Post G20; Policymakers sliding further into bubble pumping?

* Post the G20 meeting "happy days" sentiment has expanded

The Usd is weaker, even triggering the upper 1.4450 barrier of the Chinese originated Double No Touch in Eur/Usd earlier in the week. I was positioned for a stronger Usd, weaker commodity currencies (Aud) and financial currencies (Gbp)via options and the timing for this was clearly wrong.

Although the financials in equitymarket have remained subdued post the G20 meeting, the current sentiment has remained focused on the almost global centralbank commitment to keep the quantitative easing programme in place til a recovery is secured. Criteria for an exit being an improving credit multiplier effects as well as lower unemployment.

Unfortunately, I wouldnt hold my breath on those variables improving drastically any time soon.


*Policymakers still with guns blazing, but the ammo is running out
Unorthodox measures still rules as conventional policy tools have been exhausted.
With near zero interestrates and creditmarkets not able to function properly, assetmarkets are left to fill the void.

Assetmarkets are used by policymakers to provide monetary stimulus via frontloading the assetmarketrally, generating financial market optimism and increased riskappetite globally.
This in turn is generating asset and balancesheet relief to banks and corporates.


*Now, what about sustainability (trendy environmentrelated word these days) in the financial context?
Well, the bubble could theoretically last long enough to bring along yet another burst of growth, but the risks will also grow exponentially. Especially as the misallocation factor into assets at this stage of the cycle risks becoming very high.

However it will become increasingly diffult to maintain the current rosy outlook given the optimistic scenarios that are currently priced into the assetmarkets. Currently, negative news regarding the current creditsituation is transformed into positive news via expectations of further stimulus measures.

While the markets might very well be correct in the assumption that policymakers are caught with their backs against the wall, this is likely not something to build long term bullish scenarios on.

I believe this situation is unsustainable regarding the pricing of the market. The G20 related positive impact from the promise of extended quantitative easing is likely to wane going forward.


*Be wary of commodity currencypositioning
Barring the extreme positioning of the carry trade boom in 2007, the CFTC data shows commodity currencypositioning is the highest for at least six years. Hence, ignoring negative news due to the extension of the QE programmes should become incresingly difficult.


*Positions and positionchanges
- Bought Eur/Usd spot
- Bought Gbp/Usd spot
- Bought Gbp/Jpy spot
- Bought Aud/Usd spot
- Bought Aud/Jpy spot
- Bought Eur/Sek spot
- Bought Eur/Nok spot

Eur/Sek and Eur/Nok are short term spot positions
The rest are deltapositions related to my long (fading) gamma
Near term I will focus on gamma trading.


As usual, good luck









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