The reflation trade in reverse?

Is the reflation trade coming to an end?
This trade started back in March and while we’re approaching the end of the second quarter aka first semester, everything is becoming heavy.
The trade was simple: sell dollars, sell govvies, buy every other asset class. .
But we observe that the hottest stuff is already rolling over. The major indexes still hold, but it seems to be just a matter of time.
Would this mean that what went down, will come up again?
As there are: a stronger dollar and higher prices for US Treasuries?
And also lower commodity prices and the emerging markets losing steam?
One thing is for sure: the economy seems to stabilize, but it’s only a rebuilding of inventory. With raising unemployment, the consumer is trapped and no way he’s able to obtain this is through savings. Or better: less consumption.

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Ponzi, hedge funds and the reflation trade

The Frankel International fund is a South African construction. Lately we hear a lot of rumors which are not positive at all. Seems to be a Ponzi scheme where well known UK business men and some Monaco-based Russians are involved.

In the mean time we learn that hedge funds are working on their come back. Liquidations fell by 50% in the first quarter from 2009 from the record levels we saw in 2008.

Do we see the reversal of the reflation trade?
If so, buy government bonds aka TLT.

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Back from where we came....

Do you remember the end of May?
Everything was pointing to the great reflation trade: commodities were soaring, stock markets sprang higher and real estate showed some signs of life. Commercial Mortgage Backed Securities (CMBS) and Assed Backed Securities (ABS) rallied.
But this blossoming has gone in the mean time and we’re back to square one.

For a moment we thought we could defy the laws of supply and demand, but the truth is already setting in: we can’t. Supply is too massive and demand too tepid to see a sustainable price recovery.
Weak bank assets gave us a weakening consumer leading us to even weaker assets. Consumers and real estate have still more way to go on the path of deleveraging.

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Themes

Theme 1.
China = commodities. All these shipping movements are caused by inventory building by the Chinese. But production is still going down compared with the figures from the same month last year.
Ship owners are now charging 58.000 USD a day for large bulk carrier freighters but just 24.000 USD for next year and 2011.

Theme 2.
Indices are moving at the start of a week. Not at he end. This week is an expiration week. And the opening gambit was down.
Technically we’re moving in a very narrow range for weeks now. The reflation trade is a very crowded trade as is the ‘dollar is weak, bonds are weak’ trade.

Theme 3
This week Research in Motion is reporting results. RIMM, AAPL, GOOG and the semiconductors ETF SMH are holding up the NASDAQ. If they go, the NASDAQ will go too.
Not to forget: there was a time you had to be invested in individual names but the market has transformed to ETF/sector dominance.

Theme 5
The inversion of short term LIBOR-rates and short term Treasuries. Normally LIBOR is yielding more than the ‘safest’ investment on this planet. However, this is not the case for the moment as everybody is dumping govvies.

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