The ECB is playing liars poker - low yields to remain.

* The ECB is playing liars poker. Jawboning about "normalisation" of the yield curve.
The audience here is supposed to be the EU commission. Sending a clear ECB message that they will NOT agree in substituting ECB monetary policy for fiscal policy in order to finance and save the PIIGS.
Meanwhile, markets have literally believed in the ECB talk, pushing yields higher.
However, as the realisation sinks in that this is just - talk, yields will come lower and so will the Eur. Besides, a stronger Eur is NOT what the eurozone needs right now. In fact, for Eurozone stability reasons, it is necessary for the Eur to weaken. A strong Eur will wreak havoc.

On top of this, this weeks ZEW and IFO numbers are likely to show a Germany topping out and turning down, which will really cause angst among politicians and policymakers. Expect some political jawboning for a weaker Eur nearterm.


* China - best and worst case scenario
Running into the G2o meeting it might be worthwhile pointing out the obvious fact that China is running a nonconvertible, semifixed currency regime, which is NOT in line with open, free markets. These facts themselves have caused severe disruptions to the world economy cet.par.

A best case scenario, both for China and the rest of the world, would be for China to let its currency float. This will infer economic global pain, a lot of it. However, letting the China bubble grow further would not only infer economic pain but could also mean a new level of armed conflicts, beyond control. You choose; rebalancing today with upfront pain, or fingers crossed with upfront pleasure for extreme pain tommorrow?

What do you choose?
Humans normally pick the latter, while riskmanagement states the former.
You decide.


In any case, we are in for some very rough and turbulent times. Rollercoasterstyle. But as any rollercoasterrider knows, its on the way down the scary stuff starts and it always ends the same way; down at the bottom where we started. Question is; where is that?


* All in all
Shortterm we are in for a pre G20 correction in assetmarkets.
Beyond that, set up for BIG trouble continues. Big questionmark is whether there will be an agreement in the near future on rebalancing or not. Without it, assetmarkets will remain positive, til we sail out into the storm again.


* Positions and positionchanges
- Short Eur/Usd, Gbp/Usd, Eur/Jpy, Eur/Cad and Gbp/Jpy since last Friday.
- Monitoring equity indicies, gold, silver, copper, steel and oil for signs of a correction lower.



As usual, good luck







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