Steen Jakobsen: Get Ready For The Biggest Margin Call In History

Tyler Durden's picture

Submitted by Adam Taggart via,

Economist Steen Jakobsen, Chief Investment Officer of Saxo Bank, believes 2015 will be another "lost year" for the economy. And he predicts the Federal Reserve will indeed start to raise rates later this year, surprising the market and taking the wind of out asset prices.

He recommends building cash and waiting to see how the coming storm -- which he calls the "greatest margin call in history" -- plays out:

0% interest rates at $0 down has not created the additional momentum to the economy The Fed was hoping for. The trickle down effect, the wealth effect, has instead made for bigger inequality in society. So I think we’re set for a rate hike in either in June or in September. I think this will be the biggest margin call in history on the asset inflation created by the Fed .


That’s where I differ from most Fed watchers. Everyone else is looking at employment, inflation targeting. I don’t think Fed is at all looking at those. They are saying “Listen, the 0% interest rate is getting us absolutely nowhere, we think it’s very, very important for us to move to a more neutral place”. At the same time we will communicate that we are open-minded to additional programs or whatever needs to be done to secure the long term growth of the economy. But that will be on the down side, not on the up side. And as year has progressed, and I’ve said this publicly, I think 2015 is already lost in terms of recovery here. And that will take the market by surprise.


The market will ask in September when the Fed hikes: “Why are you hiking interest rate when growth is below target, inflation below target”? Well, the Fed's response will be “Because this is the biggest asset inflation we’ve seen in human history and we need to address it”.




What the Fed is saying is that we have unintended consequences of low interest rates. Money is chasing yield: it's going to real estate making it over-valued, and flowing into the equity markets making them over-valued. And then the Fed says “Well. we have two choices. We can allow the market to run into a bubble, or we can burst the bubble and start all over again”. But they wrongly, in my opinion, believe they can actually micro manage that, even macro manage this. So what they would rather do is "lean up against the market". To take some of the excess out of prices by going in and telling in the market “We are concerned, we don’t want you to have more leverage. We want you to have less. And we certainly would like to see that market become flat-lined for a while in terms of return." Which by all metrics of measurements is actually also the expected return of the stock market. Don’t forget three, five and seven years expected return at the present multiples is exactly 0%.


Given this, at a bare minimum, I recommend taking the leverage out of your own portfolio so you sit with a nice pot of cash if the market does correct. If it doesn’t, you’re not really losing out much because again, they expect a return is 0% for the next couple of years.


Some time the best advice to anybody is to do nothing. And of course being, part of an online bank I’m not exactly popular with management for putting this advice out there.  But I have to give the advice I believe in and share what I do myself; and I’m certainly reducing whatever equity I have in my portfolio to a minimum. So I’m scaling back to where I was in January last year.


I'll put it another way. I’m advising a hedge fund in London, analyzing 10,500 stocks from the bottom up. How many do you think of these 10,500 world stocks are cheap? Only 23. Which means 98% of all stocks are either fairly-priced or expensive.

Click the play button below to listen to Chris' interview with Steen Jakobsen (40m:27s)


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LetThemEatRand's picture

I really question why anyone bothers to call a market crash "this year" anymore.  Just reference back to the last 5 or 10 times you and 1000 other guys predicted a crash over the last few years based on the same basic reasoning, and say "but now I'm serious."   It would save a lot of one's and zero's used to spread this article around the interwebs, and we all know the Fed needs all they can spare.

SilverDoctors's picture

Umm..perhaps because reverse repos have gone parabolic for the first time since late 2008?

LetThemEatRand's picture

So there's another surefire reason why this time it's really going to happen.  I'm not arguing against the fact that it should happen.  I'm tired of anyone claiming to have the scoop about why it's about to happen in x months.   "One day the Fed will lose control or decide to let the market crash."   Much shorter article.

TruthInSunshine's picture

It doesn't matter if the Fed does or doesn't raise rates - really.

The economy is deader than the Monte Python Parrot in a huge % of locations around the globe, and if you know individuals that work in relatively high level positions in finance or banking, ask them about credit requirements for loans, ask them about the near unprecedented lack of liquidity and "market makers" in the biggest market of all - bonds - ask them about the rush to lock in the last cheap debt to float share buybacks, leveraged buyouts and mergers, the health of the order books of export reliant companies & countries, share dilution, and the debt loads carried in both the private and public sector.

WORSE THAN THE LEHMAN CRISIS is on the doorstep.

kliguy38's picture

You're dead right TIS ......its done for and WE all are about to taste reality........won't be very fun even though it will show the ponzi pumpin' pricks for what they are.

macholatte's picture


I'm not arguing against the fact that it should happen.  I'm tired of anyone claiming to have the scoop


Yup! Just another regurgitation of yesterday's news.  Call a top or bottom or crash 1,000 times and eventually you get it right and someone buys your books.... see Roubini, Schiff, Faber, etc., etc.



