MADOFF FALLOUT KEEPING MARKETS DOWNBEAT

Market participants still trying to sort out who got hit by the Madoff fraud. A few disclosures around the globe but so far just BNP Paribas and Santander loosing big on this. We will see more disclosures as this unfolds. NDA SS was the sucker in Sweden with 43MEUR of possible exposure. SWEDA SS took their time, but finally announced they had no losses linked to Madoff. US markets trying to rally into black in the final 30 minutes, but traded off slightly in the end. Volumes anemic.

YAAAWN...!

Pretty Boring day tradingwise. PW from ELUXB SS, worse than expected sales numbers from HMB SS and ERICB SS trying to sneak a PW by us in the saturday edition of Dagens Industri. All expected if you are taking recent macro data into account. We are in a de facto recession. To expect growing LFL in HMB SS or to take ERICSSONs predictions of a flattish market seriously, you have to be mentally challenged. That said we acctually got a push upwards in the morning session, mainly driven by performance in Asia. As the day went on things deterioated, closing near session lows. ELUXB SS losing ground in the afternoon, ending almost 10% down. Volumes close to non-existent across the board. All in all an uneventful day. Let´s see how the US holds up.

BAILOUT...ONE WAY OR THE OTHER

No surprises there. Senate says no, Bush may tap into TARP funds. Fact of the matter is there is NO way this bailout is not going to happen. Is it the smart thing to do? Probably not, but that is really not the point. Obama more or less took office (well...not really) on promises of major economic stimulus. Wall Street first, then Main Street. Obviously GM, FORD and the likes are making cars no one outside (or inside...) the US wants to buy. Environment becoming such a factor these days it cannot be ignored. The plunge in Stock prices on the back of the Senate vote was a sure "buy on dips", since the outcome of this squabble is a given. Across the pond stock recovered with Bush statement as a trigger, but I am pretty sure stocks would have recovered anyway once people realized the vote is just republicans using the only real power they have left. The rescue bill will pass with or without TARP funds. In Sweden another telecom profit warning, this time ALU FP (Alcatel-Lucent), sent ERICSSON down. If anyone besides my wife reads this blog, this will come as no surprise. What is remarkable though, is ERICSSON IR stating they still see a flattish market 09. Granted, they look at different segments of the market and have limited exposure to fixed line, but still. The stock traded down to 57 lows before rallying a bit with the rest of the market. Two days ago it was at 66 and change. How about that for volatility? Timing the bets is really key in this environment. Banks still suffering with SHB SS NDA SS as main loosers. SWEDA SS still trading at or around the strike of 48 SEK. Folksam, AMF, AFA having major incentives of keeping it above the strike to limit their obligation in the stock issue. Baltics still a major factor and it seems everyone with the slightest interest is going out of their way to downplay what will acctually happen if and when currencies devalue. SEB going as far as to say it may be a good thing compared to alternative scenarios. I smell a rat. No real opinion on the market fropm here. Most likely it will rally into the new year, but no real conviction. I´ll get back on that one.

A BIT OF A BREATHER...BUT NO REAL PUSH.

So bulls finally took a day off. ERICB SS leading the way down with a slow, tick by tick descent. Worst kind if you ask me. If you´re short term (i.e. daytrading) it is hard not to take profit when things calm down, on hopes that you can reinitiate the short at a higher level. At least I got something right, since I been pleading the case for a short trade in ERICB SS. ML downgrade sealed the deal. Kept sliding in the US closing just shy above the 59 SEK level. Next week/end of year can still be quite interesting. HUGE open interest in EUROSTOX50 2600 level and this will surely work like a magnet the closer to expiration we get. Other storys to watch is a potential squeeze in SWEDA SS common stock. Really hard to borrow and inching its way above the 48 strike. What makes this interesting is pretty much the same way VOLKSWAGEN became interesting. Longs of SWEDA SS selling the stock, buying the rights to get preferred shares. Others simply shorting SWEDA SS to do pretty much the same. Well, they may find out the hard way SWEDA SS is not really the same as the preferred and get squeezed. Will be interesting to follow. SWEDA SS only bank to close in black today and financials taking quite the beating in the US probably on the back of DIMON´s comments on a possible 30% default rate on their mortgages portfolio. By the way, buyer of futures in the OMXS30 making sure the close was totaly BS in the future. Cash down 11,55 points, future down 2,75. Happy client? Think not, unless screwing up the close was his idea in the first place....

