So, it’s the end of the free ride as we know it

As we move into the second quarter of 2013, the free-rider concept can be seen everywhere, from competitive devaluations to lack of reform in the US and Europe, not to mention the failure of the European Council to agree on a bailout programme and public sector resistance to much-needed reforms.

But where to from here?

With all eyes on Germany and its September election, it has to be asked: will Germany write a big cheque and save the single-currency bloc?

The facts state otherwise. Throw in the Cyprus bail-in and the conclusion is that European decision-making has been left bleeding and without hope of recovery. The lack of coherent policies raises serious concerns over who will pay for future bail-ins.

Overall, this adds weight to our general theme of a stronger USD and our belief that much of the investment return for the rest of the year will come from foreign-exchange exposure.