All change again....Closing long with loss of 8 S&P points...

Two announcements this morning:

1. I closed my long position based on "hope" & some QE-talk, but this morning WSJ leak, which has been known by insider since FOMC meeting makes for the catalyst: Fed split on decision--(click for full story)

2. 40 years after my football career started it ended in tears - yes, it is an important thing for the markets :-) Too many injuries: broken wrist, angle & now shoulder displaced is too much to ask this old body of mine, so this is the end of football for me (soccer)......

Here is a few charts supporting the view - it has too be said that the market is VERY OVERSOLD - but momentum seems to continue on the downside, the Monday action was particular poor considering Monday-Tuesday traditionally is up-days.

My main model: Looks like towards lower end of range: 1040-ish..

The safe benchmark model (designed to keep us in market long & short)

The long-term model. Sell below avg. long above

Otherwise the only REAL ITEM on the agenda this week is meeting in Jackson Hole, where Kansas FED invites all the central bankers & policy makers to a seminar. There is high expectations that Bernanke will give new insight into his & FOMC policy on QE et al.:  FED agenda and text of Bernanke speech

With todays leak it has become apperent that there is major discussion in the FOMC on how to proceed and I note several media carrying the story that instead FOMC should HIKE rates - to secure we do not go into deflation - C'MON that makes no sense, but it all boils down to: Market is UNCERTAIN - and volatility is defined as..... UNCERTAINTY of PATH - hence we will see very nervous market with several doom-and-gloom predictions thrown in....

Good luck,

Is the QE2 the new Titanic? Macro note

Macro
---------------------
Strongest view:

US growth heading to zero or below

Reaction

QE in both UK and US in Q4

UK will most likely lead due to severe fiscal tightning...

US trigger will be shift to my view in growth OR stock market
falling....(Sub 1050/30 s and p)

ECB will not follow - Weber won the QE debate and more importantly I
see the new euro SPV being used to capitalize banks AND taking "bad"
sovereign debt of ECB balancesheet -- creating bigger monetary and
policy flexibility for ECB

Medium term forecasts;
------------------------------------------
The mutual fund, pension, and SWF asset management model is under
threath from several angles:

1 demographics now headwind on growth +0,5-1,0 pct-points (reducing
expected return by same)

2 the equity premium has disappeared(studies estimate it to be 4-6
pct) and this means the YALE model is underperforming(getting overpaid
to hold illiquid assets) - the 2008 crisis showed us that in time of
crisis are all illiquid instruments trading as leverage equity w
discontinued price function- fat tail distribution)

3 the 60/40 model dies under #2 as it is really 80 long equity and 20
fixed income weighted - problem being bonds has been outperforming(due
to low inflation and policy response cycle) ---so now the 'new black'
in allocation should be --- 80 fixed income and 20 equity like
investments whichs risk weighted wud be 60/40 !!!!

4 who wants to pay 2/20 for zero return ??? Same goes for private
equity leverage plays ( vs unleveraged)

Implications?

Big reallocation away from equity into fixed income, and more
commodity, and true diversification...(ironic that best and cheapest
put on stocks market has been......fixed income( and high yield good
credit)

Secondary medium term:

Velocity at historic lows - considering that growth equals monetary
base x velocity - there is need is need to either further increase
monetary base(political trouble) or work to increase volatiity(loan
demand and loan supply)

The risk being Weimar like explosion in velocity (during two weeks the
german lost all faith in reichmark and velocity(and inflation)
exploded as major disbelieve in purchasing power(US dollar long term?)
-------------
Positioning

Long equity since last week - looking for month-end rally based on
Jackson Hole hope for better outlook to economy(combination of hope
for QE and stimulus going into midterm election)...and slight
short-term oversoldness... Looking for retest of August high - but see
market having put in major high for the year)

Net selling by September 1st and we will begin long slide down(target
sub 666) over next 18 month.

I expect sell of in sep/oct then big reaction on forcefull QE.2 then
slow grinding down on growth headwind, higher unemployement,..

