onsdag den 26. marts 2008

Code Yellow for the Asian story.....

I am live on the ground in Singapore on business trip and I find the "evidence"
here quit disturbing relative to the ALL the positive buzz I keep hearing about Asia in London and New York... here is whats bothering me:

1. Inflation, even Singapore is having run away inflation and the issue is on the forefront on everyeones mind now... each and every interview, talk I have focus on how to deal with inflation when u have given away your monetary policy to a bunch of incompetent people in Washington....

2. Negative real rates - last time I was here (May 2007)... they liked it - now they feel is erodes their wealth and leave them options to "secure" the future, i.e confidence in the future dropping HARD

3. Wages - clearly the new labor contract law in China has impacted input structures....4. Shipping - new ship building has moved from low 20% self financing to mid 30s..and you still can't do deals... Greeks buying evetything no one can get anything built unless they find Chinese shipyards- (the demand is there - the financing not)

4. Real Estate - prices "plateaued" - new building rising everywhere - saturated?

5. China...resouces.... input prices of mining is running @ 450-500 US an ounze ...lets hope reflation will keep gold, metals high as costs is EXPLODING -

6. Banking ... neg real rates ==> real estate bubble.... inv. bank income in Asia like for like down 50% on the year... dont get me wrong..

Im still long term bullish on Asia.. but being on the ground the is considerable issues...far more than we see from our ivory towers in the US and Europe - ..........but as always merely poor European Fund Mgr. lost in the world of finance.. Steen

onsdag den 19. marts 2008

Self-denial is indulgence of a propensity to forego. Ambrose Bierce

Could not have said it better! Bernanke continues to mis-manage the US economy and now we are all at risk of losing out - this started as "Class-room" experiment for the Professor from Princeton, now it has become as matter of life and death - and Mr. Bernanke is still in self-denial.

If anyone things yesterday rally was not another heroin shot in the veins they need to go have their heads examined!

This morning several good natured people been sending me stories on how the world is now safe and how January 22nd was low for market - Please DO NOT SENT ME CRAP! I can read and I see plenty of fair weather comments day by day, I only need to read the investment banks research to find it. Like GS recommending going short basket of CDS on banks this week because risk is gone and Bernanke will safe the world. Be my guest!

25% of US investment banks would be out of business if it was not for two things:

1. Accouting. If they were to report as "normal" companies they would move into Chapter 11 - you merely need to add up tier two and tier three capital and put it in ratio to own capital and you will be shocked how tiny the capital of socalled "major" investment are. Look at Bear last week it had 11 billion capital reserve - now it is sold for 2 USD per stock !

2. The circling of the wagons - read my comment below - Bernanke firmly believe saving his friends on Wall Street, who have shown no integrity in paying themselves or taking fees, now they are begging to get simple deposits -

I predicts there will be STATE SPONSORED rescue fund for Bernanke's friend before the summer arrives - this combined with increased power of Sovereign Wealth Fund is the two single biggest steps back for the capitalistic world.

The truth is as much as Socialism failed on its inability to recognise market forces, now the Capitalistic is failing on morale hazard and the policy makers inability to "let live go on" - they feel empowered to "intervene" although history and even theory dictates they should go on holiday and leave out sign: "We have no clue - you sort it out !"

I am, as many of you know, Objectivist, the only, but big issue, I got with Ayn Rand is her morale concept - she believes even morale is self-regulating -

That's clearly not the case - people will steal if not punished, people will lie if they feel they can get away with it, it does not mean all people will do so, but you only need to read news clips from Wall Street banks this week and you can see my point - they are ALL fine!

Honesty not the buzz word in banking no more - once your word was your bond now your word is always a lie, and the receiver needs to analyse it - Sad, very sad.......

On to the markets - we had an excellent month, taking most of the risk of during Monday, now we are building positions again - yesterday was typical bear market bounce. I will qoute this again: Biggest market up days happens during bear markets! End of story.

