Archive - Feb 2009 - Story

Anyone who has ever traded CDS has noticed the self-fulfilling prophecy of accelerated widening or tightening on an initial move in single name spread. This phenomenon has stumped traditional cash credit investors who don't realize the peculiar technicalities of the CDS market. It is explained by dealer structured credit desks that tend to chase the market, meaning as spreads widen they buy CDS, and vice versa. Because of this, otherwise small moves in single names can lead to profound jumps in spread.

How does it work:

CLOs, or the guys who many allege got us into this whole mess, are alive and kicking. The forward calendar for capital raises for CLOs indicates almost $1.8 billion in capital is set to be raised for 5 managers. Among them are TCW, ING, Stanfield, ING and Aladdin... Wait, wasn't the last one supposed to be ending its CLO operations and migrating to DIPs only? Oh well. Calendar below.

At record low of $12.40. The whole "more sellers than buyers" theme...

In the latest twist on the bonus debacle, Dresdner Kleinwort (bought recently by German megabank Commerzbank from another megabank Allianz), which is not known for wise financial decisions (let's buy Wasserstein for an insane amount of $$$, only to see him bail a year later) has asked bankers to "voluntarily" give up all bonuses, even contractually guaranteed ones.

Obama will unveil his Homeowner Stability Initiative at noon today. And it will cost you. Apparently the plan has grown from the previously expected $50 billion to $75 billion now. The focus will be aiding house flippers... er, homeowners, who "owe more on their mortgages than their homes are currently worth, and borrowers on the verge of foreclosure." Heaven forbid they should be in foreclosure on their 4th spec home in Lake Tahoe.

As you can see on the right side of the blog, assuming it doesn't crash your website, there is a live forum feature where going forward readers will be able to ask questions, express opinions, blow things up, vent or just say hi. Hopefully it works out... More of a beta idea for now. If readers enjoy it, it will be a regular feature

Japanese corporate CDS forming a line at the woodshed. G7 risk bloodbath continues

• CNBC makes headline news over every uptick in S&P futures, read all about it
• January housing starts drop to all time low (Bloomberg)
• Russia 2009 GDP forecast cut from -0.2% to -2.2% (Moscow Times)
• Police foils bomb attack at Citibank in Athens (Yahoo - hat tip reader Mike)
• Germany may be Europe's white knight.
  

Sometimes Mike O'Rourke pins the events of the prior day just that little bit better than anyone else. Today is a case in point. We present his letter to clients in all its unadulterated glory and hope he won't sue... One can only hide behind the whole DMCA thing so long...

• Emmanuel Rahm was paid $260,000 to be Freddie Mac director in 2000-2001 (NYPost)
• Hedge fund consolidation to heat up (Bloomberg)
• Doug Kass: Fear and Loathing on Wall Street (TheStreet)
• More brokerage mergers coming (

The only thing more amusing than the deranged ramblings of an insane lunatic, are the deranged ramblings of a whole lot of insane lunatics (i.e. the executive committee of General Motors)... and their numerous legal and financial advisors... for whose "efforts" it is of course taxpayers who end up footing the bill...

Last week's derisking continued, however at a more moderate pace, with $83 billion of net notional increase in CDS versus $138 billion last week. Only the healthcare and industrials sectors saw a rerisking, with industrials due for a substantial technical push wider after 2 weeks of rerisking.

Since the start of '08, the S&P has declined by 43%. Yet, if you only held the market on days following a down day, you would have earned a cumulative return of 36%. In contrast, if you only held the market on days following an up day, the cumulative return would have been -58%. In terms of daily (close-to-close) returns, the average return since the start of '08 following down days has been 0.28% while the average return following up days has been -0.62%.

* Requests total of up to $30 billion in U.S. government funding, including $7.5 billion in credit line
* Says would run out of cash by March without new gov't funding
* Says has not reached deals with UAW on VEBA, bondholders on debt restructuring

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