Equities; are we all long yet? - How much longer will the bearmarket rally last?

Hope all of you had a great Easter. Back from Easter skiing. Cant complain about the weather, sunny and 12C in the shadow and loads of snow. Nice, very nice.


* Asset bulls rule - for how much longer?

So, apart from seeing a few sharp stop moves around this Easter weekend, it seems the market sentiment has continued to focus on the bullish asset theme. How much longer will it last for?

Well, the US bankreports should continue to do well since the US authorities seems to have asked the bankers themselves what rules they want. As I mentioned last week, the upcoming better than expected bank results are very much a fudge product. Investors beware. However, market positioning and thus sentiment has fit very well into this. Resulting in short term gain for long term pain. One does not have to believe the story to capitalise from it. Or, actually, one should not believe the story if one is to capitalise from it. Take that profit, son.

The US bankreports still seems like a bull factor. At least during and immediately post the US banking reports. The GS results that were announced post US equity markets close yesterday were way better than expected. I expect more "better than expected" announcements.

*Clouds on the horizon - are they heading our way?
However, I can spot a few clouds on the horizon from here. If they head our way, the day at the beach could quickly turn into a rather unpleasant hurricane.

I am starting to check where the exits are. I want to make sure I leave the party in time.
What clouds am I talking about then? Well, apologies for being a party pooper but the macro situation is still quite dire - globally. No fudging of asset values in the world is going to change that fact. The US government can help banks pretend the market wants to pay loads for their assets, but if nobody wants or can afford to buy it from here and onwards the writedowns will have to come. Especially as defaults kick in.

There will be severe unpleasantness further down the road. Even if the toxic asset market do recover it is most likely due to yet increased leveraging. We all know how that will end. Taxpayers (at least the US ones - for now) will then also be even more debt ridden. Conclusion; Stop this. Mark to market. No fudging.


*The Baltics and the CEE
The Baltics and the CEE situation has yet to play out. Unfortunately, I dont expect it to be pretty. Latvia released March´s unemployment rate today; 10.7%. The highest in 11 years. No surprise there. Apart from it being so - low.

Unfortunately I expect the Latvian unemployment rate to grow exponentially worse from here. The private sector shutdown gathers momentum. The devaluation timing on this one is purely political. Therefore I choose the unemployment rate as the main domestic economic indicator for political pressure build up.At between 20%-30% unemployment rate I expect the fixed exchange rate lid to blow. When will this be the case? 3Q?

Current budget negotiations in order to make the self imposed cost cuts do not seem to go that well. I put a question mark over whether they will succeed. These were the terms agreed with the IMF. It is not out of the question that IMF steps up the pressure and demands a devaluation in exchange for further IMF funds, should Latvia not meet the agreed budget cost cuts in order to achieve the stipulated 5% of GDP budget deficit. With the kryptonite like deflation in Latvia, the current economic situation is simply unsustainable. As long as the LVL is not allowed to float the downwardspiral will just continue. What we dont want is for Latvia and the rest of the Baltics to turn socially unstable. The risks are increasing as the stakes are raised in this -" I -dont - want- to -take- my- stop" foolish game the Latvian government is now playing (along with many other governments around the world). I am still long Eur/Lvl via outright.


*Position changes
Still monitoring Oil closely.
-My Eur/Usd, Gbp/Usd, Gbp/Chf and Eur/Chf long gamma positions have all expired. Net, net not much result on those.
- Long Call on Morgan Stanley for their report tommorrow.


As always, good luck








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