* CB;s are clinging to QE, but the correlation in long duration bonds between Us and Europe is likely to break up, generating increased assetvolatility in the process.
We are entering a new phase where many western countries will find themselves in a situation where synthetically low rates is increasingly making a workable exitplan very difficult.
My guess is that Centralbanks will wait too long before they raise rates, risking stagflation to develop pre raising. Once they do raise they will be unnecessesarily far behind the curve, generating a swift and drastic rate rise once the trigger is pulled.
* Whats happening next then?
Greece still in focus, and may remain there for a while still, as the Greece April and May refinancing is rapidly approaching. Otherwise, it seems the headline frequency would indicate it is a bit overdone.
Nearterm I am positioned for lower equitymarkets, banksectors and Eur/Usd, weaker Zar and Try.
* The Swedish bullcase
The increased focus on sovereign debt has served Sweden well, since Swedish finances, from a relative perspective is doing quite well. A word of caution is warranted here however.
1) This is now a clear consensus trade by every category of the market.
2) Europe and Sweden has not cleaned up their toxic assets in the same way US has. Sweden and their baltic assets being a case in point. Swedbank still has baltic assets valued at very weird levels; Swedbank lost 11Bn SEK last year, they have baltic goodwill valued at 12 Bn SEK.
This equates to the board expecting a 6%-7% annual growth for the Baltic assets for the next 30 years!
Now, thats a crystalball for you.
The Baltics is still an unstable asset area no matter what the banks say,
3) Sweden is one of the few countries where the vast majority of household loans are floating shortterm rates. and loanvolumes are still rising sharply,,,,,,, Should/when the Riksbank be forced to sharp interestrate rise,,,,
Well see,,,,
Anyway, short term I expect weaker SEK assets.
As usual, good luck
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