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This weeks headlines

A market led by a few


Spitznagel: The market crash has just
begun
The dangers of convertible bonds
Gold setback and oil production freeze
OMXS30 Further upside in the short term
WEEK 8
Bullish setup in U.S 10y Bond

A market led by a few

Seth Klarman is a famous value investor and


his fund, Baupost group, lagged the S&P 500
in 2015. Klarman was quick to note in his
letter to investors that the S&P 500 was held
up by just a few stocks. In fact the 10 largest
stock in the S&P 500 gained almost 23% in
2015, while the other 490 stocks lost on

average 3,5%. He even went as far as calling it a


stealth bear market, since the average US stock was
down almost 18% during the year. The US stock
market has increasingly been led by a few Wall Street
darlings.

growth stories, and these losses will not only affect


individual stock holders, but the entire market.

Some of the top performers in 2015 have even gotten


their own acronym, FANG. FANG is an abbreviation of
the first letter in Facebook, Amazon, Netflix and
Google (now called Alphabet). In 2015 Facebook,
Amazon, Netflix and Google was up 37%, 123%, 144%
and 48% respectively. In 2015 the overall market
performance was heavily influenced by the FANG
stocks and a few other growth story stocks.
These four stocks are all highly valued with sometimes
stratospheric P/E-ratios. The FANG stocks valuations
are as follows; Amazon has a p/e ratio of 490;
Facebook a p/e ratio of 80; Netflix a p/e ratio of 380;
and Google a p/e ratio of 30. Most of these stocks are
in major bubble. If investors were to lose confidence in
their FANG darlings it would likely result in a rapid
decline with a stampede to the exits. It is probable
that the FANG story will end just like the nifty-fifty, in
tears.
As of this moment it looks like the FANG bubble is
bursting. Netflix and Amazon are down 25% since the
start of 2016. Both Google and Facebook are almost
down 10 % since the start of the year. Losses will be
severe if investors continue to lose faith in these

Bonds and Forex

The dangers of contingent convertible bonds


Making sense of the less bountiful stormy seas we can
probably all agree it's been rocky few months since
the days of 2015. The Chinese slowdown, low
commodity prices as well as a potential American
recession have since the beginning of the year have
been identified as the main culprits causing the

market turmoil. Another reasonable explanation for


the turbulence has been highlighted lately in
connection to the crash in bank shares - peculiarities
in the fixed income market are signaling stress in
market liquidity. One oddity observed is the negative
swap spread, which implies that investors are
accepting a lower yield for a risky swap than for a
risk-free treasury bond. Another abnormality is that
the cost of insuring yourself by buying a credit default
swap has risen more slowly than the excess interest
rate for corporate bonds. The phenomenon seems to
be a consequence of both institutional changes and
the poor performance demonstrated by several
European banks. To satisfy the Basel III banks have
been forced to change their financial structure, both in
terms of reducing the leverage ratio and increasing
the capital buffer. Since bonds absorb more capital
than swaps the demand for bonds has been reduced
and the fixed income market has been turned upside
down as a result. The bank panic that occurred
recently due to Deutsche Banks large holding of so
called Cocos triggered the unusual movements further.
"CoCos", contingent convertible bonds, is a relatively
new type of security aiming to make it easier for the
banks to meet the stricter requirements of Basel III. In
the low-rate environment this type of security has
become increasingly popular since it generates a 6-7%
return, and jives well with the balance sheets. The
CoCos function as debt but can be converted into
equity in case of a bank emergency. Now when banks
have failed to perform, the awareness of CoCos
inherent riskiness seems to have come to light.

Markets for CoCos are relatively illiquid and in


uncertain times one might expect the prices to
suddenly dip, so far the prices are down 7,3% this
year. Financial indicators, like the yield curve, do not
support the claim that we're in a recession at the
moment, however we're not out of the woods yet. In
case markets are heading further south, the potential
institutional issues with Basel III in combination with
the lacking market confidence might indicate even
deeper troubles than a recession may be ahead.

Stocks

Spitznagel: The market crash has just begun


Mark Spitznagel is the president and CIO of Universa
Investments, a hedge fund which has a kind of
long/short hedging strategy, holding both stocks and
out of the money puts. Back in December Spitznagel
predicted a market crash, he even went as far as
saying he believed it was the second biggest bubble in
the history of the stock market. Instead of taking a
victory lap in the Bloomberg studio on Friday,
Spitznagel said that this is only the beginning.
Investors have two doors to choose; either they bet
on Keynesianism, central planning and the ideas of
people such as Krugman, Bernanke and Yellen. Or they
can choose door number two and bet against this,
basically betting on natural markets and price
discovery. The problem with going with the FED as
Spitznagel sees it, is that it is close to impossible to
predict when interventionism will stop working, and
getting out from door number one into door number
two might be easier said than done in an environment

where liquidity is highly conditional. When you have


one way order flows, thats when you get the liquidity
holes, thats when the liquidity that investors are
leaning on goes away. Universa Investments strategy
is based upon the ideas and theories of Nassim Taleb,
author of books such as The Black Swan and Fooled
by Randomness. Spitznagel ends his Bloomberg
interview by saying We will have no right to call the
next market crash a black swan, as he believes it is
only a matter of time before policies such as negative
interest rates stops working.

