G20; What to make of it.

Apologies for not writing anything for the first two days of April.
My youngest has been home sick so I decided to devote my time to her instead.
Now, since she is all good now and there has been quite some developments since last time, heres todays piece.

*First off; The G20 actually accomplished something, which is a huge positive.
With no real expectations of any real G20 accomplishments, this is a great boost to market sentiment. The important Jpy is weaker. At 134 ish for Eur/Jpy, above the important 131 level. The Chf and Usd are also weaker.

This all matters since these are the worlds foremost funding currencies.
Implied volatilities are generally lower. The Creditderivatives market has improved slightly with the itraxx europe index and the itraxx crossover index narrowing slightly. Thus, equitymarkets have rallied over the last two days. This should pull liquid accounts into assets, bringing carry traders with them.


*US fudging their bank accountancy rules
US fudging their bank accountancy rules further - to secure the "success" of the Geithner plan? Well, if fudging and fraud equalled success, I guess it would count as such. In my book it is outrageous. Nonetheless, it may lead to an avoidance of short term unpleasantness. I just dont know which normal financial rules and consequences will apply in this environment going forward. With the US FASB (Financial Accounting Standards Board) voting to relax accounting standards, they are actively deciding to move into very murky waters. In essence, making sure investors get less information, creating more uncertainty in the process. Making sure US banks will run the risk of raising too little capital instead of the opposite - the unsafe choice.


*Is this just a complement to the Geithner plan?
Is this latest FASB decision a pure lobby result by the US banks? One has to wonder.
Lets relate it to the upcoming PPIP auctions. If a US bank X puts a perticular asset up for sale under the PPIP auction, it will not have to accept the bid or mark the asset to the price or "midmarket" if it claims the price impairment is "temporary". Further on, If another Us bank Y sells the same asset under the PPIP auction but US bank X does not want to mark their own same asset at that price, US bank X will be able to avoid this by claiming US bank Y sale was a "distressed sale". Thus, in both cases avoiding an income statement hit. See change to fair value accounting (Rule 157), and change to other-than-temporary impairment.



*G20 and the 1.1 Trn Usd to the IMF and the world bank -is it really enough?
The quick answer is no, not if one believes the cost for bailing out "only" the European banks according to the European Commission; 16.3 Trn Euro,,,, However with some additional accounting fudging á la the US and some gigantic government funded "loans" to banks, it might go a long way, but only for so long. (The EU would have to change their current rules for government support of banks in order to get these loans being in accordance with EU law).

*G20 and the "non protectionism agreement" - I believe it when I see it
Admittedly, there was some progress on the coordination front during this G20 meeting but it was clear that Merkel and Sarkozy were not the happiest of campers. One is where all countries actually have a great incentive for global coordination; taxes. Both in closing down existing "tax havens" as well as raising their own ones. Especially for the deficit countries with their frivoulus spending. Both the current and the expected deficitcountries ahead.


*250 BN Usd in SDR;s to the IMF - diversification?
Nope, not really. Besides, this is an accounting product, not trading or tradable anywhere. It will be some time til this materialises, if ever. The USD makes up 44% of the SDR, with the Eur 34%, the JPY 11% and the GBP 11%. If anything it should weaken the Usd somewhat, but I dont want to read too much into it at this stage, since there are currently other factors acting as more important market drivers.

*NFP outcome - bound to be bullish for the markets?
Even if it is a very lousy number, once the dust has settled, it seems the assetmarkets will go bullish nonetheless. The sentiment just seems that strong at the moment. Well see.




*I am joining the bull herd
Despite my skeptical comments above, from a trading point of view, I have to join the bull herd.
Most assets look constructive from here. I am really only long my Goldminer IVN at the moment, (+ 43%), have taken profit on half of it and replaced with options instead. Considering doing the same with the remaining half. Want to keep the digital exposure with the (hopefully) positive decision from the Mongolian Parliament coming before long while protecting profits.

I will revert once I have added on any more long equity exposure.


*Gold bear case gathering strength
I am still short gold via options and with the huge speculative portion of long positions in GLD and the lower riskaversion, improved equity outlook, I expect this non yielding, non dividend asset to currently be under review from speculative accounts. I expect a swift 50-100 Usd move lower before long. (Next 1-2 weeks).


*FX position changes
-Gbp is in vogue, I am long Gbp/Usd, Gbp/Chf via options.
-I have added to my long Eur/Chf and Eur/Usd and Nzd/Usd gamma.
-I have taken profit on my long Eur/Jpy gamma.
With my view of expecting Gold to fall, I am long Usd/Zar.



As usual, good luck, have a great weekend






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