So much for being long…

Posted by on Oct 4, 2011 in Uncategorized | No Comments

Reverting back to short. The sell-off this morning felt overdone, in HYG in particular. We bounced on Bernanke, but it wasn’t with much conviction. Although BAC and MS bounced nicely off their lows, BAC hasn’t been able to get green on the day, although MS has, but barely. With such weak performance from ideal short squeeze candidates, it seems clear that we are not out of the woods yet. I think the failure to trade up significantly means we go through the morning lows.

There is no longer any conviction that Greece can be saved. And guess what, it probably can’t, it’s just a weird feeling being part of the consensus.

I think we see France put on at least outlook negative soon, possibly this week. S&P came out on the UK yesterday. They left them alone, but that is probably a sign of a review of all their European sovereign ratings. Several paragraphs in their UK opinion were focused on government action. Similar to their focus on the US government, they just happened to like what the UK is doing.

I think several countries will be at risk in Europe, but Germany has remained opposed to increasing EFSF or using leverage. France has seemed more aggressive. If the rating agencies wanted an excuse to take the French off AAA, they may have it. It would also appease a lot of Americans if some other country was feeling pressure on its ratings due to politics.

Today S&P came out with a report where they increase their odds of a European recession. The timing is interesting as it would give them another excuse to put at least some of the countries in Europe on outlook negative if not on negative watch. Just a thought, but that is a tape bomb that could easily hit.

I’m more comfortable with better quality high yield bonds, as the yield is finally getting big enough to earn the moniker “high”. Retail seems comfortable holding as they remember how quickly they bounced back in 2009, and so far, there have been more rumors of defaults than actual defaults.