Manic Depressive Markets Are Back

What a difference 24 hours makes, or 48 for that matter.  After an almost 2% decline on Tuesday on virtually no news, the market looks set to get all that back and more – all since about 10:30 yesterday – also on no real news.

PSI results continue to come in. It looks like it will beat 75%. It seems that all banks and most regulated entities are voting in favor of PSI – as expected. It looks like Greece and the EU will discuss the results tomorrow. I expect CAC’s to get done on Monday. It would be surprising, and controversial, if the don’t use the CAC’s and pay some holdouts at par.

So after the Greek default the market will move on to Portugal, Ireland, and Spain. Portugal seems the closest to needing a PSI of its own, while Spain continues to defy gravity with a large deficit, missing goals, a unpopped real estate bubble (it has popped, just no one has taken losses), combined with an almost unbelievable unemployment rate.

After Greece walks away from over $140 billion of debt, it will be hard for other countries to resist that temptation. Now that politicians realize they can make the banks do whatever they want, they will be tested to use that power.

So far the market is happy, has shrugged off the jitters, and can’t wait for the Greek default and a big NFP.  Credit in Europe is as strong as equities today, with Main 3.5 bps tighter so the rally is broad-based and reminiscent of the risk on days from last year. No one complains about correlation of 1 on the up days.