tirsdag den 29. september 2009

Chasing the end consumer....where is he? Have you seen him?

Todays investment meeting was short, but productive:

We ended up chasing the end consumer of all the "good" and goods that this fiscal stimulus has and will produce.

It is all well and good to analyse things getting better - it's even correct, from the stand-point of corporate earnings, but.... who is this end user? Where does he/she live?

Clearly the US consumer no longer wants to be part of the game of chicken, as their "balance sheet" is in such a bad state: lower house prices, eroded pension funds, and outlook to lower real earnings & potential unemployment

The money is on China and Japan to create more domestic demand - and I am sure it will produce more final demand, but the problem being... their saving rate is 40% or more, so it takes a lot of Chinese to replace just one US consumer.

Chart China - getting bigger GDP but spend less as percentage of GDP (source: David Rosenberg, Gluskin Sheff)

(Click on chart for larger version)

Fortunately China is factor rich on people, but I doubt the local peasants, celebrating the 60th year Anniversary of PROC (http://tinyurl.com/ycorzmo) this week is too concerned about these matters, but the cheerleaders of the world keeps talking about the amazing Chinese story....but may I ask again? Who is buying their stuff.

Looking at the incoming data it is becoming clear that the velocity of improvement is at best stagnant and at worst falling - the past two weeks has not done much good on the upside, except maybe for the 20K better jobless claims last week. The worst being the renewed slow homes sales...

It is also very interesting to note that the main benchmarks of bubble/euphoria/China: Copper, Gold and Crude are all "correcting" their up-move - this could be merely a small correction inside major cycle, but being the concerned chap I'm - I got feeling market is long, very long.....all of the above assets.

Chart 2: Copper, Crude & Shanghai

Our main conclusion remains this:

  • Market trades on momentum (nothing wrong with that per se..... although it is EXTREMELY tiresome for old man like me.....)

  • It's impossible to define top in place presently (You can do all sorts of analysis, but from technical and valuation perspective it remains a two sided story)

  • We note data & commodities does not like last two weeks(see chart)

In the equity space, our resident equity guy, Mr. Carsten Høgh, claims: Nothing is cheap any longer, and that caused some tactical talks on whether stock managers would move to "defend" their positions as we enter Q4?

The fact that most of their "profit" this year has come from low quality stocks with no or small earnings - and from increases in multiples (S&P has moved from P/E of 10 to 18 today.....) would indicate some willingness to scale-down their holdings based on Carsten premise: If it's not cheap, it's close to being expensive - We have expectation that there will be move away from cyclicals and into Big Cap again (Tesco, Wal-Mart, Colgate, Coke, H&M, Diago etc.).

The overriding strong argument for buying stocks remains: cheap funding (read: liquidity), cheap US Dollar and cheap talk in Washington (Obama promises alto - but have much of the items on the G-20 can he ACTUALLY get through Congress?).....which are all good arguments, we have some idea, still, that the next two weeks will be the peak (Read old blog: http://steenjakobsen.blogspot.com/2009/09/next-big-trend-shift-comes-in-october.html)

We are getting close to this END DATE.... and our cyclical model indicated going in to Monday that the markets was slightly oversold, but the key for the next two weeks becomes how much further we can move up before the market finally puts in medium-term top........ We look at Fridays number as as a potential "game breaker" - but as always... it's not a science but more of guess.


We remain light in risk and we will be looking to increase negative play as Non.farm is out........for now... the momentum rules..

Safe trading,

Steen Jakobsen

fredag den 25. september 2009

Politics is war without bloodshed while war is politics with bloodshed.Mao

The week-end macro blog today with guest commentary by my friend Yoshi.

Yoshi wrote me nice e-mail last night and the content is the first real "new" research/analysis I have seen in years - you can always trust Yoshi for clear and concise thinking, but first to the order of G-20 communique:

Full text: http://www.pittsburghsummit.gov/mediacenter/129639.htm



The statement was longer than normal and full of promises... the headlines was as expected but the sub-text left me with feeling that the exit strategy is further ahead than market presently perceive it to be...

The financeminister was instructed to work on a transparent plan for exit strategies in their November meeting - and the world "leader" (sorry I can't write it without putting " " around it as it's joke to call them world leaders....) believes growth is back at 3% plus - and certainly the year-on-year numbers vs last year looks good......

Which way to play this? I don't know but.....good friend of mine commented: "... the only way for this to be done in good order would be to let all of the programs run out of time.....".. so the way to monitor this will be to make table of "initiatives" and watch last "sell-date".. if this is THE PLAN, then we are losing a lot of stimulus over the next 3-6 month, and this I think is main point to take away..

Enough about my thought here is Yoshi e-mail to me (which I took the liberty of making public before getting Yoshi's approval - but I deemed the email to be in the interest of the national security :-)

Nice week-end and safe trading,



Hi Steen,

I'm fine and amazed at how foolish this mkt is. We are on the verge of
protectionism and in the beginning of the end to the foreign capital
to the US (the Asians are serious about developing their domestic
consumer mkts, which will be far less open than the US).

I really think Obama will go down as even more corrupt than Bush and
his biggest mistake is Geithner who is closer to the powerfuls since
Summers will not pass any confirmation hearing in the Congress.

Right now, my biggest immediate concern is the CFTC's position
restriction on the futures when the interest rate differentials (one
of the major reasons the Asians would hold the USD) are gone. The USD
denominated commodities were acting as the balance to offset the
declining interest income and weaker USD. When the US increases tax to
eliminate the tax rate difference, then fait accompli to the USD.

I am amazed they are even talking about Tobin tax as if someone is
making sure the USD will be dead unless the US wants a new currency to
fraud its way out of the impossible USD liability.

