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  • Podcast

    Steen Jakobsen: Now Is The Time To Be In Capital-Preservation Mode

    Saxo Bank's CIO predicts a 15%+ market correction soon
    by Adam Taggart

    Monday, March 19, 2018, 5:12 PM

Steen Jakobsen, Chief Investment Officer and Chief Economist of Saxo Bank, is sounding a clear warning of an arriving market correction.

Over-inflated asset prices, over-crowded trades, anemic market liquidity, and a continued decline in the credit impulse set the table for a banquet of consequences, in Steen's view.

Confident a market correction of at least 15% lies ahead, Jakobsen urges investors to exit leveraged positions and build cash.

As for a longer view, he predicts commodities will be one of the best asset classes to own over the next five to ten years:

Every single product available to investors today at has less liquidity than is perceived. I think one of the biggest gaps between perception and reality right now is the ability to actually exit the portfolio you're in. Whether that's an ETF, whether that's credit, or whether that's even some of the small cap stocks.

We already have a proof of this because the spike in February. Think about it: it was just a 5% move in terms of price, but it created almost a 10,000% increase in volatility. If a 5% move creates that sort of noise in the system, it shows that we're playing musical chairs. And when the music stops we're not missing one chair, but we're going to be missing three chairs in a ten-chair race.

It's pretty clear that the liquidity side is a concern. This afternoon a un-named Central Bank called me up and wanted to talk about liquidity in ETFs and the bigger risk of the market itself.

If you look at the breadth of the stock market over the last couple of weeks, it's very, very, very narrow. So we're all chasing the same investments, we're chasing the same themes. We're assume everything is benign when we talk about risk.

But I'm very concerned. My quantitative model supports this caution; it's saying we really have to be in the mode of capital preservation now. This is the time for capital preservation.

Click the play button below to listen to Chris' interview with Steen Jakobsen (45m:44s).

About the Guest
Steen Jakobsen

Mr. Steen Jakobsen serves as the Chief Investment Officer and Chief Economist of Saxo Bank (Switzerland) SA. Mr. Jakobsen serves as the Chief Economist at Saxo Bank A/S, Research Division. He serves as Group Chief Information Officer and Managing Director for Business Area of Asset Management at Newcap Holding A/S. Mr. Jakobsen has more than 25 years of experience within the fields of proprietary trading and alternative investment. Mr. Jakobsen has been with Saxo Bank for 14 years with a short break from 2009 to 2011 as Chief Investment Officer of Limus Capital.

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12 Comments

  • Mon, Mar 19, 2018 - 10:49am

    #1
    Uncletommy

    Uncletommy

    Status Bronze Member (Offline)

    Joined: May 03 2014

    Posts: 514

    How many friggin' examples do we need?

    I think it’s time to rethink the term “margin-debt” and its ultimate effect on economies. What are EFT’s other than collateral-debt obligations financed on a fiat-based currency debasement? Steen is right on in discussing the concept of liquidity:

    We forget to look at the liquidity involved. And don’t forget, every single person that ever gone bankrupt in history, they went bankrupt not because they were stupid, not because they did something wrong, but because there was no liquidity.

    John Kenneth Galbraith explained this well in his book on the “29” crash. If the financial system cannot provide practical benefits for the people it is suppose to serve but, continues to weigh the balance in capital acquisition, you will create more losers than winners.

     I think we’re getting it very slowly, and there’s a lot of noise politically, but I think the winning companies of today are knowledge company, social intelligent companies, and I think this drive will be away from digitalization and stupidity towards quality and service. So I’m very optimistic about the future. But I do still think, unfortunately, that we’re going to have this reshape sell off before we can start anew.

    Good interview and analysis. Keep your powder dry, gang!

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  • Mon, Mar 19, 2018 - 12:38pm

    Reply to #1
    MKI

    MKI

    Status Member (Offline)

    Joined: Jan 12 2009

    Posts: 69

    How many friggin' examples do we need?

    UT: If the financial system cannot provide practical benefits for the people it is suppose to serve but, continues to weigh the balance in capital acquisition, you will create more losers than winners.
    Well, for every dollar lost, another is gained…by somebody. Why not be the somebody? And yes, there are always far more dumb people than smart ones taking their money.  Just look at people buying lotto tickets! You can’t fix stupid. This is how it’s always been. Wealth moves from poor to rich, unless you prevent the poor from playing at all.
    The lesson? Ignore the politics. You won’t change them. Why? As above: you can’t fix stupid. Just play the game as the rules are actually are…not as one wishes things were. That is: play conservatively (aka invest in stable, proven companies making good money that pay you a share of profits in dividends). Stay safe: hold a safety net (own your home, hold no debt, have physical gold, have food resources). IOW, be a “winner”, even though, yes, there will always be far fewer of them than losers. People will always buy lotto tickets. And FANG stocks…
     

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  • Mon, Mar 19, 2018 - 2:56pm

    Reply to #1

    Chris Martenson

    Status Platinum Member (Offline)

    Joined: Jun 07 2007

    Posts: 4501

    Please explain....

