G20, EU and IMF Firewall Timeline

Includes: CHFC, FXE, UDN, UUP
by: Douglas Borthwick

G20 Finance Ministers will meet this weekend. At the meeting there will be a discussion on the IMF and increasing its resources. Led by Japan's Finance Minister Jun Azumi, a poll will be taken among the ministers. So far interest has been expressed by Japan, China, Brazil, Australia, Switzerland, the U.K. and Europe. No decisions will be made at this meeting, but the poll will serve as a foundation for the IMF firewall that will likely be announced in late April.

The IMF is looking to raise 500-600 Bio USD. Europe is likely to contribute 250 Bio of this. Last night a "trial balloon" was floated in the press suggesting Japan would contribute 50 Bio USD. I expect China will match Japan's interest, especially given they stated last week that they had agreed to act together regarding IMF contributions.

On March 1-2, I expect the European Union will move to combine the permanent and temporary bailout facilities (EFSF and ESM), in a move supported by the ECB that will create a European firewall totaling 750 Bio EUR.

Assuming that the European Union has combined its bailout facilities, thus fulfilling the statement from Azumi that "Europe needs to make more efforts to create a bigger firewall," the IMF meeting in Washington on April 20-22 will then take center stage.

After the April 22nd meeting, IMF Managing Director Christine Lagarde will likely announce that G20 members have committed up to 600 Bio USD in bilateral credit. Having firmed up numbers and negotiated with G20 members following this weekend's meeting. This will enhance the IMF's ability to deal with current and future crisis.

Each step of this process will serve to reduce market fear and uncertainty. On that note I expect to see an unwind of the "flight to safety" trades that were entered into in the second half of 2011. The greatest moves resulting from this expected "flight to safety" unwind will be seen in the USD, JPY and CHF. I expect a lower USD/Index, higher USD/JPY and higher EUR/CHF. Emerging markets will also benefit, as will peripheral bond markets in Europe. Volumes will pick up and money will be put "back to work."

I maintain my favored long positions in EUR/USD, Gold, CAD/JPY and Synthetic SDRs. The road-map is ahead and my expectations are high that the endgame will resemble this timeline.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.