John Kay, in an interesting but somewhat discursive opinion piece in the Financial Times, compares the structuring of complex securities to alchemy, with all its negative connotations. He points out that the elaborateness of the models has the effect of obscuring risks that would be more apparent otherwise, namely, that if you believe markets are […]
Read more...Credit default swaps prices have risen sharply all over the globe. Nevertheless, the CDS related to the debt of major Wall Street players have been particularly hard hit, which isn’t surprising, given their LBO financing commitments, exposure to hedge funds via their prime brokerage operations, and falling profitability. Some experts, however, think the CDS are […]
Read more...European and Asian equity markets performed well overnight, and according to the futures market, US stocks are set to have a good day as well. Yet the credit markets are in a state of near-panic. Some illustrative factoids and comments from the Financial Times: “It is nothing short of ugly in credit land,” said Alan […]
Read more...Ah, this is one of those days where there way too many good points for departure for commentary and here I am with a pricey and pokey Internet connection, and competing holiday activities. Finally, the reassessment of Greenspan’s tenure has begun. Not surprisingly, the Brits are more pointed in their critique. From “Greenspan has left […]
Read more...Those of you who are long in tooth might remember the days when Dr. Doom, aka Henry Kaufman, chief economist of Salomon Brothers, could move the market. Kaufman was intellectual, articulate, and insightful. I remember as a summer associate listening to his section of the Monday morning meeting at Salomon. You could hear a pin […]
Read more...A draft of a paper, “Innovations in Credit Risk Transfer: Implications for Financial Stability,” by Stanford’s Darrell Duffie, investigates ” the design, prevalence, and effectiveness of credit risk transfer,” with an eye to implications for the financial system. The paper is worth reading for those seriously interested in the CDO/CLO markets, and sets forth a […]
Read more...According to Bloomberg, in “Bulls Load Up on Stocks in Worst Rout Since 2002 ,” optimistic investors are undeterred. In general, bond markets downturns precede stock market declines, since equity market investors need to be convinced that the signals from the credit markets are valid. In my youth, the lag was usually four months. And […]
Read more...At junctures like this, when markets have come a bit unglued and may be undergoing a sea change, making forecasts is as scientific a process as reading tea leaves. And since I am (literally) at sea with pricey satellite access, I’m limiting myself to checking the usual suspect media sources rather than being as comprehensive […]
Read more...Today’s Financial Times has a good piece on the turmoil in the markets yesterday, which has continued into Asian markets today (although Europe appears to be staging a recovery). There were two noteworthy elements in this article, namely the divergence between the equity and credit market perspectives, the second on Bernanke’s posture. On the first […]
Read more...We warned earlier that if conditions deteriorated in the financial markets, investment banks were particularly exposed by virtue of their taking on multiple exposures to the same underlying risk. For example, they lend to hedge funds via their prime brokerage operations, and also may be exposed to them by providing credit default swaps on assets […]
Read more...The drumbeat of grim news on the housing front continues apace. From the Financial Times: Peter Kretzmer, an economist at Bank of America, said: “We are in the second wave of declining home sales. The first wave was the breaking of the upward momentum and flattened out late last year. But now we are seeing […]
Read more...The Wall Street Journal, in “Barclays Spars Over Its Losses at Bear Stearns,” discusses how Barclays is wrangling with Bear over what may be as much as $400 million in losses related to the failure of its two hedge funds run by Ralph Cioffi. The article is remarkably unclear as to what exactly the disputes […]
Read more...The Financial Times’ Paul Davies has written a good short piece on the basics of CDOs, which is useful if you are ever in the unfortunate position of having to explain them to someone new to the concept. He also suggests that subprime-related CDOs going pear shaped is not an indictment of the technology. Nevertheless, […]
Read more...Floyd Norris has an article in today’s New York Times, “Market Shock: AAA Rating May Be Junk,” that is enough off the mark to be annoying. The problem with the article isn’t so much inaccuracy as superficiality. Norris points out correctly that a lot of buyers are waking up to the unpleasant reality that that […]
Read more...Investment News Daily said that a major hedge fund index had to revise its performance results downward due to the losses reported at the failed Bear Stearns hedge funds. Normally, this sort of event wouldn’t be noteworthy. A number of different indices measure hedge fund performance, and they report it by strategy (e.g., global macro, […]
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