People don't realize that we cannot forecast the future. What we can do is have probabilities of what causes what, but that's as far as we go. And I've had a very successful career as a forecaster, starting in 1948 forward. The number of mistakes I have made are just awesome. There is no number large enough to account for that.

Alan Greenspan

theXman's picture

He seems to have gotten the math wrong -- 23 out of 10,000, that's 0.2%, which means 99.8% are expsenive or fair valued.

SilvertonguedAngel's picture

Which could mean 23 are over valued and all the rest fairly valued.

Stuck on Zero's picture

Here's my question for the Author of this piece.  Say the crash is coming.  If you take your money out of the stock market or bonds what do you do with the cash?  If you leave it in the bank the bank will invest it in bonds or the stock market.

weburke's picture

cashiers checks if you think banks are going to tank in your area. td bank...where is that thing going? I have been guessing td stands for total dominion.

buzzsaw99's picture

i have written similar to that first sentence myself:

Whether the fed raises rates or not is inconsequential. imo they won't, at least not very high or for very long because their policy tool aka "the market" can't take it, but either way it goes matters little. Eventually the outcome will be the same, that being with Sack and Frost (and whoever ends up working at the fed's Chicago offices) buying souring assets from their buddies at the tbtf and elsewhere while the rest of the country circles the drain all the while claiming it is for the common good.

Unintended consequences my ass.

Karl-Hungus's picture

i don't know why either. It takes balls to make a call, but anything more specific than what you said is pissing in the wind. At least its not another 'hindenburg moment'. But, I will say that for someone in his position, making a call like this does take balls.

weburke's picture

balls you say? how about religious balls. this guy cannot be topped for details on that whole long running show.

Stoploss's picture

Don't forget rate increases house payments and rent payments.

Which is awesome when you only work 29 hours a week if you work at all.

Then there's the food prices...

Dubaibanker's picture

I met this dude Steve about 2 weeks ago in Dubai.

He is like a parrot.

He just has his views and claims he traveled to Australia and then Dubai and then Denmark and travels all the time...blah blah

He kept parroting that USD is strong.

My question to him was: If USD is strong then please explain to me why Chinese yuan, Indian Rupee, Swiss Franc and Danish Krone have risen AGAINST THE USD in the last 12-18 months?

His answer: Because USD is related to trade currencies and a basket and.....

I was like WTF!

China and India dont do any trade?

China is the largest trading nation on the planet and is somehow irrelevant?

At that point, my friend sitting next to me kicked my shoe with his, and I STFU.

These kind of people giving wrong advice to clients are the problem and the sheeple who listen to them and follow them off the cliff have only themslves to blame.

No one has any clue where the world is headed. So these chaps should shut up.

A few weeks before Lehman and Merrill and Bear Stearns collapsed, the same CIO's were saying world is ok...keep buying or keep selling or keep cash......blah blah blah.

And then their own banks shut down! 

That must have been hilarious to the sheeple who were listening to them and these CIO's who could not even forecast their own demise!

Max Steel's picture

hahahah but in chutiyon ko kaun samjhaye 

Global Observer's picture

I'm tired of anyone claiming to have the scoop about why it's about to happen in x months.

How about a guy who has been predicting since 2013 that this will happen in September 2015? There is this Jewish Rabbi (is there any other kind) Jonathan Cahn who based on some calculations according to the Jewish calendar and some concept of Shmitah has set the date for the collapse as September 13, 2015. Some others claim that since the Jews can cause the collapse at will, what better date than something that has a ring of inevitability about it and the infallible nature of Jewish texts and beliefs? Some others are predicting the rapture for September 23-24, 2015.

So it certainly looks like it is happening in September 2015.

perchprism's picture

"I'll put it another way. I’m advising a hedge fund in London, analyzing 10,500 stocks from the bottom up. How many do you think of these 10,500 world stocks are cheap? Only 23. Which means 98% of all stocks are either fairly-priced or expensive".


Doood....23 is only 0.2% of 10,500...that means 99.8% would be fairly-priced or expensive.


disabledvet's picture

"And what a wonderful Monday too! See given the trading action on Friday I was massively short but then!...

Nobody For President's picture

And I wanna know, perc, the names of those 23 stocks...

what a mutual fund you could put together with that!


Weaponized Innocense's picture
Weaponized Innocense (not verified) SilverDoctors Apr 20, 2015 6:43 PM

So that's why yields where up and hard across the curve today?!
And why as a while back I was buying my faz and started at 12.20 down to the 9 handle purchases on it till I got to 3000 shares ... It's been holding up nicely....
I bought another hundred of uvxy today at today's lows on today's fabulous chill... Ooo I have 2500 of those now and all at the bottom here as I just been buying them since the other day when I bought my first thousand and broke the vix for the day..... Watched yall bitch here.
Mmm mmmm mmm I have a pretty portfolio. Perhaps they can lol hold it off till I get my tax refund so I can add to it like super yummy.... Ah think I will buy bullion gold and silver with that...