Now, the Europeans are joining in on the protectionism (tariffs on the
Chinese aluminum foil and seamless steel pipes). There is a real
chance the Japanese (they have been quietly reducing the UST holding
for the last ten years) will sell the UST since their trade surplus
with the US is declining and Japan will need any available capital
including its reserve to pay for their domestic needs: free high
school education, the serious pension shortfall for the fastest aging
population and the DPJ's "Welfare Economy" policies.

The serious point regarding China and Japan is they are shifting their
economic models to more domestic oriented economies because they've
given up on the US consumers. If Japan, with the only 10% of the
Chinese population and much smaller land and even smaller natural
resources, would say they accept a strong yen, more domestic
consumption and Asian Economic Comunity, it would only mean one thing.
The US is becoming a liability to them. Look around in Asia, the
Chinese yuan & the Japanese yen swap lines with other central banks
are being extended like a spider web and they are talking about
establishing the Asian Monetary Fund.

As soon as Japan accepts China should take the leading role in the
Asian Economic Comunity and Asian Monetary Fund, I believe they will
becme a reality. It is natural that China leads Asia and would be more
acceptable to other Asian nations because of the stigma atached to
Japan like Germany in the EU.

These developments in Asia are not a part of the Team America. It's a defence mechanism to prepare for the harsh world to come. That's why I think we are near the flexion point in this mkt.


The golden rule is that there are no golden rules. Bernard Shaw

Short blog today as I waste my time waiting for the mighty policy makers utter their final communique nonsense. http://www.guardian.co.uk/world/2009/sep/25/g20-communique-Pittsburgh

This morning we had a "heated" argument in the office, the resident GOLD BUG Carsten was soooooo keen for me to read part of speech given by the mighty hedge fund manager John Paulson on gold.

The sentence which was supposed to get me excited read: "...and he observed that if one thinks about gold in a three or five-year time horizon (instead of hour-to-hour/day-to-day/week-to-week), the probability increases of gold being higher over time (most likely, much higher)"

What total load of nonsense! The probability of gold going up in 1 min, 30 min, 1 hours, 1 day, 1 month or 1 year is EXACTLY the same - there is no carry rates in Gold so even the Hold-and-keep argument is nonsense, but as this was said by the billionaire Paulson it be must right ????

This type of argument typifies all of us - we are arguing circular : There are NO.. and I mean NO real new analysis coming to the market, so instead we rank the quotes from the investment gurus according to their latest position bias. Makes sense. If its higher buy more. End of argument.

I think it is time for people to find the annual survey from Barron's on mutual funds - the one that states: Always sell the best performing managers in a quarter and buy the bottom performing manager - It's a mean-reverting game when it comes to "guessing" correctly - Even futurist miss 99% of all their calls......

On the note of Gold I will issue STERN warning on potential for all of you/them being disappointed:

CHART 1: Gold daily (XAUUSD).. Trend line - 10 days exit comes in a 990.00 - so does old top from June...in other words be forewarned - should gold close below 889.00 we could see some stops get started on the down-side. (Click on chart to enlarge)

Also, one of the top players in commodity trading: Larry Williams, whom I am lucky enough to share information with, he has a stern warning in his latest update video: http://www.ireallytrade.com/TVStation/LarryTV.html


There is clearly a consensus in the world presently that 50% of the world's GDP is in an inflationary paradigm(US, UK, China and Japan), while other 50% of will use "deflation" as the path to normality. This being mainly ECB and Europe.

The argument makes sense: Europe has the worst demographics and needs to increase competitiveness this will happen in deflationary environment as low growth enforces lower salaries, redundant industries disappear.......

The problem though remains: Who will buy the worlds goods?

Last a link with my very own top ranked guru: Julian Robertson (listen please)


Safe trading,

Steen Jakobsen

torsdag den 24. september 2009

Pigs can't fly or can they?

The gathering of policy makers in Pittsburgh (http://blog.pittsburghsummit.gov/index.php/blog/entry/sustainable_growth/) as of tonight reminded me of the "classic discussion" of whether pigs can fly or not? (http://tinyurl.com/ycfzb43)

Flying pigs aside - I'm being told from some reliable sources that today the S&P is up in 101% of the time, when S&P has been down on Fed day.... Yes, the counting rules in this world of arcane nonsense. I also note that Premier Brown is getting seriously "dumped" by his American sweetheart (http://www.guardian.co.uk/politics/blog/2009/sep/24/brown-obama-snub-michael-white) - which is for me quite interesting as if..... Brown calls an election the opposition has promised to test the Lisbon Accord with voters - With Ireland voting on October 2nd the EU could be much closer to ...serious crisis than presently priced in..

Well on to the matter at hand the G-20 - here is my two cents, and it's two cents worth:

  • The mere fact Merkel says there will no deal on Tobin tax at this G-20 meeting disgust me more than I can even tell you.. (http://en.wikipedia.org/wiki/Tobin_tax) . We are much closer to having the policy makers do a serious mistake than at any time in my trading life. Policy makers are high on their "success" (Creating articificial growth via expansion in public sector demand and state supported free trading regimes for banks..) - Any trader will tell you the most dangerous time to trade is when you feel invincible - statistically you have biggest chance of losing big after winning big. We are, in my simple and obscure thinking, very close to see a live experiment of "the law of unintended consequences"..... Odds: 75% of something "stupid" to happen

  • US dollar risk - do not ignore the French "sources" calling for weaker EUR/USD - anything north of 1.3000 in EUR/USD is a total joke and merely pushes European growth behind the rest of world quarter-by-quarter cyclically. You may not want to own US Dollar, but owning EUR will for the balance of this year could be worse...... G-20 needs to address - or rather return - to the "strong US dollar policy" - Summers/Geithner must understand that to continue to be competitive creating demand for US asset you need stronger/stable currency - otherwise the US dollar soon becomes the G-20 equivalent of Zimbabwe. If any surprises comes out of the G-20 the most likely candidate will be "clearer" views on the levels of currency in my opinion. Odds: Less than 20 pct.