When banks starts lending and trusting each other I will go neutral - understand this- As long as baning system does not work, nothing works. Think about how monetary policy works:

"Drug Barrons at Fed" tells market - rates are now set at 2.25% pct - we see risk to downside, so we are ready to cut more - next "normal" step is banks comes in - lend from Fed, leverage their balance sheets through lending out money, doing derivaties deals, taking postions in the market, so for each US dollar Fed lends out, the banks lend out another10-20 US dollar - BUT.... right now.. the banks takes ALL the money they can get from FED- but NEVER in the their wildest dream will the lend it out as their own balance is in a very bad state.

The falling stock market, mortgage market, loan market, the lack of liquidity means more and more asset on the banks balance day by day gets moved from tier 1, to tier 2, to tier3 capital- as there is NO markets.

I do know not if you realise this but.... the European Government Bond market has not been operating fully since Aug-Nov last year - in other words you can't get prices in anything between banks in even Government issued bonds !!!!!! Spread on Italy trades @ 60 bps, where as mortgage spread on Danish Bonds trades @ 40 bps.. makes sense ? NO! That's the reason YOU NEED TO BE FOREWARNED.

I am EXTREMELY negative - on fundamentals, but more because 98% of the market have not understood what I just wrote - after reading this - please spend 10 min. reading the crap research from investments banks and you wil see what I mean........this are guys who has gone from making 500K US average to being weeks away from losing their jobs - do you think you will get truth from them?

Sorry I am so harsh but this is NOT times for being sentimental - this market nervousness has only just started - this is the final wash out.


We are going back into the market today with usual views:

Long JPY, short DAX and S&P, long t-Bonds, staying away from EURUSD but still feel there is more upside.....

Finally, I hope honestly I am wrong but at least mentally prepare you for the worst, that way you can transact not react when shit hits the fan.

As always I am merely poor farmers son from Denmark - I dont have any predictive power and have never even believed myself to have.

Stay lucky all.


onsdag den 12. marts 2008

Bloomberg interview end of last week..

Not to bother you but I did Bloomberg interview last week:


Have a laugh,


Circling the wagons - enjoy it while it last....

I must admit I for a couple of hours was slightly impressed by Fed and its action yesterday. Creating credit at 25% of their balance sheet - accepting "junk" in exchange for treasuries sort of made some sense - but then......
Think about it: The US tax payers gets junk on the book of Fed, and as Jim Rogers said this morning: "Is Bernanke going to fly around in his helicopter and collect rent?" - It is absurd the mere thinking you can protect the world, in this case, the financial world from recession.
For some reason the central bankers of the world takes their friends on Wall Street, Bank Street (CW), and Frankfurt more serious than anything else. It is like there are two levels of institutions today
The first level being investment banks and broker who Fed will do ANYTHING to proctect, and the other hand Private Equity fund should not expect any grace - so if you are leverage outside the investment banks you are DOOMED, if you are inside you will get more and more....
The moral dilemma is compounding on the Fed as Rogers also said: There is not any 29 year old farmer driving Massaretti's but there are 1000s upon 1000s in Wall Street, London and Tokyo.... should the average American get to pay for issues which: 1. Made his mortgage more epxensive (yes, avg. mortgage went UP yday not down) 2. Who got paid million US Dollar bonus' 3. To keep investment alive. I dont think so.. and please stop crying. This is capitalism not socialism, Bernanke is the biggest Socialdemocrat I have ever seen - only second to the total lost ex Chairman Greenspan who should have stopped while he could still run 60 yard dashes in less than 3 minutes!
Listening to the moron commentators, the happy go lucky ones, makes me sick, good think I am going to my summerhouse for the whole of the Easter with NO TV whatsoever .........but thats another story.
The strategy is still unchanged....
FX: The market continues to fade the weak US dollar, although I believe a stronger US dollar is the way to solve many of todays issues I think its only matter of time before 1.5500 goes - The ECB, mainly Weber, is out-of-control with their hawkish talk, but inflation is the root of evil, but confidence is the major issue.
Would you buy anything from guy like Bernanke, who could not sell a cold Coke in Sahara desert? (He would be looking for ways to give away his only Coke, and forward sell 10 others he doesnt own!).....
On top of this, 2 year US rates will hit 1.00 pct inside next 1 or 2 month, making the REAL RATES massively negative.
We are long EURUSD, short USD.SGD, Long EURSEK.......
FI: We have some luck shortening the 30y yday, but took position off when it dawned on me, this move is merely based on too short positions in the equity market.
We are still in doubt about inflation vs. recession - I note 2 yrs swaps down and so is 3 month fwd-fwd US dollars, but for how long... still interestedin high yield corporate bonds...
I like primitive indicators, this one caught my eye yesterday, before the latest Helicopter Ben action:
If this is not giving reason for short-term jump I dont know what will. There has been 20 3% moves up in S&P in the last x years, ALL of them has happened in bear markets. Jumps like yesterday is the very basic integral part of a bear market, where politicians and policy makers will be trying to "do whats good for the electorate" - My foot - the less they do, the better. Dont ever forget the very success of Bill Clinton presidency was he didnt achieve ANY of his stated goals. Nothing was done in 8 years, and the US economy bloomed!
We are short DAX through options - not working -
Well ONE position you do need is: GOLD - BB is desperate trying to give you Gold at 1.500 US dollar before year is over - using 25% of Fed balance sheet to buy crap will create more inflation not less......
Enough for now - enjoy the next few days of joy, or even hours....