PPM MONEY PLUS U.S. BULLS EQUALS BYING SPREE

Late US turnaround Friday, despite disasterous Macro data, signals continued Bear-Market Rally. I´m calling it like I see it. Huge moves upwards in thin markets can be nothing else. PPM money coming into markets by close tomorrow and it is being fronted left, right and center. Index heavy stocks posting huge gains, with NDA SS, ERICB SS as main drivers, but also cyclicals (ATCOA SS, VOLVB SS, SSABA SS) the rest of the banks and Friday´s mega looser, HMB SS. This will no doubt reverse by tomorrows close. Be sure to look at short NDA SS vs long DNBNOR SS. Divergens a bit to excessive the past week or so, despite similar problems with shipping exposure. One trade that is looking better and better is to play a short in ERICB SS. If not outright, one should look to short some upside calls in January. I would be very surprised if they did not somehow revise their outlook for sales, market growth, and margins, given what is happening to CAPEX across the board.

SCANDI BEARS....LATE RALLY US

Scandis took quite a beating. Couple of Exceptions, AZN SS, SWMA and ERICB SS. Banks was hit hard. SEB was delt severe blows during the day and closed at day low after a late circuit breaker. GS pissing out stock at the close. Fear of baltic trimming of europegs main reason. Hard to believe they will make it through all this without some infusion of capital. Luckily owners INVESTOR have pretty deep pockets. AZN SS managed a rally despite some newflow that could turn out to be bad. Asthma drugs showed risks of hospitalization or even deaths, but for Symbicort (combo treatment with stereoids) the risk was not statistically significant. HOWEVER, one could argue it is hard to find brightspots in news that your drug may cause death... ERICB SS still trading strong vs market. My guess: PMs are underweight. The stock has been out of favor for some time and with SEB downgrading HMB SS, the only viable index heavy alternative. In my book ERICSSON will run into serious trouble 09, unless they prepare for a weaker market. Flat is just not going to cut it. Some storys around saying it´s the Brasilian real that is helping the stock right now, but that seems a bit far fetched. OBX closed at new lows and you don´t really have to think hard on this one. Oil at four year lows will do that to a market mainly driven by oilprices. A late rally in the US will set the tone for monday open. ERICB SS gaining even more momentum, closing at combined session highs of 60.80. NOK1V FH having some trouble picking up steam. AZN flying another 10-12 SEK. This Weekend may give some insight as to what Washington will decide regarding the Autos. Get back on that one.

CONFUSED...WELL A LITTLE

Markets all over showing strength despite early sell off. Nordic morning trading session had a big furures buyer and this time he/she got company. The buying faded midday to really gain momentum as we got closer to the calls. Banks traded up bigtime, especially NDA SS (probably basket related) and SHB SS. SHB SS closing above the 140 level which could turn out to be a break on the upside. Too early to tell and I´d gamble a short here for now. If

PROFIT TAKING?

What started out as profit taking soon turned into something really ugly. For Bulls it is really important we don´t push through recent lows. OMX hesitated at or near the same level as before and then it was all downhill. Shorts in ERICB SS could be put on as late as this morning and cashed in by closing. Looking for support at 52,80 but we plowed right through in the US. Volumes light as of late. I was expecting a breather, but this can very well set the pace for the rest of the week. We are expecting some PPM money (pension fund) into this market and usually what happens is that PMs front the inflow. This year will definately be trickier as rules have changed. Still, I expect markets to pick up towards the end of the week with index heavy stocks as clear winners. ERICB SS, NDA SS, HMB SS, VOLVB SS, TLSN SS should all have decent rallies come thursday or friday.

