This weekends G20 meeting = a stronger Usd.

* Big short Usd bets are about to go wrong

The FED is not going to devalue the Usd via a QE2 "shock and awe" approach, rather it will be pragmatic, based on a meeting by meeting approach with no commitments for any longer term approach. The bondbuying seems to be estimated to become about 100bn Usd at the time. This is way lower than the market has priced in.

There will be no "currencywar". China is preparing measures to reduce creditgrowth and inflation as well developing domestic demand and reduce leverage. This will require a stronger currency, higher interest rates and less bank lending, reducing credit further. It is necessary to stop the Chinese realestate market spiralling totally out of control. Or has it already? Over the last three months realestate prices in the most attractive locations have alledgedly risen by 40%! From an already very much inflated level. Anyone hearing the sound a bubble popping?



Both this weekends G20 meeting and the upcoming EU heads of state meeting the weekend after will both work in favour of a stronger Usd.



This will also have a negative effect on Gold, Copper and Oil - a few other overcrowded trades . The weaker Usd, continued strong Chinese growth, weak currency and a continued strong growth of global imbalances have been important variables driving these trades.


Well, time to take profit and reverse.



* This weekends G20 meeting

The probability for an agreement between US and China has, according to the best guesstimates out there, increased from 40% pre the Chinese rate hike to 60% post it. In either case, the signals seen so far, (with China basically handing over the printing press weapon to the US by hiking their rates and increasing their own sterilizationcost at the same time as the US has scaled back their QE approach to a pragmatic - meeting by meeting one instead of "shock and awe"), indicates there will be no "currency war" (silly name).



So, from here on, global rebalancing and deleveraging could be the name of the game. This means lower growth in the Western hemisphere and increased risk for ditto in the Eastern one.

In any case, its the right riskmanagement path and it is way better than the very high risk alternative of continued global imbalance building and then disaster - scenario.




* Assetliability ratios to go lower again - credit multipliers to drop and ditto for profitability.

We have likely seen the global liquidity peak this time around - time to review leverage set ups as implied and realised volatilities are set to rise



*Emerging markets - yet another overcrowded trade. This one is running the risk of turning the "holy grail" into "holy sxxt!"

Emerging market inflows are now back at the record levels at the end of 2007, beginning of 2008. Theres a big difference between now and then though - initial liquidity. While liquidity at the time was very good, it is the reverse now - despite the low volatility circumstances.
Once vol starts pumping up, liquidity will be nowhere to be found. In emerging markets this is normalprocedure, but there are always various levels for illiquidity and this time around such a scenario is running the risk of being the worst nightmare for naive investors and speculators.

Trust me, so far I have always been on the "right side" on any emerging market crisis, you do not want to be on the wrong side of it,,,,, This time around the exitdoor might get clogged up altogether.

Perhaps not today, or tommorrow, but the signs are building.



* Positions and positionchanges
No changes




As usual, good luck














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