No more pretending needed for politicians - the competitive devaluation competition is official as SNB joins in with - intervention

I am currently involved in expanding and rebuilding our house, which is why I missed out on yesterdays piece. Apologies. Cant guarantee it will not happen again, but as usual, should that be the case, you will of course get reimbursed. Money back guarantee. Back to the market.


*SNB brings their guns out in the open as quantitative easing is applied via FX. SNB intervened on the EBS trading platform used by banks and financial institutions. As SNB filled up limits there they continued via the Swissbanks. Pushing Eur/Chf from 1.49 to 1.5250 in the process. Today spot is more than one big fig higher.
Although I believe the SNB will continue their intervention in order to keep the CHF weak, I could see an initial retracement from here and I am now short Eur/Chf via options for a correction towards 1.50 before resuming the move higher.


*Implications from the SNB intervention

My take on it is as follows; the competitive devaluation strategy is now officially up for grabs for any country -this is not good, since it will feed financial as well as trade protectionism, suboptimising the world GDP in the process, increasing all kinds of friction between countries, elevating depression and other unpleasant risks.

Going forward, FX as a tool to achieve quantitative easing will increasingly come up on various countries agenda as an alternative solution to quantitative easing via just interestrates, as more and more countries get extremely close to zero interest rates. Japan definitely comes to mind. Their foreign bond purchases have been massive lately and as mentioned in previous pieces, Japanese authorities will do their utmost to avoid big valuation losses for the Japanese lifers sitting on most of the 2.1 TRN Usd of foreign assets as the Japanese fiscal year end is coming up at the end of March.

IF these big Japanese foreign bond purchases continues post fiscal year end, I expect further Jpy weakening. FX intervention from the Japanese should not be ruled out either.



* Temporarily CEE relief from weak CHF, less pressure on deleveraging, short term positive

Since Hungary, Poland etc are exposed to CHF and other hard currencies due to foreign currency loans, the weakening of the CHF should provide some relief to these battered currencies. Having said that, the CEE currencies has had quite dramatic moves over the last few days, pricing in the CHF weakness so far and then some.

However, this has been an excellent excuse to squeeze out the short CEE positions and any other crowded positions to be found in any assetclass, and markets will likely seek out all stops than can be found.
A positive is that the deleveraging pressure eases with a weaker CHF. Should the JPY continue to weaken as well, this would of course help.
Riskaversion should ease short term, with higher equities, lower gold, higher Oil as a consequence, despite the upcoming OPEC meeting.
The upcoming G20 meeting should also raise expectations for a more coordinated solution to the global crisis, alhough I believe markets will become dissappointed by the outcome of it.

Hopefully, the G20 participants realise the merits of a weak CHF and JPY, and can agree that it is in the best shortterm interest globally, in order to improve the chances for an orderly deleveraging process rather than a disorderly one. Unfortunately, I think the probability of standard G20 bickering is quite high.


*China making some noice regarding UST - beneficial for Equities -short term
China is making UST bond holders somewhat uncomfortable given the fundamental supply - demand isssue at hand. Without US applying quantitative easing via the long end of the bond market (they cant really touch their currency), risk is for higher yields - shortterm. Driving capital into the equity market instead. A short term play.

*The G20 finance ministers having a "pre G20 meeting" this weekend
I am watching out for some erratic moves pre the "pre G20 finance minister meeting".


* Positions
I have added to my long Oil position as an OPEC play
I am also long IVN, a goldmining stock, as according to official and public sources, they are about to receive a licence to start mining in Mongolia. Over the past few weeks there has been significant Call option interest in IVN for April and June. TA indicates that any weekly break of 4.72 Usd is likely leading to a very sharp move, up towards 7.75 Usd.
It closed yesterday at 4.78/4.80 Usd.


As always, good luck



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