  • Bonus regulation. Who cares to be honest? My trading presently does not exactly create expectations of a bonus. Seriously though, up-and-to the financial crisis the bonus culture could be rationalised(Close system with shareholders sharing risk/reward), but now.... with pretty much all the banks being public owned - it is, us, the tax payers who pay for dealers taking risk which is pre-guaranteed to work (The Central Bank lends the banks @ 0% - then they turn around and by leveraged Government Bonds @ 3-4 pct... if there ever was a FREE LUNCH this is it - and it constitutes a MAJOR MORAL RISK. There will be strong wording and it will ruin the bonus culture for better or worse. The bankers got too greedy - and all of the sudden the whole reason we have this recession is bonus!!!!!!! AW.. OCFGG##¤¤¤¤¤ - What a load of rubbish! - This nightmare we are in is based on: wrong policy decisions (Read: Alan-I-will-lower-rates-at-any-sign of trouble-Greenspan)

  • Volatility -promise me one thing, please! DO-NOT-GO-HOME-SHORT-VOLATILITY(gamma) over the G-20. There is only one way for rest of the year - serious elevated levels of volatility - Volatility is uncertainty of paths - This week-end could become the financial market equivalent of Churchill's: The darkest hour (http://en.wikipedia.org/wiki/The_Darkest_Hour)


This simple, humiliated, trader is still in strategic mode: short 1 unit S&P, 1 unit EURUSD and looking for volatility plays for next month.

Safe trading,


onsdag den 23. september 2009

It's all circular.. Mini macro note

Short note leading to "exciting" end to the week with FOMC (tonight), G-20 from tomorrow onwards, and Sundays German Election. We had our weekly investment yesterday and it was not much of an event to be honest - I will write the usual log for it later tomorrow, but bottom line

There are no signs of this "liquidity driven" market stopping for now..

Going into Fed and G-20 we note with some surprise a couple of central bank moves: Bank of Canada announced yesterday on their web-site:


Bank of Norway the today announced they were considering hiking rate

These are early leaders but it is clear indication that most centralbanks are now at least considering their exit strategy. This is ONE MAJOR MACRO change which needs to be monitored into-FOMC and G-20 - the consensus is for all meetings to "promote and confirm the bias for no-exit and loose monetary policy". Risk is for less "bearish comments" than expected...

The second and more relevant issue is the US Dollar: There is NO sentiment or positions supporting the US Dollar.... but with Gold above 1.000 US dollars and US Dollar falling each and every day the central bankers can not IGNORE the warning signals.

The risk from here is that the central bankers realise that a strong US dollar will be in the interest of the US. The only way to hold down the 10 year yield (as proxy for funding price of US deficit) will be to make the US dollar stronger in order for foreign investor to at least make money on the currency. Clinton understood this - and so did Summers who has major role in the new joke of an administation

I expect some periphael changes in US willingness to accept continued weaker US Dollar - if not at the G-20 then in Fed official comments...

Buy some 3 month USD c EUR p.. here - Europe is toast @ 1.4800, but as Jesper correctly says: Who cares? The politicians are afraid to do the right things as waning growth and rising unemployment are more "tangible" issues to deal with..


Remains the same - looking to exit long and go short...but I'm alone

Safe trading

Some links for you:

Fed said to start talks with dealers on using reverse repos


Stock rally will end within six months, Tice says:


FX Concepts: S&P has 2 weeks 'til tumble starts'


The Fed's dollar conundrum


Safe trading,


mandag den 21. september 2009

Where the telescope ends the microscope begins, and who can say which has the wider vision? Victor Hugo

This is note which starts a new investment phase for me - for most of the year I have been willing to trade intra-day and with the momentum, but now it is the time to move back into medium-term macro and respect the laws of economics/mean-reversion.

There is some evidence of the this week or next two weeks being the cyclical tops - which will be followed by a "correction" of 10-15% before we again goes into the year-end high for the year. The market is now driven by small investors and "late-to-the-party" types throwing everything they got to join the euphoria of how well things are going..... (Ignoring the queue of people joining the jobless ranks day-in-and-day out.......)

All of this is "sponsored" by:

  • Low interest rates and outlook for further 6-12 month of loose monetary policies courtesy of the politicians/central bankers
  • Out gap & rising unemployment across the world anchoring inflation
  • The cheerleader group consisting of politicians, central bankers and investment bank economist's every day supporting the idea things are not only improving, but they are all smarter than God.
  • An expected significant upside surprise in earnings based on this recovery "surprising" the consensus according to... the consensus (I know the sentence on it own does not make sense, but trust me that is the whole argument!)
  • A need to allocate to from ZERO income interest products to 100% allocation to stocks.
  • Sentiment which reminds me of 1999/2000 - there are more "smart" people telling me how much money they made in stocks last few month than you can fit into the new Wembley Stadium.

On the other hand there is absolutely some truth to the fact the Doom-sayers has been pronouncing the end of the world forever and we are all, the macro managers, guilty of projecting to Armageddon, much similar to this "dissing" of Zerohedge: http://www.zerohedge.net/ at hand in this link.