Commodities

Gold setback and oil production freeze


Gold made big losses on Tuesday, trading well below
the a one-year high reached last week, as a return of
risk appetite and a rebound in global equities
decreased demand for the safe-haven asset. Gold
fell to a session low of 1,190.40 dollars an ounce that
day, before recovering marginally. The days to follow,
gold recovered and closed at 1,226.60 dollars an
ounce on Friday. Gold prices remain up nearly 16
percent so far this year, as the likelihood of an
increase in interest rate by the U.S. Federal Reserve
has decreased. ABN Amro analyst, Georgette Boele,
said on Friday that because gold moved up even
when the dollar was stronger, it is signaling for me
that it is mainly central bank-policy driven. Chief
metals analyst at HSBC Securities in New York, said on
Friday that gold is building a base well above 1,200
dollars an ounce, inferring that a bottom has been
set.

On Tuesday, Russia's energy minister said that his


country has agreed with OPEC members Saudi Arabia,
Venezuela and Qatar to freeze oil production levels,
but only if other producers agree to do the same. Oil
prices surged following the meeting, but within hours,
oil was back below where it was before the Russian
announcement, as new data out from the U.S
government showed that storage tanks are getting
increasingly full. Middle East economist at Capital
Economics, Jason Tuvey, said that the agreement
should help support the prices, although remaining
quite skeptical, "even if output is frozen, this will still
be at extremely high levels, as Saudi Arabia oilproduction remains close to record highs of more than
10 million barrels a day ".
MACRO EVENTS WEEK 8
Monday
Denmark Retail Sales MoM JAN and R etail Sales
YoY JAN
Germany: Markit Composite PMI Flash FEB, Markit
Manufacturing PMI Flash and Markit Services PMI
Flash FEB
Euro Area: Markit Composite PMI Flash FEB, Markit
Manufacturing PMI Flash FEB and Markit Services PMI
Flash FEB
Great Britain: CBI Industrial Trends Orders FEB
United States: Chicago Fed National Activity Index JAN
and Markit Manufacturing PMI Flash FEB
Tuesday
Great Britain: Inflation Rate YoY JAN

Germany: GDP Growth Rate QoQ Final Q4, Ifo Business


Climate FEB, Ifo Expectations FEB and Ifo Current
Conditions
France: Business Confidence
United States: S&P/Case-Shiller Home Price MoM DEC,
Existing Home Sales JAN, CB Consumer
Confidence FEB and Richmond Fed Manufacturing
Index FEB
Finland: Unemployment Rate JAN
Wednesday
Hong Kong: Current Account Final Q3, GDP Growth
Rate QoQ Q4 and GDP Growth Rate YoY Q4
United States: Markit Composite PMI Flash FEB, Markit
Services PMI Flash FEB, New Home Sales JAN and New
Home Sales MoM JAN
Italy: Industrial Sales YoY DEC, Industrial Orders MoM
DEC, Industrial Sales MoM DEC and Industrial Orders
YoY DEC
Norway: Unemployment Rate DEC
France: Unemployment Benefit Claims JAN and
Jobseekers Total JAN
South Korea: Consumer Confidence FEB
Thursday
Sweden: Busines and Consumer Confidence FEB,
Balance of Trade JAN, Household Lending Growth
YoY JAN, PPI MoM JAN and PPI YoY JAN.
Euro Area: Loan Growth YoY JAN, M3 Money Supply YoY
JAN, Core Inflation Rate YoY Final JAN, Inflation Rate YoY
Final JAN and Inflation Rate MoM JAN.

Japan: Foreign Bond Investment 20/FEB and Stock


Investment by Foreigners 20/FEB
Germany: GfK Consumer Confidence MAR, Harmonised
Inflation Rate YoY Final JAN, Harmonised Inflation Rate
MoM Final JAN, Import Prices MoM JAN, Import Prices
YoY JAN, Retail Sales MoM JAN and Retail Sales YoY JAN.
Great Britain: Nationwide Housing Prices YoY FEB,
Nationwide Housing Prices MoM FEB, Business
Investment YoY Q4, GDP Growth Rate QoQ 2 Est Q4
and GDP Growth Rate YoY 2 Est Q4
Friday:
Sweden: Retail Sales MoM JAN and Retail Sales YoY JAN
Japan: Core Inflation Rate YoYJAN, Inflation Rate
YoY JAN
Great Britain: Gfk Consumer Confidence FEB
Switzerland: Non Farm Payrolls Q3 and Non Farm
Payrolls Q4
Euro Area: Business ConfidenceFEB, Consumer
Confidence Final FEB, Services Sentiment FEB,
Industrial Sentiment FEB and Economic
Sentiment FEB.
Germany: Inflation Rate YoY PrelFEB
Russia: Business ConfidenceFEB
Brazil: Nominal Budget BalanceJAN
United States: GDP Growth Rate QoQ 2 Est Q4

