This is vert interesting chart from Credit Suisse – paying the full spread is something investors rarely do… as explained in my latest note: The Mood Sours being a primitive guy I have only have real call and one which I have had since Q4-2013: Retest of lows in global yield.
Since my note last week a few new things have happened:
- IPO being cancelled left- right and center
- Weidmann and Draghi fighthing in pulic – which to me is clear sign Draghi is Italian President by June 2015
- Rates collapsed in US relative to US.
- 2 Y EURUSD spread now have fair value of 1.3000 vs. 1.2500 mid-September
- A total change of both rhetoric and mo from FED as Fischer becomes more and more vocal for FOMC combined with the usual early warning from Dudley.
- A UK economy where Carney is more misunderstood than Yellen – which is quit a feast…maybe they should all take my number one advice to all politicians and central bankers: Do nothing, say nothing!
- Greece all of the sudden have rising interest rates. Breaking 7% again… going north..
Two things are missing for this re-pricing to have gone full circle:
The US Dollars needs to sell off – VaR on the books of high frequency traders are bloated and creating big loss' – long EURUSD is just about only trade working still this quarter. In classic cleaning of book exercise ALL assets class' needs to correlate to 1…. It's still lagging… personally I think its discount for public noise at ECB.
Club Med spreads needs to blow out – We are in budget process – more countries than before will violate all of the financial examinations rules – Two pack, Six pack et…. Which means either that we have delay of process which equates to its having no value or Germany leads charge to enforce the rules. Either way there is priced to be paid, which is lack of reform…
To me the present short-term outlook is wave 3 – a maturing wave 3 – soon there will be reaction to overs oldness in wave 4, but only to be replaced by further sell of a final wave 5.
Soon I will start revise Germany & European growth up "relative" to consensus…..but that's a Q1 exercise.. we are entering the dangerous phase of this pretend-and-extend. The price of low inflation on debt is finally coming through….We are getting very close to that Minsky moment we talked about in Saxo's Q4 outlook, more so as equity broad based globally is returning ZERO………while the debt is ever increasing….
Med venlig hilsen | Best regards
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