I have for the longest time been a "fan" of Terry Landry @ www.ttheory.com after reading the book: Pit Bull by Martin "Buzzy" Schwartz (http://www.amazon.com/Pit-Bull-Lessons-Streets-Champion/dp/0887309569) but to the point:

Terry is looking for top in Mid-October, and I have to add Terry is not prone to sentimental involvement in his trades! Presently there are two suggested dates: This week and next or slightly overshoot into Mid-October - we reached the overbought area Friday....but with G-20 this week-end in Pittsburgh it will be low volatility week, followed by in my opinion serious INCREASE in all VOLATILITIES going into month-end post G-20.

(click on chart to larger version)

Another of my favourite "friends" Mr. Fintag: http://fintag.com/archive/2009/09/21/ states today: "Today we reach the top of the equity markets, the top of the so called W and slowly but surely the overvalued fake market will crumble. In the meantime we look at some sensible news reporting from newspapers than may soon be non-profit organisations [Editor: They already are ...]"

The key advice for this will be: Buy VOLATILITY in any product this week...........

The development I expect this week will be.... some selling of today as we had massive option expiry this past Friday with gigantic volume going through - last time we had: option expiry/explosive volume the S&P fell 27 points! This is short note I wrote internally this week-end:


Nice run down ahead of Pittsburgh by Reuters - the market is looking for confirmation of V-shaped recovery, the improvement in earnings & political will to sustain the fiscal stimulus - the price? Politically: some sort of tough stance on bonus's and obviously
higher taxes for years to come.

There is growing believe in the market this will continue and I note the MASSIVE volume registered on Friday with no real effect yet indicating alot of money went to work.......

Adv. volume* 1,117,340,240
Decl. volume* 1,134,669,814
Total volume* 2,275,042,754
Closing tick +204
Closing Arms (TRIN)† 1.40 ...


Then the lead into G-20 meeting - there will comments upon comments on how the bonus's should be cut and every single politician will try to make his mark on the agenda. I noted one very positive comment over the week, watching the BBC World service, they said India now willing to discuss climate goals - this is a first and probably merely playing for the gallery......

Finally, we need address the issue of EVENT RISK presently at stake:

Last week Israel Premier all of the sudden disappear of to Russia? He was MIA for a while according to Jerusalem Post: http://www.jpost.com/servlet/Satellite?cid=1251804532464&pagename=JPost%2FJPArticle%2FShowFull - then later last week Iran get booted out Caspian Sea meeting by....Russia? http://www.televisionwashington.com/floater_article1.aspx?lang=en&t=1&id=13856 . This could be conspiracy thinking, but you can not ignore that the timing for potential strike by Israel into Iran is running out of time - was Israel seeking "indirect" approval ? This is something we need to monitor - impact on gold, crude, us dollar etc at stake.

Unfortunately history tells us in times of RECESSION is the time of increased risk for wars/conflicts....


Sold 1 unit of EURUSD @ 1.4717 outright - 1.47! EUR - think about it - unemployment only just starting to rise in Europe - full impact from recession will be felt in Q4 and Q1-4 2010 - I wish you all good luck if you are planning expansions presently - and EURO at 1.4700 is at least 17 figures too high, considering the biggest FX game in town remains one of: COMPETITIVE DEVALUATIONS (which presently has GBP(UK) in the lead......

Sold 2 units of S&P (1063 & 1059) - will buy some volatility when markets opens today.....

Bought 1 unit of BUNDS... 120.34.

No stops for now.. these are positions I expect to hold for minimum 30 days.....


Not only is the weather "peaking" this week-end so will the markets...it is time to look at your "emergency" plans...they could come handy..

Safe trading,

Steen Jakobsen

Twitter: http://twitter.com/SteenJakobsen

tirsdag den 15. september 2009

A hero is no braver than an ordinary man, but he is braver five minutes longer. Ralph Waldo Emerson (1803 - 1882)

Our family office had its first real macro meeting in a long time... with following conclusions......(or lack of it....)


The incoming data continues to be good although we have noticed some deteriation recently relative to expectations.

We are simple people and use the rough guestimate delivered on Bloomberg by Citibank as benchmark. (CESIEUR and CESIG10). The better-than-expected data topped around end of August and into early September.

This week have seen very disappoing ZEW but very good US numbers continuing the a trend of
"cyclical" difference between the US and Europe, where the US is perceived to be further ahead on the curve and hence should perform better. (S&P over STOXX50)

This week is full of data and it will be interesting to monitor the development post this week and going into the G-20 meeting in Pittsburgh 24-25. September (http://www.pittsburghsummit.gov/)

We should note from 10.000 feet, the paradox of better economic data still does not rhym with the high Jobless Claims and the rising unemployment.

The lead-lag factor does not explain why this "recovery" which many ivory tower economist in investment banks are busy calling much better than in 1930s (due to Industrial Production presently doing better -maybe slightly overlooking the fact there is NO MANFACTURING left in the US)......


The data still improving - but the velocity is dropping and a few "dark clouds" have been seen.

We need another fiscal stimulus, a new cash-for-clonkers, further expansion of Fed's balancesheet to keep the boat afloat....... but bottom line: No reason to fade the economics .....yet

Foreign Exchange

We had quiet a lengthy discussion on the US Dollar and it's direction. Jesper playing devils-advocate saying the pro-cyclical aspects of the US Dollar should be supportive (Improved balance of trade, Current Account and the US being ahead in the pro-cyclical loose monetary policy.

I, on the other hand, argued for the POLITICAL ASPECT being key driver- and here I have to add that one of the "macro mistakes" I have made over the summer has been to let my "hate" - and yes it is hate for politicians and central bankers cloud the decision making - the fact
they are implementing wrong policies, delaying the inevitable has NOTHING TO DO with our trading approach.(At least theoretically)

Politicians are simple people (Just look at Porno Berlousconi) - they try to do what they tell you! The London G-20 Summit roadmap has been followed to the point - the next main agenda being regulation .... and a hard one.

