In a guest post at Zero Hedge, Oisin Zimmerman states that the Fed has re-opened dollar liquidity swaps with foreign central banks. I have not been able to confirm this, or find out much about the author. Zero Hedge is out there on the ragged edge and should not be taken as an authoritative source, but they have posted several items in the past that proved to be accurate. If this one is true, it is a pretty good indication that the European sovereign debt situation is threatening to touch off a banking crisis. We speculated about such an event just this week, not thinking it may happen at all, much less within days.
This has a bit of the feel of the spring and summer of 2008 about it. The unthinkable has happened with some regularity over the past decade, and perhaps we have become desensitized to some degree. Anyone with financial assets in the markets should be alert at all times, but at this stage extra vigilance is warranted. Better safe than sorry – it’s easier to move to the sidelines and get back in later, than to stay fully invested through a major downdraft and take heavy losses. At this point, we’re unlikely to miss any major moves up and more likely to miss major moves down. In other words, the risk/reward profile of today’s markets leans unfavorable.