Storm Clouds Are Gathering In Europe…Again!
Posted By thestatedtruth.com on September 7, 2010
The problem with trying to put hupty dumty back together is much like a house of cards,  they both tend to fall apart in a heap.  While abundant liquidity in May and June served as an artificial prop to return European and PIIGS spreads to previous levels, it looks more like a mean reversion as algorythems took hold. The second time around we may not be so lucky. CDR’s Tim Backshall was on Strategy Session today discussing the key trends in sovereign products over the past few months. He noted the declining liquidity in both sovereign cash and derivative exposure. But his most interesting observation is the declining half life of risk-on past episodes, which much like the SNB’s (now declining) interventions are having less of an impact on the market, even as worsening fundamentals are swept under the carpet long before they start stinking up the place. Tim points out in the interview, even the IMF now realizes that the second domino may fall soon, and it’s better to be prepared (via the previously discussed infinitely expanded credit line), than to have to scramble at the last minute as was necessary back in May. So, again we have storm clouds gathering. Buyer beware in risk assets. The bottom line Backshall says:  “do they default now or default later.”
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