Back to the US Dollar here is my argument for weaker, a much weaker US Dollar:

The recycling of capital from the CONSUMING America to the EXPORTING Asia meant:

Lower yield, stronger US Dollar and a temporary equlibrium condusive for stock markets (bubbles). Now the US consumer is DEAD and gone.

The logic (I hear you laugh at me for using logic in this market :-) should be for rates now to go up, for the exporting Asia to increase their home bias and for the US to increase its domestic saving (which is happening)...... This is first part of the argument.

Then you add the geopolitcal aspect of China, Taiwan and now Japan increasingly trying to go it alone without the US on the foreign policy. Asia corridor policy I call it.

This week-end the new Premier indicated Japan no longer is happy to just bow and say: Ai,Ai.. Mr President.

They want their own footprint - own standing forces, which is new dimension.

Extend this to their allocation framework, their sovereign wealth funds, and a pattern of "less export of surplus" capital in the US markets and an increased investment in Asia region (Through stock and natural resources) and the US Dollar financing begin to look.... nervous....

We continue to believe China will "buy" Taiwan rather than fight it. It's cheaper and easier!

Well, we ended nowhere really on the discussion.

Being the FX guy I think both 1.5000 and 1.6000 maybe even re-testing last year highs is possible...but not in a straight line. The US dollar index could test new lows with the highs in the stock market coming end of September / Mid October.

We also monitor EURNOK and EURSEK. Selling EURSEK below 10.20 and EURNOK below 8.6000.


Accepting sliding US Dollar - but also acknowledging the MASSIVE negative sentiment in place.


We define this as the 9th ining. Our projected cyclical top will be end of September / Mid October. The Euphoria is bigger than the volume in the market presently, but never the less, it is paramount to sit tight on long positions in this market while the market overextends itself.

Looking for catalyst for top in place- I, personally, think it will be political or event based, but on the calendar there is several other options: Non-farm payroll, G-20 meeting, Chinese Communist Party Anniversary...... (add to the list yourself).

We also take due notice of the DIVERGENCE in almost all stock markets. Prices higher, but momentum indicators are not following, and the relatively low volume, but bottom line: We respect the upside.

The price target is roughly 1080/1120 on a overshoot. The present envelop top is around 1062.00 (as of Friday) rising 10 figures per week, ie. 1072.00 by Friday or two points a day...... Adding three weeks obviously takes us to 1090-00 region..... and the you add some VAT and you got 1080-00 / 1120.00 expected top.

It is important for us to stress that the top coming up most likely will be a correction inside this mini-bull market as we do no expect the polticians/central banks to back away before we move into 2010. In other words we are looking at 10-15% correction in October/early November, with a rebound having probalities.

Fixed Income

Jesper made key comment: Relatively to where equity is trading its to expensive (price) - Relatively to how we see the world in Q4 and 2010 it looks fair......

The point being - the US Administations wants/needs rates to be low to mitigate the the recast in ARM loans and the replacing of bank loans by issuance of bonds. The key dominator/measure for succes of US Administation is the 10y yield!

There are good Taylor-rules reasons why we could see 3% break....low inflation expectations, slow job recovery......(although we feel the 3% threshold will only be broken in tandam with a correction in the stock market)

The EXIT strategy was cancelled at Jackson Hole, and confirmed CLOSED at the finance minsters G-20 meeting recently - the upcoming meeting will be more of the same and some public a..-covering with tough talks about bonus' et al.


Considering the amount of "liquidity" floating in the system it is disappointing that commodities can not get a bid. The reason for this is relatively simple - China has stopped buying and storing - hence the small demand. Shipping rates confirmes this.

Gold - the team likes gold, but are slightly disappointed in lack of follow through above 1.000 US Dollar - I remain extremely sceptical, but need to reasses this view is US Dollar becomes crisis currency.

We note the extreme condition in Natural Gas - and the continued bid in Sugar.....



Beta allocation: @ 75%

The Alpha part needs to look at downside protection.

The strategy being to slowly take Beta down to 25% over the coming
three/four weeks...
Currency allocation: Short US Dollar, long SEK, long small JPY

This is no time for heroes..... be long, be happy....

Safe trading,

Steen (Jesper & Carsten)

søndag den 13. september 2009

The next big trend shift comes in October- It will be political driven.. this is the 9th inning...

Thousands Rally in Capital to Protest Big Government :


Seems the Americans finally feels hurt enough to start protesting....

The political headwinds of Obama seems to increase - haven't check the databases but this kind of rating can not be good for markets medium term!-

With the desperate Obama back from holiday(he increasingly looks more and more like a ONE-TERM President)....... this could one very interesting autumn.... looks to me like we could see more upside in September (past the G-20 in Pittsburgh which will follow up on the April text...)....before the topsometime in October with major volatility and trend reversals going on...

G-20 is all in on "talking markets back up). Read this status report on London G20 meeting ahead of this months.....(http://www.g20.org/Documents/20090905_G20_progress_update_London_Fin_Mins_final.pdf) and understand how committed they are to do exactly this in the order mentioned:

  • Restore confidence, growth and job - ticked.... they feel its done
  • Repair the financial system to restore spending - ticked - although Options ARM's and write downs still only 1 trl. US vs the IMF suggested 2.5 trl peak next year
  • Strengthen financial regulations to rebuild trust - THIS IS NEW 1stpriority..... (note also Germany's new over this week-end: http://www.ft.com/cms/s/0/4038e1fe-9f09-11de-8013-00144feabdc0.html?nclick_check=1)
  • Fund and reform our intern. financial institution to overcome thiscrisis and prevent future ones.... blabla.
The US consumer has been announced dead - the world global governments have decided to take their place on the demand, but now national budgets are close to exploding and Spain(with Ireland) has shown early lead by increasing tax by a full 1,5% of GDP (http://www.eyeonspain.com/blogs/SpanishBusinessNews/2229/spain-raises-taxes-as-budget-crisis-deepens.aspx)... more is coming to all of us...

