What happens when even Zero-hedge turns bullish? Small macro comment:

Happy Sunday,

I find and found this Fridays action extremely telling for this zero-rate, turbo Bu..S..., euphoria environment we trade in. The interview by CNBC w. David Tepper (http://www.cnbc.com/id/39341388)  catapulted the market higher: "....whatever happens is good for the stock market" - an interesting comment - not with any foundation in reality, but it reflects the admiration we are all prone to: Who dares fade one of the most famous billionaire investors - who went all in long in 2009 and so far is up 30%-ish.

That is the point - the media loves winners - and love them even more if their message fits the "bill". CNBC is now Obama's best hope for reelection. This Friday they rolled out Jack Welch (what a joke he is - GE is the biggest financial pyramid scheme in the world!) and Warren - aka- I am merely a simple guy from Oklahoma - Buffet....... An all star line up for people believing in hope and empy rhetoric. Market was looking for Gospel and got it plenty-

Then this Sunday morning I find Zero Hedge giving up to - in a, as always, well argued piece: http://tinyurl.com/33429a2 . The ultimate reversal indicator?
:
Now you probably feel I'm jealous of their success - who would not be? - but that's not the point: The world is not this simple: The Warren Buffet buy-and-hold theory will NOT work, its not working really now, forever, its precondition is exactly the condition we have seen since 1987: Lower and lower inflation and central banks willing to go all in........we are at ZERO percent effectively - will we go to minus 5 pc for Warren to continue to make money?

Then there is the David Tepper story - refreshing as it was, it was merely his opinion - he was clearly high on his own his own success(nothing wrong with that!) - and for my own experience in the very little success I have had, the worst time to make bold predictions is in a time of peak success.

He could be proven right in the direction of the market, but if so.. it will not be due to his arguments like: QE will make everything go up... but rather the fact by some miracle, that Obama/Geithner/Bernanke get some help from the REAL economy (which look very unlikely as of now)

There are really two worlds:

The one Tepper/Welch/CNBC/Buffet lives in: Zero rates, massive lobbyism from Wall Street securing NOTHING CHANGE in Wall Street-land, and free ride with Ben Bernankes Fed Helicopter (with a crash free design)

Then there is the REAL WORLD: One where housing sales continues to disappoint: http://tinyurl.com/25s6y9e. Unemployment continues to rise and consumption continues to decline.

Maybe my economics studies where obsolete but one thing I took note of was: Ultimately you need to remember three things: Housing and consumption leads the business cycle and productivity gains are the only "true" creater of growth.

I do not see anything Tepper/Buffet/Welch/CNBC said changing the gravity or constitution of these  economic facts: Low growth, low employment, low sentiment, but do not let that stop you from buying into this dream and hope scenario, if Zero Hedge has given up so has many others.......


STRATEGY:

Core views:

US Dollar: Bottom around here. Reached 50% retracement of whole move Friday - looking for serious correction into year-end.US dollar index

Fixed Income: Some more upside in prices (lower yields) - test of August low in yields likely and then its time to take profit and going into cash.Fixed Income shown via IEF ETF

Equities: Still some room before we hit "top of range" - several of my cycle indicators looking for correction - and soon..... ------ SPX chart w. cyclical indicators

Commodities: Gold took out 1.300,00 but.... volatility coming of and momentum falling..... still see more upside as it makes sense.....but...freight still coming off (China closing for growth), and some signs market is getting ready for lower growth.....Commodity overview

Performance: Been tough September (reverse of Tepper :-)) but it takes more than a bullish fund manager and CNBC to change my view - after all: I do believe in facts more than fiction.

Nice sunday,

Robert Reich: The best and most accurate interview/discussion I have seen this side of summer - MUST READ (note the commend on end of 2008/2009 crisis = classic!)

The other day had me sharing a cold, congealed chicken salad for lunch with Bill Clinton's Secretary of  Labor, Robert Reich, at San Francisco's posh Fairmont Hotel. We covered a wide range of market impacting topics, which I have summarized below. A Rhodes Scholar who dated Hillary Clinton at Yale, ran for governor of Massachusetts, and authored 12 books, Bob is never without an original thought, nor a stranger to controversy.  Today he didn't disappoint.

