They are going out of their way to blow up the “old world”. You only have to look at the CDS spreads on CDS indexes that track Western Europe fear risks vs Eastern Europe, to see just how spectacular they have been of late.
Western Europe CDS on sovereign debt is now higher than Eastern Europe Sovereign debt. Can we say reality is going to suck soon in the Sovereign debt issuing pits?
You can expect rates to increase from here, now that the EU released its White paper on how to give bank bond holders a haircut. The brilliance in this move will show up in Sovereign spreads blowing out worse, all across the Western Front.
Let’s just do a little mental math here. The majority of the trading that is the liquidity in question is generated by European traders. So by default, we have a group of western traders looking around and shorting the shit out of their own bonds via CDS trades.
They are not a bunch of dummies normally. So why is it that in aggregate they suddenly hate their own sovereign bonds more than their bankrupt cousins? This reminds me of prop desks in NYC shorting IB banks across the street, only because they could pull off a good synthetic short on themselves.
The implications are clear, the boys on the other side of the pond realize the gig is up. The giant debt roll of Europe is going to be impossible. They are positioning to risk management, to cover as much of their own holdings as they can. You only have to look to the leadership of Europe to see why. So we have some traders who know the lay of the land, better than anyone else shorting each other.
So how do we join them in this short? How do we short the EU Bureaucrats?
What is the best way to play the Europe scare that is obviously coming to the debt markets in Europe? Is there a liquid short available?
Disclosure: I am flat all equity investments. This and other disclosures are available at www.jackhbarnes.com.