Now... with Options ARM recast ( look at the word it explains itself -something needs to re-classified (Please, please read this link...: http://www.realtytrac.com/ContentManagement/RealtyTracLibrary.aspx?channelid=8&ItemID=5159)), the fiscal inbalance stretched, the politicians losing the game despite giving voters (read: bankers) everything they asked - the game is in its 9th innning, but where is the new trend / the break away ?

I have always thought and learned that MARKET TRENDS are dictated by POLICY CHANGES (always for the worse) .... so with Pittsburgh G-20 coming up, we are to be alert, flexible to where the next MEGA TREND comes from...

Personal feeling is that the DEMAND FUNCTION of resetting loans can ignite higher rates, that the Japanese talking about independent foreign policy from the US this week-end, could mean that we have come full circle:

This latest boom was based on the US consuming goods, and ASIA consuming BONDS to store the surplus - now we know the US consumer is gone, so why is rates still so low ?

Next move is to see Asian and Middle East selling bonds - it has
started as it can clearly be seen by the accelerating weak US Dollar

Finally, please read this excellent piece on my good friend Daniel Arbess of Perella Weinberg - a well deserved praise of him - not only a good trader but a perfect Gentleman...


Safe trading,


torsdag den 10. september 2009

False hopes? False breaks? Next 48 hrs key

Faith, as well intentioned as it may be, must be built on facts, not fiction--faith in fiction is a damnable false hope. Thomas Edison
I'm VERY disappointed in the follow through of Gold and overall on the "RISK ON" environment. My partner Jesper and I read the single biggest amount of POSTIVE reports from all types of asset managers yday they all had this theme:

  • Reflation is on... it's good for risk.... (Low funding, Yield curve,"everything but cash"....
  • Market will implode up... This from three or four major BEARS....
  • Politics rules the game - hence "relax" take some risk.
  • Valuations is only fair not expensive..
  • Sentiments bullish but this is different....

Then add charts like the blow:


(This is Auto regression on cash gold... V. short term 5 days- reflecting the maximum attention span of todays "traders"... ) Note the ADX above 60 back in time vis-a-vis timing...

Finally, bottom line issues:

The breaks in DXY (US dollar index weaker).. Gold above 1000 and Fixed income breaking down (reference 121.00 front contract in Bunds)...

Gold now below 990.00 - Fixed income too close to sell entry for my liking.. and post Bank of England today where is the DXY ?

Finally, I put NO faith in my own predictions.. but for Bank of England I look for BETTER THAN expected talk from BOE....... but then again been wrong before and often...

Conclusion: Wait to see if the above breaks confirms, be nervous about the RECENT steepness of trends in key markets..... 9-11 is tomorrow.....

This trader is trading EXTREMELY light.. but from RISK ON - now NEUTRAL to looking to go short RISK...

Safe trading,


tirsdag den 8. september 2009

Weaker US Dollar - Strong Gold first warning signal?

Well, it looks more and more like it's up September(risk on) - but what got us talking at todays morning meeting was the changes in fixed income (down), gold (breaking 1000.00) and the US Dollar(Breaking lower)

The main drivers of this upmove has been (in our view):
  • Low global yields - making it impossible to hold cash - hence banks rides the yield curve (lending at ZERO placing at 2-4%).... 
  • The outlook for continued low yields - the QE, then later the Taylor gap....
  • Strong US Dollar - a sign things are good......(although as I have written continuesly about there are also fundamental reasons for strong US dollar: + C/A )
  • Gold has remained in range 900- 1.000 all year (open: 957)...
  • Incoming data improving...
Now in early European trading some of these "conditions" are at risk.....

Gold easily broke 1.000 USD and GBP/USD took out 1.6440/50 and EURUSD took out almost all high bar the June 3rd high 1.4510ish....so now we need monitor the bond market for signs of "wanting more risk premium".... for now bunds looks well offered towards recent low above the  figure 121.00 (Dec contract)......

Why would this, if so, be happening.....Well to my mind this is by-product of the G-10/20 meeting this week-end'.

  • We are going to see continued loose monetary policy well into 2010.
  • We will also have the "stimulus effect" in the budgets. The budget situation in Europe and the US is groteque vis-a-vis the intended Stability Pact....... everyone is looking for more Keynesian help ... the invisible hand is at work, will work and HAVE TO work.... we have several key elections incoming and the how does not want to keep their chaffeur driven car courtesy of the voters? This could be first warning from bond market: IOU's are ok in the short-term, but if this game is going to continue then....we need higher RISK PREMIUM (fact is yields are at, or lower than when S&P was 10% lower.....)
  • Move from real money away from "home bias" - we have seen Denmark and other intra-Europe spreads go out slightly - is this result of the real money moving towards "foreign investments again" after almost 100% domestic exposure - if so... FX impact will be seen....(Japan, EMG looks sweet for these types...)
  • Gold offers the only "tangible" currency (you could add NOK also)... hence the risk appetite

The strategy from us has moved from one of "trying to pick tops"  to "intra day" trading - finding the sweet spot for the day ... .however we remain sceptical on the longivity of the this bull market - but nothing tells the truth better than your profit & loss sheet ;-)

Safe trading,


mandag den 7. september 2009

Labor day - the cheerleaders been busy...

