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

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)

This is a companion discussion topic for the original entry at

Productivity investments do make sense, thanks for that analysis.  This is the best financial discussion I have heard yet.  Thanks Steen for saying that a 30% to 50% whack on the stock market will only affect 10% of the US population and that is really what we need to turn around the investment classes.  Most of us are not concerned how far they fall of their step ladder, let 'em drop.  Our infrastructure is a national embarrassment second only to our educational system.  Our medical system follows as a close third.  (My father-in-law very recently passed away, we were fortunate enough to be able to care for him at home were he was able to have a peaceful death. Dealings with the medical system was an astounding embarrassment.  Hospice nurses were the one exception to all this).
Is this materialistic, wealth worshiping, me myself and I culture willing to sacrifice anything for something bigger than themselves?  I am afraid most political and economic opinions are based on the I want my cake and eat it too theory of life.  "If only there were less people, then I could have nice fat bundle of resources again to consume for myself, If only we had free markets, then everything would fix itself with no pain to me, if only we had sound money then everything would self correct with no pain to me."  Because of course we are the only smart diligent hard working people who deserve anything, everyone else, the sheeple as they are called, are indolent, lazy go for nothings who are after my hard earned stash of stuff, why should I sacifice anything for them.  I'm stocking up on amunition and armaments.  Why should I invest my hard earned money in the education of somebody elses kids, why should I help pay for a bridge that somebody else drives on, me myself and I, memyself and I, me, myslef and I!

This makes sense
The paper has reached its horizon - still paper is clouding it


Any turn has to turn sometime, at a time of fundamental shifts those who are

ahead, and aware can see how a shift from Wallstreet may serve all of us.


Thanks for a great riftvalley of content

I an financially illiterate so for this podcast I had to first find out what it was.

Selling something you know has no value
From this trailer. 

Margin Call Trailer:

I really like this guy. Time to stop complaining and start taking action. This is what I decided to do. I own some residential rental property in Florida. I first planted low maintenance Florida native trees and shrubs to block the hot summer sun and bring some nature back. Next I have started replacing light fixtures with led bulbs and started sealing the units for air leaks. My tenants have been very happy with the improvements and really like the idea of saving on their energy bills. The like it so much we are talking about me installing solar panels at my cost and they will pay me the difference in the electric bill until the panels are paid off or they move out. I am enjoying this so much I plan on buying another unit. This may not be the best return on my money but it feels good and I can still make a living. 

That "feeling" is the feeling of "real" wealth.
congrats, robie

Chris. Great interview.
I really like your proposal on a financial penalty for police brutality. " My solution to that would be listen if the police want to behave that way, that’s fine. But when they lose a civil judgment that comes straight out of the police pension and it’s not made whole or topped off by the taxpayers. Trust me, after the police lose a few million out of their pension the local police, the retired ones will all get together and say “We can’t have that guy on the force anymore” and it will solve itself. I think market forces could solve this."

This is a side bar to a great interview. On the larger point, I agree that we need to be ambitious and invest at home rather than chasing yield in an insane market.

Can someone please explain to me why anyone would buy a bond at a negative interest rate? 

Here is one example:
Let's imagine you are the CFO of a company in the Eurozone.  Your job is to make sure your company's bills get paid.  To do this, you must safeguard (let's say) a quarter-billion Euro in working capital - to make payroll, pay suppliers, etc.  It has to remain relatively liquid, but your top directive from the board is, "don't lose the cash, whatever you do."

Do you:

a) put it in a bank account, where amounts in the account over 100,000 euros are subject to bail-ins, and for which you receive no interest?

b) buy short-term euro-denominated sovereign debt (i.e. around 30-90 days), for which you pay a nominal fee of 20-30 basis points?

Hands down, the answer is "b".  Answer "a" will land your company in a world of hurt if you happen to lose "bail-in roulette" by having your deposits in the wrong bank.  And in spite of all those passed stress tests, "everyone knows" that the banks are over leveraged…which just happens to be true.

Just my opinion.

Perhaps I need to listen the Podcast again, but I give this one a little bit of mixed reviews.  There is nothing wrong with some of the content, but I will share my "eh" reaction first.  Maybe it wasn't meant to come across this way, but I thought some of the "just stop complaining" comments came across as too simplistic, almost as though the interview was part motivational speaking, and don't worry about what you can't control. 

I can accept that to a certain degree, but while approaching 40 years old, it is kinda hard to look at the long term pension numbers related to my job, or social security, etc, and shrug it off as a "take control of what you can" moment.  I still have to pay into those systems.  That said, I agree with the content, as over the years I have been trying to accumulate other savings using other vehicles.  Perhaps the disconnect for me comes that there was an acceptance during the podcast that there would be a significant down draft in the market…but the discussion about the long term math related to our problems were not really addressed.

Some of the stuff I did like involved the numbers related to when the coming down movement occurs.  Putting things in perspective, if the market limps down 30% or 50%…I guess it really would effect those with paper assets the most…that said, I still wonder how that would hit the rest of us.  If properly prepared, hopefully in would be minimal.