SPOT PRICES and one week change


OMXS30
1355,95 +5,38%
NASDAQ
4504,43 +5,57%
S&P 500
1917,78 +2,84 %

DAX 30
NIKKEI
HANG SENG
Gold spot
Crude Oil (Brent)
USD/SEK
EUR/USD
Bitcoin

9388,05 +4,69%
15967,17
+6,78%
19285,50
+5,27%
1 227,45 -0,56%
31,61
+7,97%
8,4480 +0,42%
1,1132 -1,10%
430,90 +8,58%

WRITERS
Olof Svanemur
Matilda Andersson
Tomas Nyln
Leo Dajaku
Technical Analysts
Carl Becht
Emil Esbjrnsson
OMX Stockholm 30

OMXS30, Further upside in the short term


OMX Stockholm 30 has after a prolonged upswing
last year turned down and been traded for the last
nine months in a falling trend in which the volume
increased slightly during the last month. This can give
indications that the negative trend is strong and will
continue to be so. The index is traded at the moment
in the middle of the trend channel, where it recently
rebounded from the support level. MACD is above the
signal line, indicating that the index might increase
and try to reach its resistance level of 1400 points, but
also that a reaction downwards can take place. The
index has its support level at around 1290 points and
a stop loss is set tentatively slightly below this level.
The technical view of the OMX Stockholm 30 is
positive in the short term while its negative in the
medium term.

are technically positive towards the bond in the short-,


middle long and long term.
U.S 10 Year Bond
Bjrn Borg

USD 10y, Bullish setup to 1.8


USD 10Y used to trade within a slightly upwards trend
channel. However, after an outbreak from a rectangle
formation on the downside the bond has plummeted
towards lows we not have seen in 1 years time. It is
unclear whether the bond wants to trade within its
previous trend channel or if further downwards
movement is in store. MACD has just crossed the
signal-line from beneath which is a strong buy-signal.
The bond is also somewhat oversold. We believe a
kickback to 1.8 1.9 is likely. The support line at the
trend channels bottom still look strong and a stop loss
could be placed beneath the support line at 1.6. We

Bjrn Borg, Continuously trending upwards


Brent has been trading in a constant downtrend. The reversal
patterns are very weak and rarely achieve their likely target zone
which displays a technical weakness. Recently Brent has been
recently trading at new lows below 30. Here oil found a bottom at 28
SEK which can be used as a stop loss level. Brent has a neutral RSI
and MACD has just released a sell-signal. ADX-indicator is inclined
to agree with an indicated bearish movement in the short-term. It just
completed a flag formation with a bearish retracement with a target
zone at 25 SEK. In total we see a very bearish setup and new lows

are likely. We are technically negative in the short-, middle-long and


long term.
Karo Bio

Karo Bio, Trend reversal is likely


Karo Bio has been trading in an uptrend since two
years back. The stock hit high levels at 67 SEK
previously. The stock kickbacked from these prices due
to the overwhelming amount of sellers. Currently the
stock has been trading at the bottom of the trend
channel where it seemingly has created a very strong
support line. Momentum is returning gradually and
MACD is very closely positioned to the signal-line
which could trigger a buy-signal. Karo Bio is also
somewhat oversold. A stop loss could be placed
beneath the support line 22 SEK. We are technically

positive in the short term, somewhat positive in the


middlelong term and positive in the long term.
AGES Industri

AGES, Establishment around important support


AGES has been traded in a negative trend since July
last year with a significant lower trading volume
compare to its upswing 1 year ago. The stock has
recently moved up from its support level, which is the
stocks all-time low, and is now moving toward the
ceiling of the trend channel. MACD recently broke
through the signal line from below, which indicating a
positive view from the market. However, it is
important to stress that the stock is already trading
not far from the ceiling of the trend channel and to
reach higher returns, the trend needs to change
direction. The support level is to be found at 102 SEK
where a stop loss is set tentatively slightly below. The

first major resistance level is around 121 SEK. The


technical view of AGES is negative in the short- and
medium-term.
BTS Group

BTS Group, Stable support level reduces the risk


BTS Group has for almost 1 year been traded in a
more or less neutral trend with fairly low volume.
During the previous week BTS Group increased since
the stock hit the support level for the third time in the
last couple of months. This indicates that this support
level is strong. However, MACD below the signal line
point out that the market has a negative outlook for
the stock but a short-term rebound can be expected.
The future direction of the trend will be determined
whether the support level at 71 SEK will hold or the
resistance level of 76 SEK will break. A stop loss is
tentatively set slightly below the level of 71 SEK. The
technical view of BTS Group is positive in the shortand medium-term.