SHORT AND UNCOMFORTABLE

SO...I´m short the OMX. I would normally be more than OK with that, but the problem is the OMX is in squeeze mode. Guessing when that is over is not really what you want to do. Market is overshooting in both directions and the way it has been overshooting on the downside makes me rather uncomfortabel being short. Oversold is all I am hearing right now and that makes me want to take the non-consesus view. I do believe we are going to take a breather, but I will be fast on the trigger to cover if things are not moving my way. Look for profit taking in ERICB SS, HMB SS and maybe some of the cyclicals. Swedish banks should come down somewhat compared to Nordic peers except maybe for SWEDA SS.

STmicroelectronics/ERICSSON

PW by STmicro passed relatively unnoticed for ERICB SS. This JV/Co-op is still relatively unknown and ERICB SS should be somewhat weaker on the back of this. True, it was out early friday, but with ERICB SS still in squeeze mode no real dent in the stock price was made. The weekend will give investors time to digest the story and should at least lead to some profit taking. STMicro updated the view given Oct 28th, which mean markets have deterioated rather quick for them. Below you can see parts of the press release.

"The fourth quarter would be below the outlook provided in the Company’s news release dated October 28, 2008. Based on current visibility, the Company now expects fourth quarter revenues to be between approximately $2.2 billion and $2.35 billion, as compared to $2.7 billion reported in the prior quarter, or a sequential change in the range of about -12.8% to -18.4%. The revised revenue outlook is the consequence of a recent slowdown in the billings, recent and substantial changes in customers’ demand and order push-outs for the month of December. This situation reflects the well-known weaknesses in the industry, across most geographies and market segments, and, in particular, in wireless, automotive, and computer peripherals. "

MONTH END WITHOUT DRAMA

November turned out to be an OK month if you are long the market. Volatility however, is another matter. Huge swings and opportunities left, right and center. If you believe the press and self proclaimed experts, stocks will finish the year in bullish mode. This seems to be consensus and thus gets me suspicious. Others predict 10-15 years of mediocer trading ahead. For some odd reason these guys tend to be the ones who extrapolated the last years bull market to infinity. "Supercycle" was heard more than once and that turned out to be as real as "the new economy". Next week will probably mean some are taking their winnings off the table, pushing down indexes somewhat. Don´t think this will push it all the way to a new bottom and we might acctually see some buying the dips from sidelined money. HMB SS getting near 300 again, ABB SS firmly above 15 CHF, SWEDA SS will be interesting enough. Will dive into some weekend reading and see what I come up with.

SELLERS M.I.A

HAPPY HOLIDAYS in the US and sellers still missing in action. The stage was set for another rally and we got it at first. OBX showing big gains across the board, helped by Brent and overnight US rally. OMX pushing for resistance territory with ERICB SS leading the way. Here are a few thoughts on why. CEO said to be upbeat on a US roadshow leading some to the conclusion a PW for Q4 is out of the picture. Swedish long funds said to be sitting on cash and underweight in ERICB SS. The usual baby, HMB SS, may be running into trouble with the consumers and to get Index exposure some will go with ERICB SS instead. Most of all it is abscence of sellers. We definately had some forced selling prior to capitulation and my best guess is this is not the case anymore. Short term traders have been profitable shorting rallies and got caught short three straight days. Today we acctually saw stops at and above 58. For the first time in three days ERICB SS did not close near or at day high and tells me the panic is over for now. Decent open tomorrow one should short it close to 58.50, unless markets craps out in case any price above 56 will work fine too. Target 53 for the pull back. One big thing to consider is month end, which also happen to be year end for some. A lot of Window dressing potential.

STILL SQUEEZING

Still in squeeze mode. Traders shorting the rallies got some good feed back at first, only to get run over by the stampeede towards closing. No real futures buyer today, but squeeze in individual stocks. Vestas putting up big gains as well as HM B, ERIC B, ATCO A (at first, sold off a bit in the end). Defensives only weak spot really. From the looks of it there is going to be a reversal of initial bearishness in the US. Markets rallying off lows in a hurry. Last hour of US trading is just a toss up. More often than not, trends completely reverse and big moves in the opposite direction on low volumes have been the norm. Healthy...if you are a big fan of contrarian risk taking. My take for tomorrow? I think we are finally selling this rally, not pushing through lows to get a higher bottom. Something for mid term bulls and short term bears to be happy about. Win-Win.

