Weekly Investment meeting (May 25th 2010)

This mornings meeting had several key themes but probably the best way to show how the world is split down the middle with one side continously qoutting "excellent fundamentals" as main reason for coming bull-market, while the price-action and the logic dictates we are at the end of the road. My partner Jesper came up with this chart:

The good fundamentals, the accomodative policy et al constitutes the tip of the iceberg, the sovereign debt, balance sheet destruction (of banks & nations) the part below the water.

I do not think I need to put further words to this.

On the S&P and equities overall we had close look at support levels and potential support level. Clearly the market is oversold now, but at the same time the SOVEREIGN SPREADS and CREDIT SPREADS continues to expand!

Above is the spread between Italian bond futures(BTP & the "insolvent") vs the Germant bond future (Bunds & the "solvent") - the spread exceed 13.00 again this morning - closing gap from the Monday past the 1 trillion EUR bail-out plan. It seems for now, that the ECB is losing this fight quickly. A slippery road.... is .......slippery Mr. Trichet!

but.. on levels.. we think the high in June of last year(2009) is important. 

The initial top moving of the low in March could constitute some support for the S&P - this level is: 930/940 in the S&P (Yes, it is a further 10% to the downside), but the interesting thing being that STOXX50 the broadbased European Index touched its - June high this morning (2445-ish) - showing the massive under-performance of European stocks to the US.

No wonder people are confused and wanting to believe in the mighty rebound; I think of one particular travel-writer, sorry economist, who wrote this week-end: "I learned as a young man not to fade the charts" - and then he goes on to why 200 dma this time will not work as indication of further loss' - He may end up being right, but for the wrong reasons, but I guess in "economist-land" it does not matter why you are right (or wrong) as long as you crack a good joke.

Our bottomline:

We are respecting and looking for some action from ECB, EZ or the US over this coming week - the Dirigism' is not dead, but even with our livid imagination we have a hard time coming up with a "encore" for saving the world as:

• Intervention - tried did not work
• 20 years of easy monetary policy - tried did not work
• Lax regulation - tried did not work
• Biggest one-off stimulus in economic history - tried did not work
• Biggest co-ordination on goals (with no operative measures) since Marshall-help  - tried did not work
• Transfering massive help to banks in order to keep the system going - tried did not work
• Tax cuts, house benefit, tax benefit - tried did not work

Well, we got feeling the 'fiscal austerity' will soon only be dreams of such measures, and we will see another major stimulus plan being implemented - probably in Seoul at the G-20 in November?

However friends,

We may be wrong - let's hope so, but for now please promise to keep your risk low, liquid - rather lose the first 10% of a rebound than risking 50-70% of your capital.

Winston