    MKI wrote:

    Well, for every dollar lost, another is gained…by somebody. Why not be the somebody? 

    If we lived in a closed system, that’s solid advice.
    But we don’t.
    Dollars are created and destroyed all the time. 
    In an inflationary period, everybody gaining dollars only “win” if they gain at a faster percentage over time than the rates of loss of purchasing power.  Those not gaining dollars lose extra.
    In a deflationary period, people holding dollars win if they can hold for longer than their burn rate, while those holding the debts that go “poof” lose too.  Hopefully less than their “gains” due to a purchasing power increase, but that’s far from guaranteed. 
     Example:  I own $100k of your mortgage.  You cannot pay and default.  I take possession of your home.
    Did I gain or lose?  Did you gain or lose?
    That depends.
    If I have to sell the property for various reasons, and that property is only worth $80k.  I lost $20k.  But suppose you had $20k in equity in that house.  You lost that too.
    So we both lost dollars.  Where did they go?
     

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  • Mon, Mar 19, 2018 - 3:11pm

    Reply to #1

    Matt Holbert

    Status Member (Offline)

    Joined: Oct 03 2008

    Posts: 67

    Easy come; Easy go

    Perhaps they returned to their source: thin air.

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  • Mon, Mar 19, 2018 - 3:24pm

    #2

    AKGrannyWGrit

    Status Bronze Member (Offline)

    Joined: Feb 06 2011

    Posts: 448

    Where did they go?

    If I have to sell the property for various reasons, and that property is only worth $80k.  I lost $20k.  But suppose you had $20k in equity in that house.  You lost that too.
    So we both lost dollars.  Where did they go?
    Okay I am an old curmudgeon so here is my answer.  It’s all a game and those dollars aren’t real they are an assumption. We all assume our houses, stock portfolios and bank statements reflect “real” money.  But unless something is actually in your hot little hand it may not be real.  We just assume the paper statement, the digital statement or a verbal statement from an official is the gospel truth, the reality is the game can change and ever so many of us are clueless.  It’s just a game and many of you all know how to play, what the unpublished rules are and play to your benefit.  The rest of us, it’s like taking candy from a baby.  
    Bagh-Humbug

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  • Mon, Mar 19, 2018 - 3:37pm

    #3
    Vernon Hamilton

    Vernon Hamilton

    Status Member (Offline)

    Joined: Sep 12 2016

    Posts: 1

    gold "receivable" - good as gold !

    thanks for this. Very interesting perspective from Mr. Jackobsen
    Jeffrey Snider discussed gold receivables with Erik Townsend on Macro Voices just a few weeks ago.
     
     
     

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  • Mon, Mar 19, 2018 - 7:29pm

    #4

    dcm

    Status Bronze Member (Offline)

    Joined: Apr 14 2009

    Posts: 106

    Where did all the dollars go?

    Up my Nose
          – Steven Tyler  

     
    come to think of it, our debt based money system is a self destructive addiction

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  • Tue, Mar 20, 2018 - 8:55am

    Reply to #1
    MKI

    MKI

    Status Member (Offline)

    Joined: Jan 12 2009

    Posts: 69

    So we both lost dollars. Where did they go?

    CM: In an inflationary period, everybody gaining dollars only “win” if they gain at a faster percentage over time than the rates of loss of purchasing power.  Those not gaining dollars lose extra. In a deflationary period, people holding dollars win if they can hold for longer than their burn rate, while those holding the debts that go “poof” lose too.  Hopefully less than their “gains” due to a purchasing power increase, but that’s far from guaranteed.
    Sure, this is palpable. It is what “the game” is all about. The lost dollars merely go to government, to the wealthy, to the connected, and those who have an advantage in the system. This is just the cost of doing business.
    And it’s not a bad system, historically speaking. Why? Our technological advances are so great that my life just keeps getting objectively better each day compared to yesterday. So why would I waste time in angst about the elite licking the cream off the top? I just consider it an “unfairness” tax, pay cheerfully, and move on, continuing to improve my life. I now have vastly more purchasing power and quality of life today than 20, 10, or even 5 years ago, merely by investing. Are there fat cats getting fatter off me and my labor? Sure. Let them.
    Perhaps my view is primarily psychological: I was raised ugly, like many in my generation, so have low expectations. So be it; I’m just grateful for the mere opportunity to improve my life, health, and wealth with so little effort and interference. Much of the world lacks this opportunity. So I pay said “unfairness” tax with a smile.

