onsdag den 27. februar 2008

Bernanke: Futures in energy+ food indicates prices will come down? What are you talking about!!!!

Quick-and-dirty note on Bernanke...I found a lot of interesting stuff in this speech (and boy I am glad I read John Makin first this morning)..

Economic situation: Distinctly less favourable than last time... (note the wording)
Housing: ...will weigh on economic activity in coming quarters (Fed knows this takes several more quarter to turn around)
Consumer spending: ..slowed significantly in Q4 -rising import priced have caused eroding real income and wages (Major point!!!!)
Jobs:..slow job creation yet another potential (I.e not yet....being so..) drag on economy
Business: Display signs of being affected leading to less investment in IT and equipment (seen Google stock recently?)
Non-financials firms: strong and with good profit
Export grew 11% in H2 2007..
GDP forecast lower to 1.3-2.0 now.. and unemployment seen at 5.2/5.3... end of 2008
Risk remains to the downside on economy
PCE expected to moderate (WHAT!).. and here comes critical part:
..Energy and food will begin to flatten out as implied by futures (my Dear Ben !!! What are you talking about - now you are basin your forward looking inflation on futures where supply/demand and other VERY tech. things are impacting front vs. backend ? )
Finally... in closing.. Fed has responded AGGRESSIVELY.. his word to the events.

This is classic Ben talking about Japan in the 1990s - he is VERY concerned about deflation - rest assure that with this speech Ben is:

Going to give us at least 100 bps more of cuts - (he got the inflation under control via futures!)...
He will look for ways to mitigate impact on consumers and banks... by setting up PUBLIC FUND to take risk of banks books.. he is getting ready Ladies and the few Gents....

Nice how Fannie Mae + Freddie Mac ceilings lifted am I the only one remembering both Greenspan and Bernanke talking about the risk that those institutions balance sheet should become bigger than the Fed....?

Interesting how in trying times - market moves from libertarian view to what can only be called good old Social democratic crap.... Tax payers needs to bail out the banks, house owners who never should have had mortgage gets helped from state.....good thing I left the US a few years back my prediction is that soon the US tax payer will be paying more than the Danish one (65% presently) at least here they tell you they are Social democrats!!!!!


My friend Drew Baptiste calls it hit-and-run mode : I have been long EURUSD, with negative real rates and a overrated Professor running the show not good for US dollar.

The weak US dollar will force ECB to cut rates, but first we will see 1.52/1.5300..

Stock market at critical levels... 1388/90 then 1400/10 - looks tough to break for me - but I note EMG stock doing well (via EEM) so will give it time, long some beta exposure in stocks not happy about it.

Added short USDJPY today @ 106.35

Still in process of figuring out Fixed Income ......

Good luck out there..


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

fredag den 22. februar 2008

In the penalty box by my own choosing....

(Click on small box to see chart)

It's probably only me but I am spinning like a kite in a storm by this market....Like Bernanke I am pretty stubborn about my views, but when I execute my "good money management" rules I get stopped out again, again and then again.

And NO it’s not about the size it has become personal. Looking at the charts there is one false break after the other in all markets. The only stable factor right now is Bernanke willingness to cut rates lower, yet lower and then again lower.

Fintag (www.fintag.com) puts it best with his question: "What will happen when rates are zero?” The speed by which the Fed is willing to cut is frightening, if for nothing else their total lack of believe in the US economy.

This week’s data showed yet again the game is not over in terms of weakening.
My former associate, now good colleague David Karsbøl has been running model on weekly indicators, which we "stole" from Paul O'Neills book, where he claimed, he and the Treasury people had high-frequency data model which caught most moves in the next six month in the US.

We have had some success in copying this.

This is clearly towards 2001 and 1991 levels, which in itself is scary. I particularly remember 2001 as I was the "fortunate/unfortunate" employee of the former Chase Manhattan Bank, which in 2000-2002 was fighting for its life - I am increasing starting to believe the major banks, with credit still being inadequate despite Fed helicopter approach could be REAL DANGER.

Think about CDS, which is most issue by BANKS - the same banks, who week-by-week, almost now day-by-day write down more and more, how much is my CDS protection bought from Citi/UBS/CS worth at the end of day?

I hate to cry "foul play" but the market is either positioning itself for major collapse or there needs to some external new thing coming to the market - think about it:

Fed has cuts rates with a pace not seen since 1930s
The Congress has given substantial tax credit, it has also made moratorium on debt
The got the Oracle from Omaha to get involved in monoline
They got BoA to buy some dodgy California mortgage company
They have allowed SWF's to buy banks (they could not buy ports?)

AND....still the market is going nowhere - we had the biggest "helicopter" rescue since Berlin was evacuated---- the result??? Trend less, nowhere going markets.

Europe seems to be on an island for now. Interesting to see how ECB rhetoric changes now that IG Metall deal is done. Time for change?

China runs its own game - so does India

Yes, I am lost, there has been so many false starts and closings that I have lost count - maybe the Oscars will help me see the perspective - or the Moon phase or... ???

Strategy -

I am a macro manager, but my good friend Andrew Baptiste from MS, probably describe the market best in his daily commentaries: “Keep the hit-and-run modes”

How true I only wish someone would hit someone else soon, not me again, again and again.

