A new month,new opportunities

Going into the month, I have a few main themes;

1) The rebound in US bank stocks
2) The Baltics - Scandinavian Banks - Swedish currency domino dilemma
3) Russia, Turkey, South Africa and CEE`s downward slide gathering pace


1) The US bankstocks rebound from last week will most likely stop today, at least temporarily.
In light of last weeks positive developments; VIX falling off a cliff, credit and mortgage spreads tightening, I will focus on whether US banks stocks will fare any better than their European counterparts. Looking for any break up in correlation.

Overall, on a relative basis, it seems to me there is more gloom and doom to come out of the Eurozone from here. Lets face it, the Euroarea itself sits with all PIGS countries running unsustainable deficits already, and we havent passed Zenit as of yet. Those CDS spreads are not looking good. I guess the Maastrichtcriterias are out of the window from here on. In this environment, those countries will realise that "debt lasts, assets dont". Fiscal stimulus or Zero rate policy, anyone? Skip the talk about joining the Euro. Ask how long will it last instead. The strains could become overwhelming in this recession.


2) IMF releasing terms and conditions regarding their loan to Latvia this week. If Ukraine is anything to learn from, the UAH has been allowed to slide in line with IMF recommendations. The fact that BOL only has reserves for another 9 months if they keep on supporting the LVL at the current pace provides a clue. One should also notice that there is no external speculation in the LVL due to the wide forward spreads. The outflows stem from internal flows combined with the Scandinavian and Swedish banks covering their needs. With an imploding economy, empirical and logical evidence should point in the direction of a float, sooner rather than later. This despite official assurances of the opposite. Scandinavian and Swedish banks should suffer if so. So should the SEK. Will review timetable post this week.


3) These countries downwardslide has gathered pace recently and it seems like we should see more evidence in assets there deteriorating going forward. This will hurt Europe the most.
Turkey has alledgedly been receiving quite a bit of FDI and realmoney flows from the Gulf states up til now, helping Turkey in avoiding a steeper downturn. Those flows are now drying up and Turkey will surely need all the IMF money they can get. the sticking point with IMF at the moment is the fiscal discipline area, where Turkeys current government is trying to avoid the IMF straightjacket. Russia is sliding and CEE ditto. The process of steeper yieldcurves, weaker local currencies is already in progress. Europe will be hit hard.




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