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Lack Of Cash Loans For Sale At Any Price Causes Scramble For Derivatives

Submitted by Tyler Durden on 04/15/2010 14:37 -0400

We are one step away from the full blown reincarnation of the entire CLO market. We read in Loanconnector that "LCDX14 and LCDX13 are better today on increased volume as accounts have found it increasingly difficult recently to take on exposure via the cash market, sources said. With sellers hard to come by in the cash loan space, investors are turning to synthetics to take on exposure." And there you have it: offer spigots everywhere are shut down as nobody sees any incentive to sell in a market where the Fed has taken away all the risk. And with sellers unwilling to offer product no matter what the cost, the scramble for derivatives and synthetic exposure is coming back with a vengeance. If this is any indication, we expect that the securitization market for corporate loans will be flying within a few weeks as investors needing to allocate capital to moral hazard strategies scramble to get Citi, Goldman, and Barclays to resecuritize all the same crap, and then some, that got us in this mess to begin with. With dividend deals, PIK toggles, no COC bonds, no downgrade trigger issues already a daily occurrence, corporate issuers hold all the cards. For all those companies which have opened restructuring practices over the past year in expectations of surging defaults, our condolences. You - 0, Moral Hazard - Infinity. As for the LCDX situtation: "Meanwhile, the Markit LCDX13 is hitting all time highs of 106.0625-106.1875 this afternoon."

Whatever you do, don't call it a Fed-sponsored bubble.

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Thu, 04/15/2010 - 14:40 | 302522 ghostfaceinvestah

I wonder what the Fed is going to do for the next crash? I don't think buying the remaining $3T of MBS they don't own will be enough.

My bet is they drop all pretense and actually start printing cash, Zimbabwe-style.

Thu, 04/15/2010 - 15:41 | 302695 dark pools of soros

they can make an account on LendingClub

Thu, 04/15/2010 - 15:20 | 302558 hedgeless_horseman

The Beard is all knowing, the Kwisatz Haderach, a super being created through years of precise breeding programs. All consequences are intended by him, there shall no longer be unintended consequences of any FRB actions under his order. His first name should tell you he is of the Bene Gesserit, and has drank the kool-aid of life. No resistance shall stand in the way of his indices! No Bollinger Bands can contain his greatness. All shorts shall tremble at the sound of his Horn of Liquidity. When he uses the weirding way in congressional testimony, pray you are among the long!

Thu, 04/15/2010 - 15:28 | 302639 Hansel

Haha, uncanny. I'm reading that book right now.

Thu, 04/15/2010 - 15:56 | 302762 JW n FL

Control the Worm (the masses) and you control the spice...

Thu, 04/15/2010 - 14:59 | 302574 john_connor

I am laughing even though this is really not funny. The Fed is guaranteeing their own demise.

They don't understand that real businesses require real cash flow eventually.

Thu, 04/15/2010 - 20:37 | 303291 Buck Johnson

Spot on, spot on. Real cash real cash is needed, they took it away because the Fed has taken out the risk factor in that market and so what they just won't sell. I think the Fed is trying to push this down the road until they can come up with something that will take people's minds off of the full stagflation depression that we will have in the US and other places (war sounds like the option right now).

Thu, 04/15/2010 - 15:02 | 302581 trav7777