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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
Bullish setup in U.S 10y Bond

WEEK 8

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.

Facebook are almost down 10 % since the start of the year. Losses
will be severe if investors continue to lose faith in these 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

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.

Arabia oil-production remains close to record highs of more than 10


million barrels a day ".

Commodities

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

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

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
9388,05 +4,69%
NIKKEI
15967,17 +6,78%
HANG SENG
19285,50 +5,27%
Gold spot
1 227,45 -0,56%
Crude Oil (Brent)
31,61
+7,97%
USD/SEK
8,4480
+0,42%
EUR/USD
1,1132
-1,10%
Bitcoin
430,90
+8,58%
WRITERS
Olof Svanemur
Tomas Nyln
Technical Analysts
Carl Becht

Matilda Andersson
Leo Dajaku
Emil Esbjrnsson

OMX Stockholm 30

U.S 10 Year Bond

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.

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 are technically positive towards
the bond in the short-, middle long and long term.

Bjrn Borg

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

BTS Group

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, 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 short- and medium-term.