This week’s headlines • A market led by a few • The dangers of convertible bonds • Spitznagel: “The market crash has just begun” • 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. 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 “growth stories”, and these losses will not only affect individual stock holders, but the entire market.

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 Bank’s 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 CoCo’s 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, that’s when you get the liquidity holes, that’s 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 oil-production 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 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 Matilda Andersson Tomas Nylén Leo Dajaku Technical Analysts Carl Becht Emil Esbjörnsson

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 it’s negative in the medium term.

U.S 10 Year Bond

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.

Björn Borg

Björn 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 stock’s 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 short- and medium-term.