Long s and p
Long stoxx50
Short eursek
Long gold futures and etf
Short REIT etf
Long usd index
Long jpy index
Long crude futures and etf
Long freight companies....
Long non-listed private equity investments unleveraged and
turnaround/credit stories ( headhunting, fund management, newsletter
publicist, and freight)

But major bet will be when August runs out--

Will be long 30yr year US vs 10yr US (Fed will need to lower rates at
that tenor)

Long Gold ( real-rates falling)
Short USD dollar, Long EUR basket
Long Fixed income
Long high yield corp debt
Long utilities

...And the answer to the headline quesion: No, but it's not a lifeboat either..

Adopting long positions in S&P and risk on overall....(click on chart for larger version)

As mentioned early I turned my overall position around to NET LONG
from NET SHORT based on the below chart work.....
Positions initiated:
long S&P @ 1071.80
Short EURSEK @ 9.4953
Long EURJPY @ 109.58

This is NOT new bull run, rather is the final test on the upside and
we should not exceed early August high - and then we will prepare
ourselves for new lows coming in September/November period.
The market will keep hoping for QE2 - or more stimulus......for now we
will buy some more hope....

Taking profit on all positions - positioning myself for end-of-month rally ...

More later but my technical work indicate market is oversold going
into FNM/FRD tomorrow - and several sources of retail benchmarking.

Market too bearish and we have reached critical conditions for going long ......

Covered last short in S&P @ 1073.75
Long EURSEK @ 9.5075
Long bond call sold @ 1+ figures profit.

Waiting to go long as I need to do some work - but I do NOT expect
August high to be taken out in this shake-out of the weak shorts.

Deflation link (must listen) & Early thoughts on 2010 2nd half

Long note this week-end but here is a must see interview w. John Makin:

http://www.businessinsider.com/aei-john-makin-2010-8

http://www.aei.org/scholar/40

Still got the same views:

* Collapsing US growth - my old theme...

* Gold long

* Stocks short

* Short SEK since early August on Debt office planned selling of SEK
plus cyclical growth top in place....

* Looking at shorting deflation industries: Autos, housing and banks.......

* Looking at how "equity premium in stocks - the fact yoy get paid for
owning something less liquid than cash/bonds is going to collapse" -
ECB put it as 500 bps when investing in banks in 2008/2009 - is it
likely we will get less than 100/200 bps going forward as holding
cash/bonds even at these low rates - earning pretty much zero after
inflation is better than owning stocks w. negative 5-7 pct ? The
whole "spiel" in last built up phase was Yale model - getting paid to
own illiquid instruments - 2008 proved it did not work - now we are
all realising owning 60/40 stock/bonds allocation is really weighted
80/20 stocks.. (volatility higher than bonds meaning you need to own
80 pc bonds and 20 pc to be truely 60/40) ... this has massive impact
on pension schemes ...

* Looking at demographics - getting convinced that both Current
Account & growth highly correlated to ratio of "prime age" population
to total population - meaning we have seen peak in growth potential -
forever! ...

Nice week-end

Non-farm as bad as expected now on to FED meeting next week...

These numbers are bad news for Obama AND we are getting to the RIOT
point in my cycle analysis - this next week could make or break this
year performance for investors:
FED to meet Aug. 10th :
http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm#6274
- They will most likely restart buying treasuries (1 trillion worth)
==> Buy Gold.
My favourite tech-model have 1140 top - but its falling and the April
high WAS the high for this year........most likely....
My SPY w. MFI model also indicating lack of REAL buying.. note how MFI
below does not reach same level as other peak... actually falls!
http://stockcharts.com/h-sc/ui?s=SPY&p=D&st=2009-01-01&en=%28today%29&id=p00268769628
To top this of - this is massive season for non-conventional market timers..
More this week-end, but this being early warning that next week will
be potentially "explosive"...
--

1140/1150 summer high test?

It is the most dominating projection of the market all summer and pre-summer for that matter - the key becomes Friday's non-farm pay-roll which is bound to be poor.

I note, with some distress, how small business survey by Well Fargo last night managed new lows for the series, and my favorite forward indicator is looking at minus 3 pc growth in consumer segment! In other words we are getting desperately close to the boiling point of the market and we will see the long expected negative moves in Q3 and Q4 - for now the market is skirting on low yields ( for longer), more stiumulus coming (they think), and good company news, but alas.... I tihnk the April high still constitutes major high and that we are now in classic re-test of high and the gravitity ultimately will take the market down.

I will be off line for a few days checking out the facilities in Mallorca, but ......will be back to time the sell-off.

Good luck