The Next Scene

Let’s make this brief. This week we have been seeing some commentary to the effect that the bond vigilantes, having attacked Italy, would come for France next. The evidence doesn’t look good: credit markets, the stocks of the large French banks and French equities in general are still in upheaval. French equities are lagging within Europe, and banks are lagging within France. Zero Hedge is reporting (unconfirmed) that Asian institutions are pulling in credit lines to French banks

As far as I am concerned the end game for the euro was set in motion with Italy. If France goes it simply assures that any program currently being contemplated is all but hopeless, as they all would include France as a donor of capital, not a recipient. It would also, we might guess, nearly assure rejection by Germany (or at least the German voting public), which would then stand alone as the savior of the entire enterprise, perhaps with a little help from the Dutch.

Prepare for more volatility, and at some point talk of a grand globally coordinated response. For the time being my preferred trio of high grade bonds, gold, and Swiss Francs still looks attractive, though I myself, being a simple guy, continue to enjoy the comforts of a large allocation to cash.

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