Wild month of July - set to continue?

Back after a long summer holiday, and theres still some summer left. Thin markets, reversing moves at a swift pace. First two weeks of july were bearish , but the last two weeks were megabullish - uberbullish. Although I joined in by buying Citigroup, risks are clearly building
for a bulltrap. Market sentiment and positioning certainly looks oneway in many assetclasses.


*Other reasons for renewed assetmarket weakness

- Chinas insane creditexpansion - More than 90% of the credit provided in China for stateowned banks during the 1h went to stateowned corporates, of which 90% used their credit to speculate in equities, realestate and commodities. The Shanghai index was up 90% YTD as of last week. Since then, there has been a 15% drop lower. It is still very lofty. Commodities have also been pumped higher, although they are currently experiencing a setback. In short the Chinese creditmultipliereffect is not taking place, credit has mainly been used for speculation. This is clearly unsustainable. If theres a creditbubble anywhere in the world, it is in China.

On top it, the misallocation factor is probably at world record levels.

The Chinese centralbank is probably very aware of this. Painted into a corner, I believe they will have to start tightening before long or risk loosing economic control completely. Tightening is in the works - lets just get the 60 year revolution anniversary out of the way first. Once the credittightening starts, equities, commodities and commodity related currencies will have a rough time - big time.

- Deflation is the game - inflation is not. Too early for inflation - still. The global outputgap will soon become apparent for assetmarkets. Global backend yields are on their way down. Growth expectations are priced too high in equitymarkets and assetmarkets. This is bearish for assets, apart from backend bonds of course.

- German elections coming up - bad banks to the surface?
Risk for a renewed focus on German and European credit and bad debt issues. This has so far been ignored by the markets and swept under the rug by the authorities. Risks are increasing for a renewed focus as growth might be dissappointing.

The European banking system is is my opinion in more dire straits than the US one. Should low growth, high unemployment continue, loan losses will have to be written off on a grand scale, leaving taxpayers to pick up the tab.

However, with taxpayer reluctance building this could be a hard one to push through. Therefore, increased likelyhood of more financial institutions being allowed to go bust could be higher this time around. This is NOT priced into the market.

- The Baltic impending bankruptcy - core Europe might share a similar experience before long. Russia not feeling well either. A lower oilprice does not bode well.

Besides, with harsher conditions likely for Europes financial institutions, the European Commissions willingness to pump money into the Baltic black hole will likely wane. Not least due to domestic political consistency reasons (equal treatment of European financial institutions and countries). Overall bailoutcosts rising should also force a prioritasion where the Baltics will slide down on the list.

Net net, I am erring towards a setback before long. A classic bulltrap.

*New positions and position changes

Squared my positions and took profit as the Chinese GDP number came in as expected in July.

Current positions;

-Long Gbp/Usd puts

-Long Eur/Usd puts

-Long Eur/Jpy puts. Partially deltahedged.*

- Long Aud/Jpy puts. Partially delta hedged.

- Long Aud/Usd puts. Partially delta hedged.

- Long SKF ETF via options

- Long SAS Airlines stock



* Optiondelta hedge smaller than prescribed market delta.



Good to be back.
As usual, good luck.






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