It’s been a long irritating summer hasn’t it? Listening to the flatulent exhalations of central bankers and assorted experts has tried my patience. Reading the financial news was like watching Strictly Ballroom re-cast with Pollyanna financial prancers all with their ‘Happy face on’.
The Stress Test was perfect and all the banks are fine. US housing is set for recovery.
The consumer is spending and unemployment is ‘getting better’. Double dip? I’ll have a flake with mine. It was enough to drive a sane man to silence. That’s certainly the effect it had on me.
But now the weather has turned. There is a cold wind blowing from the east. So far neither Serbia nor Rumania have been able to sell debt at any price since June/July. Last week Hungary joined them in having a failed bond auction.
More interesting however is that todayHungary did manage to sell 3 month bonds. All it required was a higher interest rate. At the moment it’s not that no one wants to buy European debt. On the contrary there is a decent appetite for it. But the bond market is looking for out sized returns. They are very willing to buy risky debt as long as it is short term and high yield. The game here is to get a great return while the ECB guarantee is still firmly in place. Things start to run out and look dodgy after three months.
This is the pattern we saw in the first round of the European debt rip-off. First the banks buy up high risk/high return debt. Then they bleat about exposure until they get to off-load all the risk by selling it back to us via the ECB, and thus walk away with a great profit at our expense.
It worked the last time I fully expect they will try it again.