Enter Sandman

In early June, stories began to circulate that Barclays and Standard Chartered had removed "billions" from the interbank (unsecuritized/uncollateralized) lending market. Since that time, a collateral squeeze has made shorting Treasuries virtually impossible. The Eurodollar market has tightened from 99.68 to 99.54 in the September futures contract. Not exactly a move to tell your grandchildren about. Interbank is the giant offspring of a "faith based" financial system. Unfortunately, faith is a poor risk management tool.

The sad aspect of this story is even a 10bp homage in the direction of reality is portrayed as a crisis. Markets, and analysis of them, are now binary events. Healthy markets are deep, wide and resilient. The Eurodollar market is the best example of those characteristics. Amazingly, because of those involved, it is perceived as weak. A discussion about price is not a crisis. The Shock Doctrine is being applied by all parties, everywhere, everyday. The bull market in "selling the fear" has gone parabolic. As Metalica said, "Exit light, Enter night. Take my hand, we're off to never never-land."

One thought on “Enter Sandman

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