mandag den 10. marts 2008

....has the storm past is the ocean flat again?

The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again. John Maynard Keynes

I thought it appropriate to start this mornings report with the full sentence which include in the long run we are all dead. Keynes knew why economics is called the dismal science, which reminds of this mornings rally on stocks due to Goldman Sachs calls for more cuts by Fed!

I mean are people total idiots? Has there EVER been any doubt the lost Chairman of Fed would cut? No one seems to notice that GS has one of the worst records on predicting US economy, but why bother with facts. Actually I think only Greenspan is worse than GS in predicting the economy?

Back to business the financial rescue on Friday helped tame the 2yr Swap spreads from +112 to a more normal +103 this morning indicating some relief in the system, at least for one or two days, meanwhile the 3 mos fwd-fwd US swap remains stubbornly high at 71.5 bps, which indicates non-US banks have difficulties raising capital for the quarter end and turn, plus obviously funding their "small" SIV's et al. In other words; there is NADA lending and there will be nada lending going into the end of this month.

I have been a follower of T-Theory ever since I read "Pit Bull", Martin Schwartz back in 2000, and I was slightl shocked to read Landry's comments this morning: "S&P is approaching the key "last low" - according to my 40 year cycle work the S&P will break below this potential support as part of a very long term correction to the 1974- 2007 bull market. This basically means there should be no trouble in a 3rd sharp down wave the carries the S&P to lower lows". http://ttheory.typepad.com/terry_laundrys_t_theory_o/

Terry is not guy who easily gets carried away with his forecast, so I have to dig into some numbers to follow this the next few days. Terry Laundry is one of the hardest working guys around and totally unemotional. (Very unlike me!)

The other topic for this week for me will be: Inflation - I am trying to embrace recession into my investment outlook, if for nothing else because everyone else refuse to, I am presently thinking:

This slow down crisis, will run longer and steeper than most people think, on the other hand I do not buy argument the slow down will slow inflation down as it is both demand but more supply driven, and hence I found an interesting research by Ibbotson Associates, Michele Gambera:

Gambera ran through 30 years of data for the S&P 500, the spot market for oil and gold and the CPI. His conclusion: There is very little correlation between commodities and stock prices. But there is something else- Gambera found oil and gold to have a high correlation with INFLATION, 37% in the case of oil and 52% for the Gold. Kind of interesting nes pas?


