The Greek wedding turns into ugly divorce?

First we had the Greek wedding and then a very, if not, almost non-existing honeymoon and what is next? A quick divorce? 

This morning sees the Germany vs PIGS minus G(reece) widen again - it seems the market finally is getting the point: 'It is not what they say, but they do which matters..." - The number one tenet of anybody wanting to trade for a living.

We stick by our VERY GLOOMY outlook - I will even say that I am now more pessimistic than before my 2007/08 call for 666 in the S&P as the problem this time can not be fixed by more stimulus - although they will try - we are literally sitting on the edge of abyss - we have window of 3-6 month maximum before REALITY bites:

The gravity of the market remains:

1. Sovereign debt should increase in yield as risk premium will have to go in a world of less leverage and less confidence in Government and Nations to pay back the outstanding loans. Add to this the incoming Inflation - the whole inflation game is an illusion. The measurement and the facts but we are at the low point of the cycle in inflation (and top in terms of cheating with it) means cyclically we will be having head-winds for years to come.

2. Deleveraging is the big game. When South Korea host the G-20 in November there will serious regulation/bank tax on the table. On top of this BIS already have stiff tightening in the cards (BIS Chief say banking levy may not be appropriate (Click on link)

3. A move to tangible assets - As the world grows tired of supporting FIAT economies they will need tangible assets and currencies backed by natural resources. The years of "creating money" is over - the new paradigm is coming not later than end of 2010.

We are surprised the market was so unconvinced by EU and IMF - mostly surprised to find the market shares our point: This is the opening chapter of a long book with several plots.

In terms of practical market applications we are surprised to see our INFLATION portfolio has beaten the Benchmark portfolio over the duration of the year - this clearly indicates the topics above is in play and should be respected.

Finally,

I enclose my old colleague Macromans piece from yesterday - we all need some cheering up in this market (Apologies for those offended by the wording on Greece): http://macro-man.blogspot.com/2010/05/grease.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+MacroMan+(Macro+Man)

Winston