Back in Copenhagen and over the week-end the G-10 financeminster met and the cheerleaders immediately concluded: This is good - RISK ON.....

However the only worthwhile comment I probably read over the week-end and this morning was from my old collegues in Saxo Bank Research David Karsbøl and Christian Blaabjerg who when asked why they saw market down 20-30% while other saw it up by the same amount replied: Because we are "Austrians" and they are Keynesian.

They could have added - and the investment banks are whatever it takes to paint the world bright and appealing.

The conclusion is correct.....but the mere exercise of trying to predict this market is utterly futile. Even the best "futurists" - only get 10% correct....so why keep trying ....

I do not prescribe to any school, partly due to my lack of intellect, partly because it really does not matter...... as a speculator.... the main ingredients is the amount of stomach pain you can take - and right now there is plenty of acid for the same......

The move off the high in S&P was classic divergence + high sentiment indicators, but even record high unemployment on Friday did not stop the plunge team from getting in line and buying into the close..... then this morning quarterbacking by the investment banks has taken the market yet higher..the incoming data keeps the momentum going on the bull side - and there is some light as seen in this "record of industrial production":

So... here we are: The Austrians vs the Keysian, the Investment bank vs. the Hedge Funds, the naive vs realistic ? :-)

Well I'm not taking side yet... our base scenario remains one off:

Down in September/October (Probably more likely in October than September due to the overfocus on how "baaaaaadddddd" September seasonal does - so expect range in September down in October.....

The Q4 overall should be positive: Looks like the exit from the stimulus has been postponed after the US forced other G-10 members to rein in the "urge" to normalise....and the Prez O needs to regain the political focus at home - what he does not need is a second leg of this crisis....

He has plenty on the plate with: Health care (note he is speaking this Wednesday to Congres, Aghanistan and Iran... http://tinyurl.com/nfckbm

So... the best "deal" right now is wait for further confirmation and accept the market is in "positive" spin if for nothing else due to lack of new information......


We remain short GBP into the Bank of England meeting this week...http://tinyurl.com/mlag6s

We are short USDJPY from today @ 93.01 - stop 93.55

Long Bunds on strong performance.....

Small short S&P and DAX - low conviction...... (Research shows day after Labor weak in 9 out 10 days with two positive closings preceding it...)

Short Crude.. still....

Short Gold... mean reversion..

Safe trading,


fredag den 4. september 2009

Delay is the deadliest form of denial. C Northcote Parkinson

European anti-Bank mood is changing rapidly...to the worse!!! (See below article)

In Dublin today, a place where the Government have less than 17% support in polls - three weeks before Lisbon referendum, but more importantly...the state government fund NAMA is going to announce the "price" i.e discount by which it will take over the "bad loans" of the banks in ireland.. (http://tinyurl.com/n39j5w)

I am EXTREMELY bearish on Europe, its fiscal positioning and its willingness to deal with this crisis - it smells of: Lets buy some time (Obama style) and see if this does not go away.. meanwhile the ordinary people lose their jobs as seen in Non-farm today - but hey:
Things are good .. the data is improving...... joke.. utter joke....Maybe it is time to buy some gold coins, store some water, and canned food....the market, the politicians, my friends all want an easy ride out of this.. but as you learn as a speculator.. .there is no easy way out...only hard work - over and out from Dublin...

Article below courtesy of my partner Jesper Christiansen....

Safe trading and nice week-end


RBS Told Not to Call Subordinated Bonds After Bailout (Update1)
2009-09-04 08:55:32.64 GMT

(Adds analyst comment in fourth paragraph.)

By John Glover
Sept. 4 (Bloomberg) -- Royal Bank of Scotland Group Plc,
the largest bank bailed out by the U.K., won’t call $1.6 billion
of subordinated bonds after regulators objected to using state
aid to pay holders of the lender’s lowest-rated securities.
The Financial Services Authority, the U.K.’s market
regulator, told RBS not to redeem early four series of bonds
after the European Commission stated Aug. 19 that banks
shouldn’t use government money to repay equity and subordinated
debt, the Edinburgh-based lender said in a statement today.
One of the four bonds, a 400 million-euro ($571 million)
undated 6.625 percent note, plunged 17 cents on the euro to 69.5
cents today, according to price data compiled by Bloomberg. RBS
is 70 percent owned by the U.K. government after receiving a 20
billion-pound ($33 billion) bailout last year and putting 325
billion pounds of assets into a state insurance program.
“The concern is other U.K. banks could be forced to follow
suit by the regulator,” credit analysts at BNP Paribas SA wrote
in a note to investors.
The Commission is taking a tougher stance on banks rescued
with government cash amid the deepest recession since World War
II. Northern Rock Plc, the first lender nationalized by the U.K.
in the credit crisis, said last month it would defer interest
payments on eight subordinated bonds with an aggregate face
value of about $2.74 billion.
The executive arm of the European Union already told
Bayerische Landesbank, Germany’s second-largest state-owned
lender, and Anglo Irish Bank Corp. to defer payments on
subordinated debt as a condition of getting government money.

State Aid Rules

Last month’s statement from the Commission “made it clear
that banks subject to restructuring under state-aid rules should
not use state aid to remunerate their own capital,” the FSA
said in an e-mail today. Calling the notes “would adversely
affect the ongoing state-aid discussions in relation to RBS,”
the London-based regulator said.
The cost of protecting RBS’s subordinated bonds using
credit-default swaps rose, with contracts climbing 19 basis
points to 321, according to CMA DataVision. Default swaps tied
to subordinated notes sold by Lloyds Banking Group Plc, whose
predecessors were bailed out by the U.K. in October, increased 9
basis points to 297, CMA prices showed.

