European creditplug remains, expect a stronger Euro towards the end of the year, near term it looks soft though.

* European financial sector repatriation a theme towards the end of the year
European creditgrowth has imploded over the last six months, hence, net external assets are likely to decline.
Meanwhile, financialmarkets yieldhunting is growing as steep yieldcurves and lower volatilities forces funds into assetmarkets in order to generate any return whatsoever. Highest yield wins, (currently) no matter (almost) what. Quality of the asset currently seems to be of second order importance.

To some extent it is understandable. The Centralbanks liquiditygates remains open. (With RBA the current exception, sending signals of a ratehike this fall.) Centralbankers are acutely aware of that the current rise in assetmarkets is a function of Centralbank liquidityflooding.
The Centralbankers current one (and only) plan for now is for this flooding to float crappy assets too, bringing collateral and balancesheet relief to the financial sector in the process.

Since March, US investors have stopped repatriating assets and has since seeked higher yielding investments away from the Usd. 9.5 Trn Usd still remains on the US sidelines yielding zilch. Hence, continued outflows are to be expected.

* Assetmarkets and Eur/Usd to benefit towards the end of the year
With the German election over, I expect the Landesbanken consolidation to shift up a gear or two. The seven Landesbanken will likely be consolidated into two or three only. This means consolidation of assets and a likely refocus on domestic biz only. Hence I expect some selling and repatriation of foreign assets, benefitting the Euro towards the end of the year.

This, combined with shaky European financial balancesheets and US investors shifting assets abroad, spells a higher repatriationled Eur/Usd theme towards the year end. Higher assetmarkets and continued yieldhunting should follow. As Ive mentioned in previous notes though, the JPY should remain strong "no matter what". Not for the USD and the GBP though, as these are the new funding currencies of the world.

To top it off, the ERBD has asked for a 10BN Usd increase from its member states, funds to be spend on the CEE economies. This equals an increase of ERBD;s equity by 50%. More handouts.


*Risks on the rise - but they will likely be allowed to build for a while still
Near term threats could cause some turbulence
The current developments are obviously increasing financial risks. Especially as consensus is increasingly viewing this as a sustainable recovery. Equityvaluations are quite high (not a problem if one believes the sustainable recovery theme,) China´s 60th revolution celebration on 1 Oct could be the startingpoint for a tighter creditpolicy. This is obviously something to monitor.

Once this fairytale turns on its head, the velocity might surprise a few.

* New positions and positionchanges
- Took profit on my long Gbp/Usd puts.
- Took profit on my long Gbp/Jpy puts.
- Took profit on my long Nok/Sek spot.
- Stopped out of my long Eur/Chf spot, Eur calls expired OTM
- Stopped out my remaining long Usd/Zar spot.
- Stopped out of my long ETF SKF

Currently no positions




As usual, good luck




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