Macro Digest: ECB's non-surprise and we have all gone bonkers..

ECB cuts REFI - big surprise says market but as per always its ignoring even most basic understanding of monetary policy and politics. Even Bundesbank would have voted for rate cut as monetarist have one thing in common w. Keynesians: Fear of Deflation. For both camps cutting interest is THE remedy.

 

Market is busy saying this is signal on FX rate, which of course is part of explanation but the REAL DRIVER economically and politically is DEFLATION fear. The "recovering Spain" CPI have dropped from +1.8% to +0.1% in less than ten months. Yes ten months, that not exactly a sign of economy coming back..... I have bought big DAX put Options on this rally.... spot ref. 9160.00 - buying 8700 DEC (See attached....)

 

Our models still sees strong end to the year but I'm buying DOWNSIDE protection and to be honest as a rare exception I trust myself more than the model (happens 1 in 265 trading days...) 

 

Why am I fading the model:

1- CPI which if continued will have us in deflation by Q1-2014
2- Europe registered higher unemployment ever.
3- Spain CPI have in less than ten month dropped from +1.8% to +0.1%
4- Commodities continues down
5 - Dr. Doom - Copper and CRB continues down
6- Tapering is WRONGLY being moved forward in date due to... hold on dont laugh: Two academic papers!!!

One simple lesson from his financial crisis:
Market impulses and changes is:

90% politics - So does the "expected call" fit or not the political narrative - (Hence: NO chance of tapering while Obamacare, Yellen not actually confirmed, Bernanke will not be allowed reign supreme as he is sitting duck.......)
5% practical - actual rea life need for change..
5% fundamentals...

I must admit I prone to smiles these days - The world has gone totally bonkers..... enjoy this last frothy part where stock market is up and down 2% each day .... its sign of worse to come not better...unfortunately…

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
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