Half full to half empty – overnight

Markets are confident again. Well, it’s not so much that they are confident, as that they have removed some of the fear that was prevailing. We are now at some kind of neutral fear level, where the markets are testing if investors have the guts to put on real confidence and go for another sprint.
Here at Farmann we are scared shirtless, and think everyone should be. We fully expect fear to come back big time, and strike hard.

Have a look at Research In Motion (NASDAQ: RIMM), makers of the Blackberry.
It just fell 25% on earning estimates, not far off expectations – but below.

We never liked the Blackberry anyway, too corporate – not individualistic enough. Who buys a Blackberry for their own money? Wen we see a Blackberry we see a position, not a man. Anyway that’s a divergence.

What this illustrates is that the markets are now considering the glass as half full, with the potential for being filled up even. Then all of a sudden fear takes over, and the glass is seen as half empty – with an overnight loss of 25% as a result. Here at Farmann we still consider the glass half empty, with the potential for the bottom to fall out.
So, when this sprint of confidence abates – we do expect the markets to fall in the order of 20-30+%, within days, it will be dramatic.

We therefore suggest great caution, great caution. We suggest preparing to short the markets. We suggest gold. Then again, lately we have ourselves wondering if we are over exposed to gold. The good advice is always; diversity first, then gold (or whatever asset you like).

If you happen to be a Norwegian, you do not need direct exposure to oil, you have that through the state of Norway. If you are not a Norwegian, you might consider oil exposure – we believe oil is going up. The rise of the Asian economies is a trend way bigger even than this current depression. You can’t fight 3 billions peoples desire to be part of the modern world.
If you are Norwegian, you should also prepare for a rally in the Norwegian Krone. Sooner or later the NOK will be perceived as a safe haven and climb to very strong levels. That’s when you should consider cashing in, and then diversifying out of the NOK. In Norway a rather typical summer house, nice – but not breathtakingly nice, is selling for USD 500 000, even 1 000 000. This is ridiculous when you compare that to what you get for USD 500 000 – 1 000 000 in say Floirda. Something has got to give here, and something definitely will. Next year we expect Norwegian real estate to hold up fairly well, while Florida real estate will fall further. If the NOK rallies as well, then the differences here become way way to large to ignore.

From Florida our friend Rune Eriksen reports that real estate has “leveled off” and that buyers are entering the market for condos in the USD 100 000 – 250 000 range. Polish immigrants from the northern states are flocking down to buy condos, he says – after having seen the closing several such deals lately. As much as we like Mr. Eriksen and wish his Florida real estate business well – we still take this leveling off with a grain of salt – as he has skin in the game. Still, he could be right.

In Norway this weekend brought us from the last summery days to the first colder fall days. You can usually tell in Norway, the day the fall came – and this year it was Sunday September 27. This spells as new season, for nature and for the markets. Beware.

Hans Lysglimt
Oslo, Norway
September 29. 2009

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