Geopolitics, California, and Ireland - August 27, 2010

Executive Summary: The last few weeks of August are supposed to be the dog days of summer, a quiet, lazy period when investors troop off to vacations with their families, leaving the myriad of worries behind them.  The last few years, however, have not gone by that play book. Indeed, the summer of 2007 was marred by trouble at two of Bear Stearns’s hedge funds, while 2008 was hit by the aftershocks of Bear’s collapse in March and impending financial meltdown in September and October.  While 2009 was relatively quiet during the summer, 2010 has seen a substantial amount of new issue, European bank stress tests, and a steady march of economic data indicating that the U.S. economy is cooling, possibly sliding into a double dip recession. As investors shun equities in favor of being higher up the capital structure, August has gone from moribund to active, with new issue pushing to a possible $100 billion level (including a spurt of high yield deals).  The Dow is also down close to 4% for the year and the VIX has moved from the low to high 20’s. Looming behind this nervousness is a parade of geopolitical issues, many of which will come to the fore in September and October. Political turbulence could greatly contribute to pushing both equity and debt volatility to higher levels.

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Past Articles:

•  The Dog Days of Summer - August 20, 2010

•  Of Fed and Foods - August 13, 2010

•  Eggs, Chickens and Germans - August 6, 2010

•  Momentum, Bubbling Stew and Hopeful Filipinos - July 30, 2010

•  The European Banks Stress Test Results - July 23, 2010

•  Volatility Rules the Waves - July 23, 2010

•  Narcotics, Bandages and Crutches - July 16, 2010

•  Nothing to Fear but Fear Itself? - July 9, 2010

•  Wailing and Gnashing of Teeth: Volatility Continues - July 1, 2010

•  Austerity, Growth and Bankers - June 25, 2010

•  No More Low-Hanging Fruit- June 18, 2010