U know I think I might I have nibbled in the the high 8 handle on faz.....
Haven't gotten the greedy 7 handle on uvxy yet... Doesn't look like I will get it.

poland spring's picture

Dude, I've been following your purchases of UVXY.  I've been doing it too and bought another 100 today as well.  Good to see someone else knows about UVXY.  I am trying to load up as much free cash I got laying around into UVXY.  My other play is YANG, risky but downside is 5 but upside is huge.  Finally, my most risky play (for pure speculation) is DWTI.

tarsubil's picture

Look at that chart, it happened in 2011. I agree with LetThemEatAttheY, we've had all kinds of signs the economy is fucked but no collapse. Maybe one won't happen? Maybe it is just the slow grind to dust?

iofera's picture

There will be no equities crash in 2015, period.

weburke's picture

if it wasnt for the religious aspect, and the depopulation agenda, of course not !

TheReplacement's picture

You might be right.  Then again, a hamburger might end up costing more than an appl.

Ignorance is bliss's picture

How many analysts in the Weimar Republic called for a stock correction. How did that work out?

golden torch's picture
golden torch (not verified) LetThemEatRand Apr 20, 2015 10:12 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

m13's picture

really liked steen's long euro call....august 2014

Bay Area Guy's picture

Sorry, just don't see higher interest rates, at least appreciably higher interest rates, heading into Obama's final year. He's not going to want to leave office with a deficit that will increase $180 billion for every 1% rise in rates. I can see 2017 having increased rates, particularly if an R gets in the White House, so that Obama and the press can blame the R's for the deficit increase.

If Hillary gets in, all bets are off on a rate increase, as she certainly won't want a big deficit increase her first year.

Debt-Is-Not-Money's picture

---> O'Bama controls the FED.

--->The FED controls O'Bama

disabledvet's picture

From play to pay to ...well, play and pay.

Sutton's picture

No rate hike in June.  Or September.  End of the year, December, no way.  Then the elections in 2016, no way Yellen  raises and hurts Hilary.

vegas's picture

If anybody thinks the genius's at the FED can micro-manage this mess to a successful conclusion then you are fucking crazy.

heisenberg991's picture

What are the 23 stocks.

iofera's picture
iofera (not verified) Apr 20, 2015 6:03 PM

It was another good day to be a precious metal "investor" and an equities bear.

Zeroes have more Eagles rolling around in their noggins than sense - the very essence of what it means to be a Zero Hedger!

Cangaroo.TNT's picture

Apparently for you it was another good day to be a dipshit.

Dr Benway's picture

Lol asset inflation and increased inequality were "unintended" consequences for the Fed? Riiiight.

ThroxxOfVron's picture

"I'll put it another way. I’m advising a hedge fund in London,  "


Is the hedge fund buying or shorting?


ghostzapper's picture

Agree with the "margin call" environment but not in the way described by this superstar.  Crude plunging, USD rocketing, and many other currency moves in my view among other things have already been creating "margin calls" about which we have yet to see in print so to speak.  Extinguishing of positions and "assets" denominated in USD signaling the implosion of the system and hence contributing to the support for USD.  I could certainly see this getting a lot worse and exposing some folks with not much to show when the drawers are dropped.  but, but, but there's plenty of good collateral to keep posting to kick the can . . . . . . . . . 

ted41776's picture

everything is awesome, buy all the things, moar debt = more prosperity for everyone!! 2+2=5

daggerhashimoto's picture

I don't know what to think anymore

BoPeople's picture
BoPeople (not verified) Apr 20, 2015 6:17 PM

Do I believe that Lloyd Blankfein actually believes that he is doing his god's will through Goldman Sachs? Yes, I do.

Do I believe in the Jubilee Year / Shemitah? Not yet. There is circumstantial evidence on both sides of the argument.

However, if Lloyd Blankfein's god has decreed there to be a Shemitah year, then for a period of time the blanket of fraud oppressing the people will probably be lifted.

There will be wailing and gnashing of teeth ... but there should also be hope.

That being said, I don't see a lot of front-running the Jubilee.

WTFUD's picture

If i shove this lollipop up your arse do you promise not to shit on it?

Ah said ya buy one ya get three free until you don't.

surf0766's picture

increasing rate will cause trillions in overseas reserves to flood the US causing inflation greater than the Fed wants.  Then they will have to increase rates even higher to slow ... They know this and the loop it will create.. They will only raise rates when it no longer matters and the U.S becomes irrelevant as the Fed already is. .  Just as Dear Leader is steering the ship

hamstercheese's picture

...I think the dollar would strengthen, this would cause lower import prices.  Probably be deflationary also since less money would be created since there would be less loan creation.