Alas I find myself in a similar situation to when I first started writing this blog in the beginning of 2009. Due to decisions made well above my pay grade and across the ocean, I find myself 'on the beach' once again. Before you immediately put my missive on the junk/spam filter watch list, I assure you that I will not be sending many of these. Hopefully only a handful as I have already been re-engaged by several potential future employers.
I'd like to say I'm back due to popular demand. Exactly two friends responded "good, now you can re-start your blog" when they learned of my recent departure from the payrolls of a large bank.
My first observation is a repeat of a long held belief that 'you cannot have liquidity without capital.' Take a look at this graph (Fed data) of US broker/dealer holdings of corporate bonds:
The capital provided to clients as liquidity to trade corporate bonds has fallen off a cliff. The non-capital/agency dealers must be licking their chops. However, it can take a long time for large institutional investors to alter their thinking and trading styles to a more 'patient liquidity' model.
My second observation may be overly simple and perhaps naive. There are few, if any, investors (in any asset class) that believe the European sovereign situation will improve any time soon. In my >20 year career, every single time the entire market felt the same way about a future outcome, that particular outcome rarely actually occurred. While I'm not predicting an immediate positive solution/outcome to Europe, I would posit that a 'positive' outcome would like be the most disruptive to the market. Witness early 2010 when almost every single investor (ex Rick Rieder @ Blackrock) thought US rates were going to rise dramatically. They made salient fundamental and technical arguments for why this was inevitable. Yet, the exact opposite occurred. Back to Europe, be sure to read, or re-read, Michael Lewis's very prescient article from October 2010 about Greece.
Many have observed that Wednesday night was perhaps the most exciting group of games in baseball history. The NYTimes has an article where they write that the odds of those particular game outcomes were 1 in 273 million. In addition, on a more painful and personal level, they note that the odds of the Red Sox making the playoffs, as of September 3rd, were 99.6%.