Don't want to sound too negative.  Taking control of what I can is something I have been trying to live by for the last couple of years.  Since the sugaring season ended I have been heavily involved in trying to properly mulch my small orchard, planting different bushes and trees around the property, getting the garden ready.  So I guess I have been livng by the words spoken in the podcast.



There will be no political will to fix the crony based problems until there is painful full out crash.  Then the danger is a Hitler type character appearing.  Never again?   Remember Dynamite was supposed to end all war.  

Now who wants to put the bell on the cat?

Re-read my post and thought it was too pessimistic…so…thought I would contribute something of value…
On the topic of taking control, those of us who have a little land to garden/build orchards…we should really investigate doing what we can to improve soil/make our land healthier one step at a time.

With spring finally here, I have been reading "Teaming with Microbes" by Jeff Lowenfels and Wayne Lewis, an excellent book about cultivating your soil…treating it the right way to ensure you get good compost, a healthy productive garden, and great soil for your orchards.

It is kinda text-booky…but I am shocked with how much I am enjoying a book about dirt.

Take control of what you can grow on your land…and you don't have to worry about buying it if something happens.



Due to our algorithmal linear thinking habits it appears that we are becoming lazy. And most will agree. Yet the solutions are in opposition to most reactions to this important realization. I feel inclined to remind those that are feeling stuck, the lessons of the fog. And besides, the incentive structures are broken beyond repair. Do the things that help you not do, plant, teach, cook, help. Now is the time for visions to appear. A great power is unleashed when you pair patiently waiting with staring into nothing. Nature abhors that.
You can go ahead with believing we are in just a rough patch, yet remember the energy teachings Chris has shared and practice that internally first before practicing it externally. The great humbling is upon us. Support, love, friendship, respect, honor, ect… To help deal with the despair we share. Fuck it, we say lets go build a fish pond!

If you must do, then hasten this story's demise.

It's all about balance for me now. It is hard to make all the correct choices in this world we live in. You still have to make money to survive. What bothers me is how much waste our resources. I had to replace a entire stove because no one made a 50$ circuit board for it anymore. All the work and resources that went into the frame wasted. The stove could have lasted 30 or more years. It was less than 8 years old!


A year or so ago my brother's dishwasher that was 4 years old went.   The GE service tech stated the part was no longer made so a newer model was needed.  I explained to him that this kind of equipment down to blenders used to work 15 to 20 years with minimal maintenance.   He replied back that replacing equipment more quickly is better for the economy.   

This confirms that Bail-ins are now accepted as part of our financial landscape. That really sucks.

As we've long stated around here at PP, you must assume that the rules will be changed.  Uh, in favor of those in power (as if that needs to be said).

So join me here in wondering at where we all find ourselves.  It is now possible to write the sentence "you might lose most of your money in a 'bail n' so invest in negative bonds" and if you had told me ten years ago that this would be written, I would have rebelled and rejected it as impossible because who could believe such a  thing?

First off, I do have to say that this was a very thought-provoking interview.  I think that Mr. Jakobsen obviously brings a tremendous amount of knowledge and expertise to the table on the subject of capital markets.  And I did really like his argument to abandon paper instruments and instead look to actually invest in people you can shake hands with, who are doing good things to increase productivity.  Personally, I think that this is the next wave in investment (or, put another way, getting back to ACTUAL investment instead of speculation) – but I also think there will be a lot of pain and destruction of financial instruments before we get to that point.  I also thought there was a great deal of logic behind his idea that a 50% correction in the equity markets will help to minimize inequality levels – not by raising up the bottom to an unrealistic standard of living, but rather by reconciling the tertiary economy (financial paper) with the primary (natural resources) and secondary (manufactured goods and direct services) economies.
One thing I've noticed over time, though, is that when you often get financial and economic specialists branching out into other realms, what you too often find is that their conclusions are blinded by the assumptions nested within their specialty.  For instance, Mr. Jakobsen's belief that the US will have good times in the future, that nepotism/cronyism can be countered by holding politicians accountable, and the idea of investing in infrastructure bonds with a guaranteed rate of return as key to a better future.  I've spent a fair amount of my adult life studying history, both on my own and within a university setting, and I don't see any historical parallels suggesting that any of these things are going to happen.

Kevin Phillips, in Wealth and Democracy, details the manner in which elites within empires transition from investing their capital domestically initially (while returns are still good) to investing capital outside of the imperial center, or in speculative schemes (when returns on domestic investment wane).  It happened with the 17th century Dutch trading empire, and in 19th century Victorian England.  And it's been happening for 25-30 years here in the US.

