We conclude that Iceland on almost all measures looks worse than Thailand did before its crisis in 1997 and only moderately more healthy than Turkey before its 2001-crisis.

We see a substantial risk of a financial crisis as an integral part of an Icelandic 2006-2007 recession. The funding squeeze of the banks will probably force them to reduce lending to domestic players, and force a sell off of external assets.

We're still concerned, however, about the imbalances in the economy, but it's positive that the central bank is reacting.

In a low-yield environment, there was a lot of interest in high-yield markets such as the Icelandic. But with yields on the rise in Europe and the U.S., we want to see a lot more quality before we feel comfortable investing, as high yields alone are no longer enough.

People want to have an experience when they take a shower. They want to enjoy themselves in a standing spa. But they don't have the time to lay in a whirlpool for a half-hour.

That's a very strong argument for reducing holdings out of Poland and politics might be the trigger.