Still hit-and-run mode. We took of negative US dollar view on Thursday last week around 1.5300-1.5330, now left with negative AUD, long EURSEK, long JPY with bias to try short EURUSD when the signs of Europe slow down/concern about EUR starts ringing some alarm bells with the tossers in the Investment banks ivory tower research departments!....

Equity - sold Stoxx50 today ard 3588 ish with one ATR stop. Long Dax puts......short Barclays banks, only matter of time before bottom goes out of UK banking system with credit card default, SIVs, commercial properties etc all compouding.......and lets face is Barclays is the most prominent fair weather management in the world!.......See no evil, hear no evil.....

Fixed income- Long bunds since 117.00.....just bet on ECB getting closer and growth getting slower - also long some out money 30y calls should the market implode....

Commodities - Short AUG crude from 100.60.....looking to sell gold, silver, corn, wheat, soya - the whole complex - some day, some time soon the world will take the RECESSION trade for real.... maybe we need to break stock market low in January, I dont know, I am merely farmer boy.........


The outlook still cloudy, but like here in Denmark today, there is some sun coming.......

Good luck


torsdag den 6. marts 2008

I rarely listen to central banks, I note what they do....

Hence this morning I have been busy unloading my long EUR/USD position into the market before this p.m ECB meeting. I will most likely look like a total a.. by 2 p.m, but I just remind myself I listen to the ECB in 2000 when the EUR/USD was dropping 1 figure a day! Which earned me a nice return, however, before I start getting your "but..." remarks;

  1. Yes, US real rates are negative

  2. No, the US administration does not give a toss about the US dollar

  3. Yes, the US administration should realise that a stable US dollar could solve a lot of their issues, as the US is cheap, but no one trust Paulson/Bernanke as they have shown only one thing: A massive lack of understanding

  4. No, the market is not really short US dollars, our bias still indicates more people fade this move

  5. Yes, the economic data is better for Europe than the US for now.....

Now.... board the plane and go to 10.000 feet - what do you see?

  1. 40% of the world have inflation issues (Middle East + Asia)

  2. 60% have stagflation light outlook (Europe + US)

  3. 10% of the worlds population consumes 80% of the savings (The US spends rest of world saves it)

  4. US FX swaps are trading bid again indicating "turn money" over quarter getting expensive - AND indicating European banks are having serious issues of funding their day-to-day operations ending up going into final resort; The FX swaps market

  5. Munipalities, ARS, is closed down - Munipalities pays 650 bps for 7day funding vs norm of libor!

  6. Major Private Equity funds pays penalties of not meeting funding...

  7. Bernanke and Fed have cut 2 y notes to 1.50% - Yes, 150 bps, what will he/they do when they reach ZERO!

  8. Central bankers in Europe, Canada, New Zealand and Middle East wants, and will soon demand stronger US dollar.....

  9. Inflation is here - Gold in 1.000 US dollar, Crude in 105, Feds 5y5y above 300 bps

  10. 1970s most likely analogy; Then and now we had; Big government, Central banks denying inflation is risk, energy and food crisis.

  11. Japanese Fiscal Yearned coming - seems the Japanese banks and savers more than happy to keep the money at home at Bank of Japan, rather than lending them to the US and others- DO NOT forget Japan is the commercial banker of the world, recycling the massive saving surplus to the rest of world.

Now, then, I have given you a fund managers daily nightmare - and now I need to ask you, what could solve this multi matrix, multi level equation?

Take your time, feel free, to revert later.....but let me give you suggestion from point of reverse engineering;

  • Has it worked to cut rates? No, stocks down 20% in Europe, 10% in the US

  • Has it worked to "engineer" private deals on Monolines, Mortgage House? No....

  • Has it worked to spend the 150 bln. US of tax rebate? No, not after cost of energy and food calculated.