SQUEEZE

SO, we finally got the shorts squeezed out of us. Day started boring enough. As always you could make money shorting the call, but unless you covered you got killed today. ERICSSON showing poor momentum early in the session, trading down on a happy market. Downgrade by Credit Suisse didn´t help either. Instinet big buyers later in the session making traders short. HUGE futures buyer affecting all Index heavy stocks, including ERICSSON. Man, that was some rally and for some odd reason I always manage to get on the wrong side of those. True to my view about future stock performance I tend to short way to early. Go figure. The OMXS30 made quite a move and this one actually has some chance of lasting through the better part of this week. Activity is still low however and it does not take much to nip this bull in the bud. All eyes on the US markets and so far so good for the bulls. Dollar taking a beating against all majors. Something to watch out for, but probably crude related. Crude rallying some 9% right now.

HOLIDAYS AND GOV VACCUM

HOUSING will be key to get any kind of lasting rally. We must see signs of buyers eating through inventory and that is just not happening right now. We can´t really blame rates and not even house prices. Those factors are working with the buyer right now. As one could suspect it is credit availiability, or lack of , that is screwing things up right now. This is the case in the US as well as in Europe. For Scandis this is equally true and rates have a long way to go (down) in Sweden before any kind of activity will pick up. As for the US we are going into holiday season and to get any political work done we really need to get the new administration set up. This is not going to happen until Jan and GM, FORD and others are stuck with a lame duck (Georgie W) who can´t do jack. Markets on either side of the pond will be absurdly thin next week and to guess direction in thin markets you might as well use a coin. My bet will be early week rally...end week sell off.

EARNINGS

By the way, profit warnings are unusually frequent. Companys that haven´t already slashed projections for Q4 and 09 are likely to do so within the coming weeks. October and November have taken almost every company by surprise, although the signs was pretty obvious. CEOs and management are lousy forecasters, that is a given and that is also the reason analysts exists. The latter aren´t any good either, but at least you get a different perspective. A company that is going to run into some bad luck is ERICSSON (ERICB SS). They are planning for a flatish market 09, at worst. Seeing what operators are doing to CAPEX that is just not going to happen. Every operator is bringing in the Chinese to put pressure on prices. Chinese operators are under political pressure to award chines equipment companys such as Huawei and ZTE. Flatish, I think not, at least not for ERICSSON. Since they have a crappy cellphone portfolio in their JV with SONY, there is no doubt they will loose even more marketshare on handsets as well. As far as the stock price goes, it could very well rally up to 55 from recent lows, but everything near that price is a SELL.

ANOTHER LOONY SESSION END

The way I see it, we can live without these session end rallies. All that tells me is that interest is at a record low. How do you push DOW 7% in the last hour? Obviously panic buying from short traders. Every smart dollar is short this market. Think about it. Real economy looking like it is not going to recover in years and we are only just starting the downgrade process. Analysts racing to beat each other with downgrades across the board. For the Nordics that is especially true in cyclicals and energy stocks. Take Vestas. Could do no wrong for the better part of three years and all of a sudden all bulls are turning bearish. What has happened? Oil down, obviously but that is not the whole story. Funding is really the issue now. Alternative energy has by some been excluded when discussing credit squeeze in part because it is supposed to be government funded. Guess what? Not excluded and boom Vestas died. Did the analysts figure this one out themselves? NO. Had to wait for a report by some consultants (MAKE report) and all of a sudden they are taking down target prices.

OK, enough about Vestas. Other things to watch out for is the Baltic devaluation story. It is Highly unlikely Latvia is going to get IMF funding without devaluing its currency. My guess is that it is being discussed and that IMF will have to promise emergency funding in return for the EURO peg to be trimmed. This will put futher pressure on SWEDBANK, but also on SEB and why not NORDEA. SWEDISH banks should be shorted against its nordic peers (DnB, Danske). Swedish banks has outperformed for no good reason. this will probably change.

Another fool proof way of making money these days is shorting every rally. They never last, at least not the whole day. I understand reluctance of being short overnight with rallies like the one we got in US late Friday´s session, but come Monday be sure to short the open. Cover an hour later and you will be done for the day.