
The bottom line on EURUSD is as follows: A EURO above 1.5000 for 1 or 2 years is equal to closing EUROPE.
FI: Going into Fed meeting with Puts on T-bonds. Market will probably see this as reflation...
EQUITY: Long some out of money CALLS for the sake risk diversification.
Running very flat book overall... as I make my next move.
So if you got strong ideas, please... send me a message in a bottle..
Good luck tonight.
mandag den 28. januar 2008
The short-timers looking to get edge and market becomes "gamma driven" rather than investing..
Anyway, full update tomorrow - doing big presentation in Copenhagen, Denmark on Wednesday, and working with the data made me realise a few things..
Good night from a dark, wet London.
tirsdag den 15. januar 2008
I am not hiding! I took off all the bullish trades late yesterday which turned out to be extremely lucky.
Only done two trades today:
JPY: Bought some good size 106.50 JPY call for Friday as my good friend Drew Baptiste of Morgan Stanley been telling me if 107.22 goes it#s 3rd of 3rd wave target ting 97 +-
Drew has been extremely right on JPY plus it mixes well with my prevalent view that Q1 is all about risk adjustment and going "home" on investments.
The second trade is long EURGBP 0.7546 / my "favourite" salesperson telling its "key reversal" and other terms I clearly do not have the capacity to understand, as I cant for the life of me think of ONE reason why GBP should do better the Europe. Brown is doing everything wrong, Darling (what a name) is already joke 3 month into the job, and todays GA in Northern Rocks shows the incompetence of the government and its adviser's.
It is very clear to me some significant repricing is taken place, and in the process the "counters" are losing out. Counters are the very people who buy on dips and who thinks this time is like the last few times.....Nothing could be more wrong...
The policy action from the central banks is "print some more money!!!!!!!!!", in the US the FOMC, they are cutting rates and normally the bank will "blow" up their balance sheet to match the expected cut, only problem being that this time the balance sheets of the banks are so stretched they cant even do origination on deals, and one loan after the other gets negated, so the market stuck with banks going around to anyone, like me, with a positive current account, begging me to take some of "their special deals for you, my friend!" off them in order to clean up the balance sheets.
There are several so called investment banks running desperate to find someone with money to spend.
Another thing; SWF, SWF - I noted yesterday and I will note again today; Dubai Ports can not buy a port in the US, but they can 'as much as you like' in the banks? Logic? None! Banks are even more "strategic in nature" than ports..........
The US dollar crisis is very, very close now...... 1.5000 goes and we will see central bank intervention in my mind. The weaker US dollar makes the Fed decision even more difficult, but the Fed does not care about the US dollar, Bernanke has no clue, neither does the rest of adminstration. They should be hiking rates to defend the US dollar, make US more attractive and re-establish their inflation expectations.....but......thats almost as likely as me being drafted to play for Denmark along side Tomasson.
FOMC is desperate. Desperate people does desperate things. We are HIGH alert rest of the week......Only Fx positions as of now.. and mainly in options..
FI: Getting hammered on long bond, but hedged through the JPY. Still expect very dynamic move to higher rates inside this week....... Looking to do spread long Europe short-end vs short long end US....
Commodities: Still "pis.... off" at myself for negating trade ahead of USDA report Friday, but...fact remains commodities NEED to reflect "recession mode"......
FX: Short GBP, Long JPY.....
Equity: Neutral, still better buyer than seller....
mandag den 14. januar 2008
torsdag den 10. januar 2008
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!
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.
onsdag den 9. januar 2008
Selling my Long DBA today - chart is showing Crude and other commodities reaching saturation point, and with recession around the corner there is bound to be repricing of GROWTH/Inflation assets like agri, gold and crude.
Sold Feb., Crude @ 96.95 with stop above 101.00 today...
Long AUD/CAD - AUD economy keeps steaming ahead - long resources, Asian investment inflow - Loonie look overprice - the Canadians wants it weaker... positive carry...
Long EUR/SEK - Long - market like it the other way, I think too much priced in on inflation and growth, I agree more with Riksbank, than with with market on future path ....
Put on decent size 1.4400 EUR put 2 month yesterday - - With French government calling for growth over inflation, and making weak US dollar G-7 issue.... is one thing, but the "cheap" J-curve of US goods should move EURUSD down again, add to this that its time for Europe to join re-coupling on weaker growth. The German Retails Sales this morning was SHOCKER - Germany is more than 15 pct of European consumption - Spain in freefall - Italy, being Italy, you add up the numbers!!!!!!