Then there's the transition within imperial tribute economies, as pointed out by John Michael Greer perhaps most directly, where returns stop being based upon pooling capital toward productive purposes and instead become about gaming the system through corruption and nepotism.  Again, ask yourself where the US is on that continuum…

Lastly, there's the manner in which the people of the US are unconsciously trapped by the story of the frontier that is at the heart of the first 383 years of American settlement and development, dating back to the founding of the Jamestown colony.  As Fredrick Jackson Turner pointed out back in 1893 (, the national character of the United States was largely shaped by the idea that there was always "more" just over the horizon.  Except, for the past 125 years, there hasn't been "more" in terms of land, and over the past 45 years there hasn't been "more" in terms of energy.  Yet, if you take into account our national consumptive patterns, agricultural policy, etc., we are still operating under this highly outdated software, acting as if there is still a "more" out there to be discovered and exploited.  Furthermore, the removal of this safety valve of a growing body of land available for settlement (after it was expropriated from the native peoples, of course) increased tensions within our society significantly during the time period following the closing of the frontier – an increase that was only temporarily ameliorated by the ascendancy of the US to the status of a global empire with the tribute economy that goes along with that role.

I don't think that any of these factors, looked at as a coherent greater picture, bode well for America's future.  Then, add into that equation the vast majority of people who look to outsource as much of their own lives as possible (turning over their retirement funds to financial advisors, eating processed food-like products from the grocery store, cheering military adventurism abroad while insisting it is to be left to "others", etc.) so they can continue to while away their free time watching TV and engaging in consumptive activities (lavish vacations, playing golf, amusement parks, sporting events, etc.), and the picture begins to look even less rosy.  But it does make the work of those who have managed to pull our heads out of the sand and get busy taking control over more aspects of our own lives even more important, because when things do finally implode people will be looking for ways to hold on to at least a piece of what they've become accustomed to.  And unless we are there to say, "Here's what I did, and let me show you how I did it," they will turn to demagogues promising to return them to a mythical golden age.

I moved to Florida in 2010 and bought a house here in 2011. Since then I have replaced the AC with a new high efficiency unit, replaced the air ducts, insulated the attic, and installed new energy efficient windows and doors. In 2012 I installed a solar hot water heater and installed solar PV. I also replaced the appliances and light bulbs.  
Payback on my investments will take 15 plus years, but I e did it to try to do the right thing. One thing I think is disturbing here in Florida is they passed a law requiring residents to be connected to the grid. What? Energy independence is illegal in the sunshine state? So even if I use no energy from the grid, I have to pay their fees to build energy infrastructure I may never use. Our state government at work.

Now another issue I have with government is the insane rules on hemp. We still can't grow it here in Florida where it could yield two or more valuable crops per year. Kevin Hodge is about to open a facility that can build hemp adobe homes near Reno, NV. Hemp adobe is highly energy efficient, insect resistant (no timber used in the building process), mold resistant and Kevin has tested hemp adobe with a 4 hour continuous flame with no ignition. Hemp adobe homes will come in at about $80 per square foot compared to a national average of $125 per sq foot to build with traditional materials. A 1,000 square foot home can easily be stood up on a prepared site in less than a week. Hemp adobe materials will be made into cabinets, counter tops, etc. Add your appliances and move in. 

We still face opposition to hemp in this country because of its association with marijuana, even though they are not the same thing. I get resistance from even discussing the benefits of hemp with some people as the lifelong impact negative government propaganda has brainwashed us into thinking that the cannabis plant is somehow evil. 

To be clear, hemp has amazing properties and potential benefits for mankind. The seed is among the most nutritious foods, including omega 3s, 6s, and 9s. Hemp can be used for fashion, paper, clean bio fuels, nontoxic biodegradable plastics and so much more. All of these benefits, yet the government and media are not educating the public. To learn about hemp, people need to explore the topic for themselves, but most don't have the time or inclination. They can't be troubled to think seriously about the future sustainability of the earth.

If we as a society can't even have a public discussion in the media about the huge benefits of a plant, how can we expect to get anything done about education, deteriorating infrastructure, pollution of the oceans or anything else? The powers that be have succeeded in controlling our consciousness to the degree that we have lost the ability and even the desire to do any analytical thinking for ourselves.We don't know what is good for us unless the media tells us what it is. Getting people to think in terms of the future preservation of the globe is too much of an uphill battle for them. Most are too apathetic to be bothered. People are conditioned to only concern themselves with themselves and their immediate families and situation. It is too much of a burden to think of anything else.




You well said: 'Lastly, there's the manner in which the people of the US are unconsciously trapped by the story of the frontier that is at the heart of the first 383 years of American settlement and development, dating back to the founding of the Jamestown colony.' 
I am reading John Michael Greer's novel "Twilight's Last Gleaming". It's a great page turner.  But he is also such the dry humorist in his writing.  The name of his American president when the country finally is soundly defeated is 'Jameson Weed'.  For those of us who dabble in herbal medicinals the Jimsonweed or otherwise known Jameson Weed was accidentally served in a salad in Jamestown the first year of its settlement.  The dinner party was taken very ill with the hallucinogenic and amnesic affects of the Jameson Weed and took days to recover.  In a similar way, over its history America has been caught up in its vision of Manifest Destiny to the point of tripping out with the vision that the whole world was its own personal oyster. 

Greer's novel is an sobering look at a possible end to that hallucination.  However it actually ends, I think our sobriety will be hard at first.  My hope is that, after the hangover and headaches,  we can get beyond being a sober drunk and start treating the rest of the world with respect.