  • Has it worked NOT to include recession in your investment scenario? No, au contraire

So, in my opinion, and remember I am merely a poor farmer boy from Denmark, who has been let into the world of finance by mistake, the solution is;

Stabilise the US dollar or even force the hand of the market to make it stronger...

Why would it work?

  1. It would create "bottom level" for overseas investors into the US. Making the cheap US stock and debt look like good investment over the next 5 years

  2. It would stabilise the long term yield, and hence helping cut funding costs of 10y mortgages, through increased recycling of fixed income buying into US dollar...The Clinton/Rubin experience

  3. It would reduce the imported/exported inflation of Asia and Middle East.

  4. It would ease currency pressure of Middle East, India, Vietnam and China

  5. It would send market serious signal that Fed want to avoid the 1970 mistakes of thinking inflation is anti-cyclical.

Well, I am, as said naive, and it seesm only Paul Volker and I agree on this......(Not the worst person to agree with mind you...)


Foreign Exchange

Reduced my long EUR/USD to zero. Bought EUR p JPY c options, long EURSEK, long AUDUSD and USDCAD(hmmm..not working).... Looking to seel EURGBP as funding issues becomes real deal closer to month end. Think PLN soon to blow up...

Fixed Income

Buying lottery tickets in bunds & t-bonds... upside..


Short US stocks.. think this is 5th wave....down..


Short crude in August around 100.60 level.

As always be careful out there!


tirsdag den 4. marts 2008

Where is the recession in commodities?

A much smarter hedge fund manager, and a true friend, from New York, in early January told me: "the issue this year is that no one wants to include the big black hole called recession into there investment outlook".

He was so right, and probably more than we both realised at the time, as this market continues to fail to embrace a recession, the more it goes down. Few managers have been around long enough to understand the true implications of recession on investments decisions, sure everyone, even Bernanke is an expert on Japan deflation/recession, but as all Americans tells me: we are different!

Sure you are, more indebted for one thing, and probably less realistic.

US dollar FX fwd fwd rates are moving higher again, as they did in August and November 2007, some of it to do with SIV's refunding, some of it to do with quarter end funding, and Japanese fiscal year end (End of March)

It seems the Japanese investors/banks rather keep the money at Bank of Japan, than lend it out to the American consumer and banks alike! This is critical sign of more stress coming. Whether you like it or not, the Japanese recycling of savings is one of the most important fuels in this market.

Right now it reminds me of the car free sundays we had in Denmark in the 1970s during the last major energy crisis. I love those days as a very young man!

The 1970s is coming back - back then it was; Big government, central banks thinking slower growth would curtail inflation, and this is going to be like the roaring 1960s - seems to remind me of text being preached by the teacher from Princeton aka Bernanke.

Someone had the nerve to ask me what would you in a situation like this? I was surprised for several reasons; normally no one in their right mind would ask me for advice, secondly this coming from market professional was shock, but.....nervously I said:

So here comes;

Raise rates - the US dollar is cheap enough, now it needs to stabilise and foreigners need some sort of guarantee that the US administration is NOT going to continue the useless Bernanke policy of talking down the US dollar. No one can devalue themselves out of trouble, not even the Chinese!

Let the banks fail. There are way too many banks in the world - make sure the SUPPLY of homes stops by making them obsolete and cheap enough to raise interest.

Open US borders again for H1B1 visa instead of closing down for smart people.

Make sure Bernanke goes back to Princeton.

That's just for startes, in the meantime think about US real rates are negative 150 bps! Bernanke is close to reaching ZERO interest rates what happens then? What's his plan?

Well enough on the good old BB - strategywise we are:

Short the US dollar, although looking to scale down if we get blip to 1.5300 ish
Long JPY
Long T-bonds calls out-of-the-money
Long 80 Aug. put in Crude (new position as of today)

We closed short S&P and DAX position today, but looking for break of 1310-1300 to confirm 5th down wave in place - still in hit-and-run-mode although the negatives seems to rule for now.

Goood luck