Bob says that easy money is creating new bubbles around the world, especially in China (FXI) and commodities, that will only end in tears. The Middle Kingdom is the first country where inflation may break out to the upside.

There is also a new form of protectionism that has emerged under the guise of competitive currency devaluations, where counties printing paper money are racing to the bottom. This will eventually force a revaluation of the Chinese Yuan (CYB), and there's nothing the Chinese can do to stop it.

A US GDP that is 71% dependent on consumer spending is unsustainable, since they can no longer afford it, can't get credit, no longer have a personal ATM in the form of home equity loans, are worried about losing their jobs, suffer under a huge debt burden, and are now unexpectedly having to save more for their retirement since their houses have dropped in value by half.

Scott Brown's surprise win for the Massachusetts senate seat will only cause uncertainty in Washington to explode, not exactly a stock market friendly development. Brown is really "a sheep in wolves' clothing," as he is ideologically distant from the right wing that is currently running the Republican party, voted for Massachusetts's state health care plan, and didn't dare to use the word "Republican" in his campaign.

The Obama administration committed a major error by devoting one third of its massive $870 billion stimulus program to tax cuts, which in this environment, will get saved, not spent. You might as well have buried the money in your back yard.

The TARP money, while succeeding in rescuing the financial system, only ended up in Treasury bills, and never made it to Main Street. This is what the public is irate about. The loopholes in the proposed financial regulations are big enough for bankers to drive their Ferraris through. The best way to revive the economy is to give money to the states directly, which, unable to run deficits, and can only cut spending and raise taxes. This will create a $350 billion drag on the economy during 2010-2011, in effect an "anti stimulus" that cancels out a third of the federal government's reflationary efforts.

I took two of Bob's economics classes at UC Berkeley, and know too well his wry humor, acid wit, and preference for backing up arguments with mountains of empirical data. Entering students are obliged to buy 400 pages of photocopied charts, tables, and other raw data about the labor market which they are expected to commit to memory by the end of the semester. These are not basket weaving classes.

Bob warned me not to take his investment advice, as he bought his home in Berkeley at the 2006 market top, just before it dropped in value by half. On top of that he has had to eat a 10% cut in his Berkeley professor's salary forced on him by drastic state budget cutbacks. UC Berkeley is the crown jewel of public education, but the state has little choice but to starve it to death. This is not good for the long term future of the Golden State, which has to create the educated class to earn the wealth to pay the taxes.

The real kicker of the lunch was Bob's forecast that unemployment will remain stubbornly high at 9% a year from now. This is going to be a big problem for Obama in November. The jobs that have been exported to China or replaced by machines aren't coming back. Because of the arcane way in which the surveys are conducted, someone who isn't looking for work isn't counted. But when the economy starts to improve, when they do start to look they are newly counted as jobless, causing the politically sensitive figure to shoot up.

To avoid this trap, it is better to look at the Payroll Survey released on the first Friday of each month, which gives a much more accurate read on the economy. Even still, with the average work week at a record low of 33 hours, employers will make their existing staff work longer hours before they hire anyone new.

As we parted company, Bob left me on an upbeat note. "The good news is that the Great Recession of 2008-2009 is over. That's because it's now 2010."

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on "This Week on Hedge Fund Radio" in the upper right corner of my home page.

Two charts which run counter to the RISK ON scenario being built - and some indication of overboughtness in risk on

I talked about this one last week - and it seems my contacts were right - also getting daily fixings for Iron Ore ships - and they are way down on last month and now last wek... i.e: China has come to a standstill - the office explanation being: ...less electricity and several factories told to shut down!!!

http://stockcharts.com/h-sc/ui?s=$BDI&p=D&yr=1&mn=0&dy=0&id=p92454611824&a=208643553

also:

I noted this going through my charts this evening: Kind of strange considering the "usual" correlation of higher stock market - lower volatility. I do realise that "uncertainty of path" is higher than ever, but market seems to talk clarity bvlallbal:

http://stockcharts.com/h-sc/ui?s=$VIX&p=D&yr=1&mn=0&dy=0&id=p08508167790&a=208063813

and THE favorite market of all: High Yield Bonds - coming off - finally?

http://stockcharts.com/h-sc/ui?s=HYG&p=D&yr=1&mn=0&dy=0&id=p68092068102&a=209180512


Finally - S&P: http://stockcharts.com/h-sc/ui?s=$SPX&p=D&b=5&g=0&id=p38683252441&a=208565770

Night

“Take time to deliberate; but when the time for action arrives, stop thinking and go in.” Napoleon

It has been a while since my last macro report, this is due to several things:  Having had to close my books/accounting in the family office, lack of directional sense, confusing price action and simple lack of something to write.

