Slow Start This Monday...

We're off to a slow start this Monday, with investors sticking to the sidelines. Greece's PM has gone quietly into the night over the weekend, leaving the current government leaderless for the next couple of months until elections. "Leaderless" does have a negative connotation associated with it, in this situation not having a leader may actually work in Greece's favor. For now the Euro bailout will continue without the referendum vote, which has the Euro Zone feeling good today - well as good as you can feel while sick.

Italy has become the talk of the town, and Italy is by no means a small potato. This could be why investors are wary... Greece, was/is a small country. If it is forced out of the European Union, it would be tragic for the Greek people but the world would survive. Kind of like cutting of an arm to save the patient. The arm isn't going to do so well, but life will go on in the body, albeit a slightly different life.

You could argue Italy is just another appendage, unfortunately despite it being the boot of Europe, Italy is more than a mere appendage... it's the leg of a professional runner that is Europe... in other words, it is not small... it's catastrophic... will Europe survive, most likely, but she's never going to run again.

This is in my mind what has investors moving slowly this Monday morning. It's a lot to digest, and while we like to believe this type of world event would benefit our bond markets, there is a question that I have not yet asked, namely: would an event of this magnitude force European countries to sell US bonds and the MBS to raise capital?

Their first play will be to try and inflate their way out of this mess by creating more Euros out of thin air... probably digitized, but they may crank up the old printing presses as well. And what does this type of move do to inflation... bullish for the dollar yes, but for how long -and how many new dollars would we create to give to the IMF which would play a large role in the Euro bailout (yes you read that correctly right now we are bailing out Europe with US dollars produced and given to the IMF by the Fed).

It's a mess, and investors are starting to feel the pressure. It will be interesting to see this come to a head - let's hope that's all it is.

Moving forward, we're likely to continue to trade in the established range with rates better or worse than our current pricing... That's a prophetic statement considering the madness that is Europe. We'll need a major headline to force our markets... in the past that would have been the PM of Greece being ousted, but in today's market that just a typical headline... You'll know it when you hear it - the headline is coming.