The toiletshaped recovery

* Will the recovery be in the form of a L, V, W, I or a Nike swoosh sign? Lets add the toiletshaped recovery to the list.

Assetprices had better stay pumped, bringing relief to fragile balancesheets or this "recovery" will be flushed down the toilet. This is a real and present danger. Important to remember in the midst of the tallyho- party - drunkedness.

Many assetclasses now seem to indicate a move lower. Im putting some positions on that way.
G20 this weekend and expectations are set for a continuation of the asset rally next week. Im buying front end vol. The Chinese 60th revolution anniversary is set for 1st October. Post it a probability for a decrease in Chinese efforts to pumpmarkets should increase. Im buying front end vol.



* G20 in Pittsburg
US; Increase banks capitalratios. Makes sense. If authorities control bank`s leverage, they will control payouts as well.
Europe; global legislation re bonuses. Smoke and mirrors.

Only reason European finance ministers cant follow in the footsteps of the US suggestion;
The shape of the European banks. So far they have done way less in terms of refinancing and the remaining financing need remains about twice as high for the European financial sector.

The European financial system would not be able to cope with higher capitalratios, simple as that, and the finance ministers are acutely aware of it.

European banks wont have to write off their meat - and potato- bad loans to households and corporates til those loans are defined as nonperforming loans. US banks have already done substantial writeoffs as subprime and related markets went down the drain. To a certain
extent they had to. These were traded financial instruments. The European financial sector did not have this exposure, hence, not alot of writeoffs.

Exposures are on a gigantic scale still, although meat and potato. If you cook meat and potato with high enough leverage, it eventually runs the risk of turning into something very toxic.

Meanwhile European politicians are helping out by moving the goalposts during the game by vastly increasing the timespan before a bad loan has to be classified as a non performing loan and assets have to be written off.

Austria being the latest case in point.

This is one big game of liar`s poker, lets hope unemployment comes down soon and that real growth kicks in once the global stock refill is completed. Theres not much ammo left for policymakers at this stage.


* The remaining strategy
Only remaining global policymaker strategy is this; pump those assetmarkets further and higher by keeping quantitative easing in place. This will bring balancesheetrelief to the financialsectors that need it (households too). This will release the liquidity plug. How to handle the following velocity of the monetary base? By tightening like crazy. With unemployment still rife. Good luck.

On the other hand, economies could just fall into recession again. Hmmm,,,,,


The European bonus regulation talk is merely opportunistic chatter. Wouldnt hold my breath on that one leading anywere. As is, unfortunately, standard procedure when it comes to European initiatives on the international scene. Pick your subject.


* Position changes and new positions
- Deltahedged my long Gbp/Usd puts as spot crossed the strike.
- Bought lower delta Gbp/Usd puts.
- Bought Usd/Zar spot
- Bought Usd/Pln spot
- Sold Gbp/Nok spot
- Bought Nok/Sek spot
- Bought SKF ETF


As usual, good luck




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