We are at major cross road for the markets here. The Keynesian way is up on points as low rates continues to feed optimisme and data manipulation out of China adds fuel to the fire.

China, BIS rules and divergence

The BIS III became so watered down it makes no sense - and I note with great interest how Soc. Gen this morning got excellent piece called: From Basel to Beijing - where the main points are:

• China is enacting tighther requirements which makes Soc. Gen conclude: "This is equivalent to a very effective monetary tightening, regardsless of what level the interest rates are"
• Chinese banks has major time bombs on their balance sheets: Loans to local governments and affiliated investment companies.  (LIC+ Local government loans stands at 7.4 trn CNY + 11 trn CNY or 1/3 of GDP or 300 pc of total fiscal revenues)
• Still time....before the local government loans turns bad, but the risk is very real. And to prevent the problem deterioating or re-emerging in the future, what China needs more than banking capital is a thorough reform of its fiscal system.

Strong words, but it seems "something" is going on in China:

• Divergence between US stock market & Chinese market: China vs US stock market
• Freight - through end of last week, the Chinese were busy contracting bulk ships, but all of the sudden the demand has dried up up! From good friends I hear market is about to come down hard....watch the Bulk-freight from here!   This is the broader Baltic Dry Index: Baltic Dry Index

Competitive devaluations

There new game in town - you only need to consult your local Financial Times to see this:

• JPY intervention
• SNB intervention
• Race to the bottom

We are now seeing serious "managing of foreign exchange rates" - the only lever left in the system which untill this year was left untouched.

The irony being Europe would probably, not correction, would have seen major devaluations during the ERM crisis in May, but did not - they are now slowly, very slowly trying to change the institutional system based on long-term goals of sustainable budget deficits and growth targets (there is still the issues of: demographics. lack of producivity, excessive tax but that's another story)

This is NOT the way we get recycling of global imbalances: We have China as the main culprit for now (with the US) fixing their rates. Everyone is playing game theory - doing what is best for themselves ignoring the total utility function is getting lower and lower due to this policy.

It is interesting to see how this develops, but the market response has been clear: Long Term gold chart and more importantly this time all commodities are bid at the same time:  Commodity overview

CORRELATIONS IS RISING ACROSS MARKETS ==> higher volatility and potential for MAJOR DROP - but the "Plunge Protection Team" is doing great job in keeping stock market bid, bid and more bid....but it time running out?

No one knows, as always merely simple European fund manager.

Good luck,

Winston aka Steen

Greek debt warning .... starting to look ugly again...

SHARES IN GREECE'S NATIONAL BANK <NBGr.AT> DOWN 10 PCT AFTER CAPITAL
RAISING ANNOUNCEMENT

KEY KEY KEY today in Europe - also Vanity Fair article doing the
rounds: (Michael Lewis)

This market is getting very nervous - Europe Crisis 2.0 ? While Obama
speaks tonight, market seems caught long the euphoria of last week.

NBG's Greek debt warning:
http://ftalphaville.ft.com/blog/2010/09/08/336896/nbgs-greek-debt-warning/?updatedcontent=1

Vanity Fair:   http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010?currentPage=all

Greece 10 yr: +970 bps - from +960...

Analog July 1987 vs 2010

Interesting chart by my partner Jesper Christiansen:

http://twitpic.com/2ks2c1

Hmmm.... BUT market is extremely bullish going into non-farm - there
is an almost overeagerness to buy the market - tech. looks bullish,
momentum v. bullish....AND Obama speaks at 10 am post the numbers ...
to be honest
I have no clue on non.farm or the next 1 week but to me this is merely
short-term recovery from oversoldness - the fact remains all my
leading indicators points much lower for now.... Richardo theory is
the main economic discipline to follow.

http://en.wikipedia.org/wiki/David_Ricardo

Risk wise I got about 10% of AUM invested in medium-term downside in
equity & weakness of US dollar.(which is expensive these days.....)

Nice week-end

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