Strongest view: Long 116 Put in March - Have mean-reversion model indicating triple bottom in place in 10 y- notes. The weaker numbers, Ex. Treasury Sec. Summers calling for FISCAL STIMULUS, and central banks more than willing to create even more money make it a certainly along death and tax that they will INFLATE the economy with wrong central- and government actions. (Remember how Paulson behind the scene got BoA to buy into Countrywide - nice trade @ 18 now 5 offered - Government intervention at its best)
Short Crude - Feb
Best research qoute of the day: J. K Gailbraith: '.....that finance does not lend itself to innovation, full stop! What masquerades as innovation, he says, boils down nothing more than credit secured on some asset. You can repackage it, slice it horizontally or vertically, repackage, call it a different name, but end of the day, somebody owes money to somebody" - Well said and so right...
tirsdag den 8. januar 2008
Pretty shocking news! It seems she has forgotten the impact INFLATION has on future planning and the erosion of values - it also runs totally "contraire" to her compatriot in the ECB Mr. Trichet's mantra and it's VERY BAD news for Europe, but unfortunately its what we can expect from Europe. A group of nations with old people and old ideas!
Also in the news; Moody's given up on tracking risk! Pretty brave for them to admit that ANY systematic approach to risk falls short due to financial systems complexity - and indirectly the sheer size of banks today. In other words; Ratings will have even less importance going forward than now, and will be flawed - Conclusion: Volatility should risk on this (link: http://tinyurl.com/37jppk)
søndag den 6. januar 2008
Fed Vice-chairman admits they have no clue....
Mr. Kohn is making market and himself even more confused - Fact reamins Fed is lost, now forced to go 50 bps on January 30th, despite they should be hiking - if that's a success I should be playing for Denmark upfront!
M&S follows Next, PC World, Curry's and Land of Leather to confirm that UK is DOOMED. The financial sector is going down and so is retail.
तbout leverage or high stake poker. Interesting how major building marks gets involved in major paradigm shift. Remember the Rockefeller Centre being first bought then sold as part of rise and fall of Japanese economy?
Barrons, the ever negative indicator on stock market ran interesting piece:
I know a few of you can not access so here is some main pointers;
DJI skidded 566 for the week, or 4.2%. It was the Dow's worst three-day start since 1932, the depths of the depression.
Q4 returns (and note these....!!!!):
- Dow Q4-2007 = - 4.5%
- S%P Q4-2007 = - 3.8%
- NAS Q4-2007 = - 1.8%
- Russel Q4-2007 = 4.9% !!!!!! Russel is the broadest index, i.e caputering the biggest trend.
It was Dow's first fourth-quarter loss in a decade! (So please let's stop talking about year-end effect and the other crap from now on!!!)
For the year, The Russel 2000 snapped a four-year winning streak and 2.7% for the YEAR!. Yes, the "stock market", the broad market fell in 2007!.......
In other news; Last week had two significant data stories in the US;
1. Manufacturing fell into RECESSION mode!
2. The Private Sector in the US cut 13.000 jobs, the first decline since 2003!
News/Data conclusion: Retail Sales across OECD continues to collapse, stock market very close to being in BEAR MARKET - first time since 2000!........and RISING UNEMPLOYMENT will soon subistitute lack of growth as key headline....
We came into Friday with positive bias on fixed income based on our assumption of potential for weak job growth plus propability of NASDAQ move to down-side;
Friday data confirmed our view, but the magnitude of the down-move makes us think this week will see the usual rumors of inter-Fed cuts and some desperate attempts by US Administration to "get things going in the US economy" - and what's the standard tool box for that in todays market? Create some more money; i.e More inflationary impact, so we are shifting our FI bias from lower rates to longer; and add to this that our Agri-play, (DBA) made new highs while articles like this one;
is starting to tell "our story" ---> Inflation will soon become THE FRONT PAGE.....but for now more of the same.
FX: Very lights, some JPY calls (bought too expensive right now) but home bias will prevail if stock market continues down - i.e Japanese will take money home).... shorted EURUSD (@ 1.4695 ) this a.m, and sold light in GBP.USD [@ 1.9663) with stops 1/2 daily ATR .....
FI: Buying some 10-30 y. puts today March....(Yield reference: @ 3.89 & @ 4.39)
EQUITY: Neutral. I will bet inter-market cut rumor will hit market this week, and I will be waiting to sell on those....
Long DBA - still target of 100% for the year-on-year!...
Waiting for Gold to hit support around 850/840 to buy..if holding..
Crude: Dont like the lack of "follow through" upside- and concerned how "slwoer OECD growth will play into the future pricing"....
Theme of the day; How poorly Q4 and start 2008 was ----> Early stock market sell of...
US dollar ----> Weaker number could lead to overseas investment by US investors being cut, plus will Europe and Asia catch the "flue"?
torsdag den 3. januar 2008
January 4th, 2008-01-04
(This come with chart - for those of you who want Word document with full article please forward request to: email@example.com)
Steen Jakobsen, Saxo Bank, Asset Management
Stagflation light is the name
Day-by-day the game
Happy New Year!
The market is off to predictable start with weaker US growth outlook which ironically leads to higher crude, gold and weaker US dollar.