‘Impacts All Financials’

RBS’s decision not to call the subordinated notes “clearly
impacts all financials where there is government involvement,
most obviously Lloyds,” said Marc Ostwald, a strategist at
Monument Securities Ltd. in London.
Lloyds is “working closely with” the U.K. “to
demonstrate to the European Commission that the group has a
strong plan to exit state aid,” London-based spokeswoman Leigh
Calder wrote in an e-mailed response to questions.
RBS said today that it won’t call the four notes at their
early redemption dates in October. Two of the bonds, with a
combined face value of 500 million euros, are so-called upper
Tier 2 notes, while the other two, totaling A$1 billion ($840
million), are more-senior lower Tier 2 notes, RBS said.
RBS was hurt after taking over Amsterdam-based ABN Amro
Holding NV, which left it saddled with bad debts and depleted
cash reserves, leading to the biggest-ever loss
reported by a U.K. company. RBS stock rose 2.6 percent to 56.45
pence in London today.
Credit-default swaps pay the buyer face value in exchange
for the underlying securities or the cash equivalent should a
company fail to adhere to its debt agreements. A basis point on
a contract protecting 10 million euros of debt from default for
five years is equivalent to 1,000 euros a year.

For Related News and Information:
Top bond stories: TOPH
Top Finance news: TOPFIN
For RBS bond stories: RBS LN TCNI BON
Credit crunch news: NI CRUNCH

--With assistance from Michael Shanahan, Andrew Macaskill and
Tony Aarons in London. Editors: Paul Armstrong, Michael Shanahan

To contact the reporter on this story:
John Glover in London at +44-20-7073-3563 or

To contact the editor responsible for this story:
Paul Armstrong at +44-20-7330-7185 or

Delay is the deadliest form of denial.

torsdag den 3. september 2009

Ireland, a two speed Europe and October 2nd new EVENT risk day

I will not claim to be an expert on Ireland...more so on EU ... but as macro manager the October 2nd Irish Lisbon Referendum has EVENT RISK written all over it..

I have in my primitive way tried to do a few links which could help out forbackground (Bottom of the blog)

Market risk:

  • EUR currency risk clearly,
  • Government Fixed Income spreads could expand & CDS the sam

Presently travelling in Ireland - and I found to my own surprise that the upcoming poll (October 2nd) on the Lisbon II agreement is in serious danger of being derailed despite ALL of the special deals done by the EU to get this through...

Below there is series of links with the last one - the new website by Irish Times being the most up to date... the issue here:

IF ---- Ireland votes NO again Europe is effectively in a position where it needs to move to a two speed set-up, as the Lisbon agreement is ratification of serious of changes... among them EU President ....

A two speed Europe.. is one step closer to... my ultimate call of a Europe being broken up... although thisi s 20 years from now.. ---- DO NOT forget that even the most simple monetary unions in history ultimately ALWAY breaks up as the economic headwinds comes in....

but.. it also a serious blow to a more competitite Europe etc..

This is NOT yet on anyone radar - to be honest it was not on mine,
before coming to Ireland yesterday...


Took profit on most positions on the lows yesterday... but now in the process of reselling...GBPUSD, S&P, DAX, and buying fixed income... yday was 90% down day, so either we get strong Friday rebound or there is imminent test of 980 critical support coming....

Safe trading,







tirsdag den 1. september 2009

Time flies like an arrow. Fruit flies like a banana. Groucho Marx (1890 - 1977)

Well it's now September...and market is busy trying to figure out which is more important:

The negative falling Chinese market (down more than 20% from peak...Chart: http://tinyurl.com/n784hw Hang Seng divergence vs. S&P ...

or the rising FEEL-GOOD-FACTORS as seen in the economic data....

Now let's start with the "improving data" :

First, data is late, very late relative to the decision making of a macro speculator - so late that they are largely uninteresting, this does not mean there is not people and investors looking over each and every data point - but let's face it: if you inflate an economy with TRILLIONS of US dollars the data will improve - the surprise is to some extent that they are not even better - the fact sentiment indicators now shows the economy is out of recession, is...at best useless - at worst confusing.

Bank lending and housing market is still falling, yes the fall is slowing, but there is NO CAPITAL incentive to neither increase balance sheet of the banks or.....for the home buyers to increase their bids - even 1-timers tax credit is hard sell, and when the first level of sales is done, the banks have plenty of homes on their books to sell.... please do NOT let yourself get carried away with this nonsense.

The sentiment data is now the most bullish in years..... my friends, neighbours and their dogs are all telling me how much money they are making in the markets (you seem to have forgotten the fact they lost 70% last year...but short-term memories are good for "investors"....)

Check this blog on the very issue: HTTP://www.tradersnarrative.com/will-september-kill-the-rally-2912.html

I can't say we are printing money, but somehow we are keeping an even keel in this market, waiting, waiting and waiting for some final direction to play out.........The fixed income market is stubbornly bid - and lately we have noticed FI carries more weight than other markets... we also

note how Crude is leading forex/equity: HTTP://twitpic.com/fz41k/full

The commitment is relatively low, but here is the present positioning:

Short S&P, Short DAX, short shipping, short Norway Index... - all with medium conviction. Entry levels relatively ok - leaving room for......stop loss --- Stop Loss.. two closings above high..

Short GBP/USD - short since 1.65ish - target 1.35/1.40 minimum - The UK is falling out of bed - as confirmed by PMI today..... also long DXY (US Dollar index)

Commodities: Short Crude since 64ish....

Fixed income: Long 90% of cash in short-term Danish Government bonds and small long Bunds...

August performance was small down......The Puma Macro and other funds will launch later this month with daily pricing...

Safe trading,