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  • Wed, Mar 21, 2018 - 5:37am

    #5

    davefairtex

    Status Diamond Member (Online)

    Joined: Sep 03 2008

    Posts: 3107

    china

    The other day, I had a chat with someone – a Canadian – who lived in Shanghai for 8 years, or maybe 10.  He had just left to try life in a new city in Asia.  In chatting with him about life there, he had one observation that stuck with me; it was about food.
    In his experience, the Chinese approach is to make all the food look fantastic, but cut costs absolutely to the bone – quality of the ingredients just doesn’t matter.  All that matters is appearance.
    So the food looks really nice, with who knows what chemicals or pesticides in there.  This isn’t just one case of melamine in baby milk – according to his experience, its just endemic.
    And here’s my contention: Chinese people know this.  Of course.  So when they go abroad, what do I see them buying?
    Food.  They buy food when they are abroad, to take back home.  They fill their shopping carts with bags and bags of processed food products.  Now maybe its about reasonably-priced gifts to bring their friends when they return.  Or…maybe its just about getting food that is more trustworthy than what they produce themselves.  Its hard to know just from outside observation.  And my one Chinese friend from Beijing was incredibly circumspect when talking about anything even slightly controversial.  Like pollution.  “Oh its not so bad.”  In spite of PM10 values that are among the highest in the world.
    Do we have anyone from the mainland reading PP?  I bet we do.  Do they feel comfortable enough to comment – or is there a concern that their social credit score might be affected?  I guess we can’t realistically ask that question.
    https://www.reuters.com/article/us-china-credit/china-to-bar-people-with-bad-social-credit-from-planes-trains-idUSKCN1GS10S
    The view from the outside may not be complete.  Maybe there’s a reason why all those mainlanders are buying houses in the US, Canada and Australia.
    I have to say, though, their facilities are awesome.  I get a renewed case of train envy every time I go there.

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  • Wed, Mar 21, 2018 - 8:26am

    Reply to #5
    MKI

    MKI

    Status Member (Offline)

    Joined: Jan 12 2009

    Posts: 69

    Food

    davefairtex wrote:

    Chinese approach is to make all the food look fantastic, but cut costs absolutely to the bone – quality of the ingredients just doesn’t matter.  All that matters is appearance. So the food looks really nice, with who knows what chemicals or pesticides in there. They buy food when they are abroad, to take back home.

    Hell, it’s not just the Chinese who are afraid of what is in their food. The US food supply has: 1) Animals fed with corn/soybean, not grass, creating O3/O6 imbalance. 2) Pesticides. 3) Soils stripped of nutrients due to overproduction from fertilizer. 4) Seed oils in nearly everything. 5) Fluoride in drinking water. My family has become nearly as paranoid as the Chinese so moved to nearly all food from hunting/fishing/harvesting/gardening, where we know what the nutrients are, and there is nothing added. More expensive, but much healthier. The only things we have left to make at home? Eggs & cheese, but intend to get there.
    It wasn’t always this way in the US though. The US food supply only really started getting this bad after WWI. Price competition is a large part of the problem, a race to the bottom: food really needs to get more expensive and better quality.

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  • Sun, Mar 25, 2018 - 1:58pm

    #6

    lambertad

    Status Bronze Member (Offline)

    Joined: Aug 31 2013

    Posts: 176

    Holding the bag

    This will be a lesson in capital preservation. 
    https://www.bloomberg.com/news/articles/2017-05-22/subprime-auto-giant-c
    Santander checked just 8% of incomes on subprime auto loans on a recent $1 Billion loan bundle that they partially sold to Massachusetts Mutual Life Insurance Co. 
    It’s all good though. Santander included “extra loans” in case some went bad. You know, in order to protect the “investors”. 
    Oh, and Moody’s rated the issues sold by Santander probably loaded with equally crappy stuff as Aaa as recently as this February. I wonder how many of the people at Moody’s will get hired by Santander in the next couple of years. 

    Around 42 percent of Santander Consumer’s subprime auto loans made between 2009 and 2014 by dealers identified as “high risk” in Massachusetts and Delaware have defaulted or will default, an amount that is substantially higher than the losses in the overall lending portfolio, Moody’s said in a separate report. “Information in the settlements indicate that some loans in these deals were underwritten based on inflated income and inflated value of collateral,” according to Moody’s.

     

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  • Sun, Mar 25, 2018 - 3:17pm

    #7
    Uncletommy

    Uncletommy

    Status Bronze Member (Offline)

    Joined: May 03 2014

    Posts: 514

    It's how do you choose to use credit . . .

    And who gets to pay for it. Nothing really changes, does it. I’m glad somebody else noticed!
    http://www.cbc.ca/news/business/retail-feature-1.4577670

     

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