However, on a positive note - these market stands in front of major resolution and soon, there are so many breaks, and sideway ranges ready to pop that volatility soon will be rising.

Stay long volatility, stay long grains.

Nice week-end


mandag den 18. februar 2008

The Scientific theory I like best is that the rings of Saturn are composed entirely of lost airline luggage - John M. Ford

I feel much like the headline to this piece - When I say left things goes right, when I say down is goes up - the more analysis I apply the more confused I get, and coming off one week of skiing it sort of makes sense altogether;

The market is having major break from its heavy trading ranges while the market reactivates the computer models and projections, but a few things have not changed:

1. Crude prices have remained bid despite the near recesssion headlines and trading in the euro-dollar futures. Are crude oil isolated from global recession?

2. Agriculture prices remains bid and going higher - record low storages and drought, once in a lifetime weather etc, keep the demand part much stronger than the supply side.

3. Credit market continues its march higher and higher. A new day and we got higher readings of risk intolerance. Some astute investment bank notice that stocks with poor credit being performing better than good credit since January 1st, wow - thats a long, long time at least 30 data points worth of data?

The fact remains if the credit markets remains shut down, then the stock market will have to follow suit. Saw nice chart this morning pointing out that there is lead-lag of one week between credit spreads and stock market.

However I am increasingly becoming bond bear here - to me the bigger story being that of the inflation getting ready to spill-over to both margin but also the actual pricing levels, my pessimistm here is based on a number of things, but primarily the lead-lag of production/pricing channels. It takes time before the end user gets to pay "real prices" for milk, coffee, wheat, corn etc.

In some countries becasue the governments subsidies prices, which only makes things worse, and in other cases because your local Barista, decides to wait-and-see if this is not passing .....it is not and its only getting worse, now over the summer there is a number of things which will make this explode.

One thing in Europe is the on-going wage talks - in my home country of Denmark, the public sector got 12.4% over three year, with some gracious holidays and sick-leave added in - this is function of one thing only: The lack of people to hire - Denmark is in the ironic situation, not dis-similar to Germany and other old nations, that there simply is not enough people to do the actual jobs! Hence the negosiations moves to being dearer as the employees can move their business, in the case of public sector between sector creating heavy short falls of doctors, nurses, dentist', social workers etc....

This will spread to Europe - Trichet can call for as much "vigilance" as he wants on pay but the fact is demand is bigger than supply, hence there will be negative news in the next weeks and months......

I am getting ready to go outright short Fixed Income, I now have to decide about where on the curve and which countries to short first - from cyclical aspect it should be the US, as they have inflated the most, and with always presence of potential US dollar crisis, it has biggest non-linear event risk, on the other hand, as long as IG Metall and their friends still talking to ECB there is chance the market will react more aggressively in Europe, in particular as 1 year forward rates has moved just as much as the US in recent weeks.

Decision on this tomorrow after some more analysis.


tirsdag den 5. februar 2008

Cyclical theme in place? EUR to come off from here?

As you know I have one of my strongest calls as "bying US dollar denominated assets" - there has been some interesting moves in the I-rate environment which could confirm some change is going on.....

A. cyclical moves - ECB rates dropping faster than US one - i.e US has started to cut, Europe only to start..
B. Relative move / Recoupling - Judging from headlines the rest of the world joining us on RECOUPLING now... i.e: US is ahead.. Europe behind on moves to remedy this "recession light"..

Chart 1: 10 y US rates minus 10y Europe (Direction of this spread opposite to expected EURUSD move).. (Click on chart for bigger version)

Chart 2 - EURUSD & 1y fwd expected rates in Europe minus US..... (Click on chart for bigger version)

Note: Very SHARP downmove. Market does not believe in Trichet when he talks hawkisk......

Chart 3: The EURUSD relationship is partly driven by interest rates, partby by stock market return. Below is the
Ratio of Dow to Dax - note how early last year is explained EURUSD moves better than interest rates.. (Click on chart for bigger version)

This weekend G7 meeting have US dollar on the agenda. Very few things, if any, is ever done on these conferences, but there is
growing believe in the "bad of weak US dollar" among the worlds central bankers. An important point, which should not be


mandag den 4. februar 2008

S&P (stocks)... pricing growth or ...merely dead-cat bounce?

Big day for stock market today - in the REAL session, i.e 15.30 CET 22.00 CET - Why?

Technically this is 4th wave bounce - and major resistance @ 1400 which we are almost trading in time of writing - break wud invalidate count - and more to the point there
is growing belief Bernanke has done enough to restart US economy plus the added fiscal stimulus from Congress -- it cud mean a few more days of rallying... I remain as always sceptical, but remain long some March 1410 calls - Which I have had for a while, but.....

IF market is turning we need CLEAR confirmation in 10 and 30y yield in the US, despite rebound in US stock market 30y and 10y remain elevated in price - barely moving, this despite stronger 1y fwd yield.... so either... Fixed Income is too negative or the usual stock momentum will carry us higher.

The numbers on Friday was a disaster no less, no more, but for now market seems to keen to play recoupling ( vs Europe and rest of world)

BOE will cut 50 bps
ECB will be unchanged this week
Monoline bail-out will most likely run into some "issues" as market improves
There will be negative returns for hedge funds again in January........

Nice day