Someday soon Greece is going to default. In the politically correct, kinder, gentler financial world we live in, the powers that be will call it something softer. Over the last 8 months policy makers and pundits have guided themselves with a bad compass. That guide has been the net change in the capital markets 10 minutes after a program or statement. Yesterday, in a conversation about the EZ and the ECB, a friend inadvertently summed the situation up perfectly. "We just don't really know," she said. Refreshing, sketchy and true.
When hold times have collapsed and overnight positions dramatically reduced, the market reaction evaluation method is a fool's compass. Case in point, in the first 72 hours after the 3 yr LTRO, interbank forwards moved roughly 10bp worse. A Lex/Nex search of the time period shows dire analysis of the activity. Fast forward to the last five days. Interbank has stalled and forwards are markedly better. The opinion of the liquidity action has done a 180.
Only yesterday, 2 excited financial reporters made incorrect statements about the ECB deposit facility and US quantitative easing that went unchallenged in a multiple head discussion. The bull market in "not really knowing" has gone parabolic. There is a consequence to both policy directives and evaluation when net change on the day is the Litmus Test of success. The consequence is the promulgation of the capital market structure as a poorly run casino. In the land of Agnostics, its easy to just change your mind. Is it down? Must be bad, I'm a against it. Up? Love it!
We'll "not know" more in the next few weeks.