Aftermath of Stress Test

So the stress test wasn't very stringent. European banks are probably still hurt by the drop in value of the PIIGS bonds in their balance sheet. Default risk of PIIGS is still real. But let's look at some vital signals of risk assets.

Exhibit 1: JP Morgan Non Investment Grade Index has fallen to 750. Lower highs, lower lows, since the peak in June 2010. This indicates that risk appetite is slowly rising.

Below is the LIBOR-OIS spread. It is slowly defrosting, indicating that banks are beginning to lend. This is the last piece of the jigsaw that may unleash another rally of stocks, property and commodities. I have other charts to show you, example data of European banks starting to lend. But for copy right purposes, I cannot.

My thoughts are that stock markets will probably rally and there is a good chance of breaking a new high by August or September, surprising naysayers. However, I do not know how long it will last. The volumes are not exactly high this time round. I probably have a game plan and will contact some of you individually.

Be brave, be patient, be unemotional.