Ironic because weaker US growth should do exactly the opposite to the prices but market are trading day by day on THEMES not on fundamentals.
The format for my blogs will change slightly this year, again, I will try to run through different assets and charts and take cue from that plus obviously the odd reference to excellent reads.
Interest rate outlook
We came into 2008 very long 119 call in 30 Y notes, playing on the fact that the December reading of retail sales, which got every single Investment house bullish on US growth was a one off, the true drivers of growth(or lack of it) potential being;
1. Credit crunch
2. Housing net net negative impact (General any excess in cycle terms takes 9-12 quarters to unwind; we are now approximately half way!
We took the profit over the last two days as there is major gap in expectations;
Yield spreads 2 y versus 10 y is trading at +109 bps
New recent high. The yield curve overall is steepning. This indicates one or two things; Growth expectations is higher or inflation expectorations higher. For now let's assume its 70% inflation and 30% growth (stock market analyst' is more like 55/45 inflation/growth in outlooks)
Inflation premium (the measure of difference btw zero TIPS and US Treasury) trades @ 213 bps.
This is in line with above.....but then.....
One year Fed outlook as measured by swaps rate indications are at -135 bps.
This means Fed funds should be 135 bps lower in one year from now. Down from -90 post the retails sales number and heading towards low of August and November.
Hang on! Inflation expectations in 2 y vs 10 y is higher, also higher in inflation premium in TIPS vs. Treasury, but lower growth.... so it seems market, at least the bond market, CLEARLY feels that Helicopter Ben is going to give us higher, much inflation.....
This is bad news as it indirectly indicates that we will have lower growth and higher inflation, what's the word for that again? Stag-flation light?
Impact is pretty clear. Its the worst scenario for stocks with expected return quarter over quarter of ZERO, commodities should do ok, but less than in 2007, and ironically bond, short will do best.......
I see deal after deal being cancelled in private equity market indicating the LENDING market has dried up for even relatively small deals.
I also note that junk bond spreads, ALL of them, much higher than during crisis in August and this despite biggest injection of capital is my career!!!!!!
There is NO reason why you would own JPY on fundamentals, but little does it matter right now;
- Bias is increasing towards STRONGER JPY not weaker. Amateurs play carry-game while the pro's knows better than to engage in yield carry in high volatility environment.
- Risk reversals (the relative price of buying PUT to CALL on JPY) 25 delta 1m now at -340 bps mid (low in August < -600 bps
US dollar overall is more driven by rate differentials than equity ratio's (The US dollar shifts correlations between relative interest rate differentials and relative stock market performances) so more weakness expected until market moves from the US is DECOUPLED to RE-Coupling occurs.
Europe in TOTAL denial on state of growth outlook. 2007 strong countries like Spain, Sweden, Switzerland all seeing waning retail sales - Real Estate sector in UK, Denmark and Spain is in free fall if it was not for the ever bullish realtors "fake" measurements of prices.
Finally stock markets. The enclosed chart shows correlation between NASDAQ and inverted junk bond spread. Theory being; as credit market worsens so should stock markets, the US Inc is NET borrowers of capital day in and day out.
ISM getting into 2003 lows and approaching 2000 recession like…!!!!
Gap in inflation expectations needs to be monitored. Ben "I got no clue" Bernanke has dropped so much money into market at a time of ALL time high Gold and Food prices...and high inflation expectations - its going to DOOM him..... Fed controls ZERO to 12 month and will be cutting aggressively, market controls the curve and will not follow 1-for-1, meaning steeper curve, and more built "insurance" through higher premium..... I’m net neutral into employment data. I expect POOR number, if and that's a big if they are honest reported!
Net: Neutral, with long bias in 2-5 y sector.
Been long on and off EURGBP for long time. GBP sucks. Use ANY strength to sell GBP.
JPY: Respect Risk reversals. Looking to enter LONG JPY.
EUR: Rates differentials rules - but it is time for RE-COUPLING, i.e. Europe growth to be lowered relative to US, so EURUSD drop in the cards going in February
EMG: Still best value. EMG home bias less pronounced this I hear from Morgan Stanley, if so high yielder’s NZD, AUD should do well and KWD, Singapore should weaken.
Scandies: Used to be my game. NOK and SEK disappointed me. Think further weakness due.
Took profit on Agri-play last night. Still think DBA will double in 2008, but presently lower growth has not played role and market in denial. Early profit in the year always good.
Been long gold - still willing to go long again....
Crude - 100 $ why so difficult to break?
Overall; the last 20 US in crude is de facto US weakness, similar is the last 200 USD in Gold, so... when the cycle turns, expect MASSIVE correction.
Neutral - favour 60/40 odds on that break of long, long sideway action will be to downside due to graph attached.
Day by day plays for now - Find TODAYS theme - leverage and close before you go to bed. January not for real players, too much new RISK capital around.
May the trading Gods be with all of us in 2008.