Liquidty, liquidity, liquidity

For the first time since late 2008 and early 2009 I am starting to hear concerns about liquidity - the forex exchange forwards has started to move towards the US side ever so slightly, but from 6 month out the spread is moving fast and furious to the US deposit side.

This can be explained - as you clearly know - from different angles but it is sign of 'panic light' as the banks balance sheets are US Dollar financed - the move this week:

• EURUSD: FX forwards up +3-+7 bps in last three days - and from 3 month out they are really bid, beyond 12 mos extremely bid   ==> This means HUGE appetite for US Dollar and is risk of signs
• EURUSD Volatility: 11 yr trading 13.25 bid from 12.00 one week ago - in 1 year Vols this is big, big move - 1 week 12.5ish bid... ==> Short dates bid over long dates sign of stress or lack of gamma (risk)

The Germany vs. Italy spreads continues out - We are way pass the levels on Friday where we had sentiment high for rescue.

Also note several countries "state guarantees" for banking systems runs out in October to December  - this is certainly the case in among other places Denmark - this will create increased risk on the peripheral and smaller banks which has less access to financial markets.

I did a few interviews with tv and other media yesterday, and I totally baffled at how the market analyst ignores all signs of potential crisis - there may still be window of 3-6 month of joy, but if there is one thing we should have learned in 2008 it was - to be on the alert.

Winston