Seven weeks later, still waiting and wondering

Like Vladimir and Estragon, capital markets today are endlessly waiting.

And as with the lad who conveys the life-long friends a message from Godot in Beckett's play, salvation will not be visiting this evening "but surely tomorrow."

Two themes dominate chatter about where we are at, and going, in the seventh week of the global liquidity crunch.

One is optimistic, or perhaps just pragmatic: the flow of new money into collective investment vehicles won't be checked (or not by much) by this episode and managers of this money will have to move the funds out of cash and into something paying higher returns soon.

On this view debt capital markets will reopen before long. Financial markets have, after all, worked out the revised price of risk across many classes of debt securities (such as plain old bank debt and prime mortgage-backed securities).

The only real arena of indecision is in the pricing of sub-prime and collateralised debt securities, and, while that remains a headache, the benign view is that capital will start to flow to a backlog of issuers with credit-worthy assets to finance.

There are some scraps of evidence to support this view.

In Australia two issuers sold fixed and floating rate notes to investors this week.

GE Capital Australia Funding on Wednesday sold $200 million in five year, floating rate debt at 52 basis points over swap, with Westpac Institutional Bank as the sole lead (according to Insto).

Westpac also on Wednesday sold $850 million in three year and five year notes, some fixed and some floating at each maturity, and at spreads of between 32 and 42 basis points.

The bond market had, until then, been pretty sterile.

Offshore Spanish bank Santander on Wednesday night reopened the asset-backed market in Europe with the sale of a €1.2 billion backed by consumer loans.

And equity market indices and commodity prices all appear to point to a benign medium term outlook.

The contrary view is much more discouraging. Banks continue to hoard liquidity, commercial paper markets are largely shot, bank funding of asset-backed conduits is testing capital ratios, the backlog of bridge loans and highly leveraged loans awaiting syndication is chronic and boom-time lending (much of it only a few months old and some of it simply committed and not yet advanced) is already trading at discounts of five per cent or so.

One theme that emerges in ringing around those who create, market and buy debt over these last few weeks is that if all just wait for this development or that piece of news or simply for time to pass then conditions will change.

For some it was the absence of key decision makers at the height of the northern hemisphere summer holiday. And then it was the need for hedge funds to revalue, and report on, positions for the end of August. And then it was the deliberations of the US government, including the US Fed, on the extent of any rescue. And then it was the betting on the size (though not really the timing) of a cut in US overnight interest rates via the Federal Reserve (widely expected next week, and at least 50 basis points).

And then (or now, really) it was (or is) the wait for investment banks and hedge funds to revalue and report on their financial position at the end of September - data that won't emerge in the public domain until well into October.

In the meantime, the Jeremiahs would say, banks will continue to hoard liquidity as they seek to finesse capital ratios and seek to meet, in the very short term, earnings targets framed in the context of a bull market.

Plenty of business models have been fractured already by this liquidity crisis - an episode bound to be rocking economies and messing with securities value well into the new year.