Green shoots? Brown shoots?

Happy friday,

* Markets still trading with a bullish undertone - for now

The "Green shoots" consensus will likely be severely tested before long. Especially with China´s latest inflation data showing China back in deflation. However, there are some positives; Koran expects the Korean economy to make a U shaped recovery and the Indonesian current account is back in surplus. For now this should provide an indication as to increased investment flows into these countries, indicating their currencies strengthening as well.

* The Baltics, its not just an economic issue - its a geopolitical one as well
With Russia keen on securing their Russian minorities wellbeing in neighbouring countries, this is an issue that should not be ignored going forward. With the Baltic states economies imploding at an accelerated pace and the IMF paying and applauding the Baltic states to continue down this cul de sac, this will enivetably lead to social upheaval.

This will be an ideal environment for an opportunistic neighbour to intervene. Finns, Swedes, Poles and others should be very wary. This has all the ingredients to become an issue way bigger than anyone is currently expecting.


* What to do then?
I suggest abandoning the Ostrich approach and start dealing with the issues at hand here. Correcting them as need be. This is my suggestion for a straightforward solution;

1) Secure funding for the Baltic states via the IMF, the Worldbank, the EBDR, the EU and the neighbouring Scandinavian countries. This funding should be big enough to be able to cope with the massive social effects that will come in the wake of a 40%-50% currency devaluation.

The Swedish finance minister Mr Anders Borg is technically correct when he declares the fixed exchange rate a sovereign decision for the Baltic governments. However, it is quickly becoming an international question. Why? The Baltics states are more or less depending on IMF sponsored funding. Thats why.

The Baltic governments dont know what to do from here, hence, they continue down the dead end street.
The Baltic states private sectors are becoming extinct. They need advice - now.

2) Float their currencies. Lets face it. The Euro can wait. This is not the time. Later perhaps.

3) Manage the Baltic afterchocks.

4) Support and assist the local private sectors. Get exports going again, - jobs - tax revenues, consumption - investment - growth.

This is doable now. The sooner, the lower the overall cost. To wait and postpone will surely make this very costly.

Disclosure: I am long Eur/Lvl forwards, Swedbank puts.


* New positions and positionchanges
None



Have a great weekend
As usual, good luck





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