By Thomas Aubrey
In July 2007, the equity market was forecasting strong earnings growth with the S&P 500 breaking new highs. More importantly, credit markets were signalling that credit risk had largely been conquered. The credit default swap for Greece was just over 4bp compared to just under 2bp for Germany, indicating that credit markets had stopped distinguishing between the credit quality of issuers. Within 12 months, quite a lot had changed. Markets had demonstrated that while they might be micro-efficient, they are certainly not macro-efficient. Trouble, it seems, comes from where you least expect