Instead of doing another credit market update, I thought I would just put forward one chart. It is the spread between London's Interbank Offered Rate (LIBOR) and the 3 Month European interest rate. Basically the higher the risk, the higher the spread. This is because LIBOR rises due to distrust in the credit markets and 3M European yield falls due to flight into safety assets.
Unless European bureaucrats do something asap, the s&%t is about to hit the fan - literally. Economy is one thing, and sentiment indicators for stock markets is another thing; but all bullish outlooks should be demised against credit risks like we have today, until of course credit markets start to improve. With Euro futures positions sitting at an all time high as the Euro hit the $1.29 handle (-116,000 net shorts), chances are the politicians will come up with some bandaid fix to kick the can down the road and create a super short squeeze.
However, if they don't... I'm afraid its crunch time. Our fund remains 91% in cash earning 6% interest in Australia - no need to take too much risk here just yet. At a first sign, hint or signal from central banks that balance sheet expansion will begin again (money printing), we will think about reinvesting our capital as that type of a move should ease credit risks automatically - similar to the late 2008.