Colouring Hank
There’s nothing really new in the WSJ’s The Fannie & Freddie Question but it is a nice read and it gives some interesting colour on Paulson. I bet he really really wishes it was November.
Defusing Journalistic Hyperbole
Sometimes I wonder if the FT is sponsored by Euronext or the CBOT. Today there is an article by Aline van Duyn on derivatives and termination events. She points out, quite reasonably, that Fannie and Freddie are amongst the largest dollar interest rate derivatives counterparties – because they are hedging the prepayment risk of their [...]
The biggest SIV in the world ponders its next move
The dumping-rubbish-ABS-into-the-ECB story is warming up nicely. The FT reports: The European Central Bank faces an acute dilemma: on the one hand it needs to ensure that banks have access to adequate liquidity, but on the other it needs to prevent banks profiting unduly from central bank funding. Recent signs of banks undermining the ECB’s [...]
LEH
I am (1) above the waterline on Lehman and (2) starting to take it personally. This is usually a very bad sign for a position. There are doubtless hazards to navigate ahead but I think there may be more value there if Fuld can get something done soon. Despite Bloomberg’s (reasonable) concerns about Lehman’s mortgage [...]
Freddie with FED leverage
Dealbreaker points out a nice trade: A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed’s Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give [...]
Stop cowering, start taxing
Polly Toynbee had an excellent OpEd piece in the Guardian yesterday on Labour’s dismal cowering in the face of the anti-tax lobby. Why a nominally center left government refuses to impose the tax burden fairly is beyond me. They lack courage in tackling the super-rich, corporate tax planning, and the rest of the machinations of [...]
Recapitalisation and the Debt/Equity Spectrum
Myron Scholes gave a good talk at the Lindau Nobel Prize winners meeting. The video is here.Scholes has a number of points but one that is of immediate interest is his observation on debt holder pressure. Scholes notes that as banks get riskier and require more capital debt holders want the new capital to be [...]
Analytical Fiction
No, not a post on Kristeva (although you might call it one on American Pragmatism). Rather — and this is a little cruel, so of course I am going to do it anyway — a link to a series of embarrassing pictures showing Citi’s research call on the broker/dealers and their actual performance. It’s not [...]
Where are the ‘risk free’ curves in dollars now?
It is a serious question: the Treasury curve is being moved by concerns about the cost of the GSE bailout, with some commentators saying that the US could lose its AAA. And the Libor curve, according to a money manager quoted by Bloomberg, aren’t reflective of the entire banking system but of three or four [...]
Call of the week…
I have been wrong about this before and I may well be wrong about this again. But still, long Lehman. There, I’ve said it.
Keys not judgements
What were the ratings agencies doing really? Frank Portnoy writing in the FT, tells it like it is: the rating business has shifted from providing information to selling “regulatory licences”, keys that unlock financial markets. Consider Constant Proportion Debt Obligations, the financial Frankensteins that the agencies’ flawed mathematical models said were low-risk. Does anyone believe [...]
What’s the biggest SIV in the world?
The ECB of course. Silly question. And they are even beginning to worry about it. The WSJ has details of an interview Nout Wellink gave yesterday. He is reported to have said: “If we see that banks become very dependent on central banks, then we must stimulate them to tap other sources of funding,” (It [...]
Fannie and Freddie lead spreads higher
From the FT: Yield premiums across credit markets have jumped… The CDX is near its highs and the iTraxx IG is near 100 again. The CMBX AAAs are nearly at 200 as the picture opposite from Markit shows. Much of the market action is GSE-motivated, with the market worried about the consequences of their problems. [...]
Beware certainty
Wise words from Doug Kass, via Big Picture: I continue to listen to and read a lot of convicted opinions for instance, the market has bottomed, financials have bottomed, oil has topped, stocks are enormously undervalued against historic measures… I would put those convicted opinions in a locked closet Quite right. The more convinced someone [...]
Dismally bad
Larry Elliott in the Guardian has an article encouraging the Bank of England to cut rates. Larry is harsh with the Bank, accusing them of being asleep at the wheel, and he presents as evidence the Bank’s 2007 CPI prediction: This shows a zero chance of inflation reaching 5% in 2008. If we now turn [...]
The other guy’s GSEs
Fannie and Freddie fell twenty something percent yesterday as the market digested a report by Barron’s on the state of the Agencies. In practical terms the Barron’s report seems to be pretty much correct: the Agencies will require recapitalisation, and it is unlikely this will be achieved without substantial help from the Treasury. However I [...]
Position review
Before the summer began I discussed a few positions, purely on a didactic basis (of course). Time for a reckoning. Seller of credit protection on LEH and MER and long a FTD basket on the subordinated prefs of national champion banks. Both ugly on a MTM basis, but both positive carry. I still wouldn’t touch [...]
Market gaps
Classical economics, curse its worm-infested body, teaches us that the market will generate innovations which meet demand. Leaving aside for a moment the obvious problem with this – that there is no account of how fast such creativity will happen – my recent travels have convinced me that there is a massive opportunity at the [...]
Quid pro CDO
No, I don’t have anything to say. I just like FT Alphaville’s coinage. Oh all right there, I will say something relevant… Here’s a nice article in the FT about Tranche Warfare. You will of course be astonished, especially if you have read this, but: Some of the CDO and CDS documents leave a lot [...]
What is the bond/CDS basis?
Accrued Interest has a fascinating data point on the troubles of the financials at the moment: Citi’s latest five year was done at 337 over Treasuries or roughly 235 over Libor. AI then suggests that there is an arb between CDS at 160 over and the bond at 239 over. In ordinary conditions that would [...]
California Foreclosures
Prompted by an article in the WSJ on foreclosures, I did a little research. The basic issue is to what extent banks are delaying selling foreclosed inventory, or delaying the foreclosure process, either because they do not want to realise the loss, they do not want to increase their volume of REO (real estate owned) [...]
Short Sweda
I find this article from Bronte Capital about Swedbank’s woes reasonably convincing. Going big into the Baltics seemed like a great strategy when they were doing their Ireland impression, but now it seems some birds – quite a few birds actually – are coming home to roost.
Risk and climate change policy
Just before I went away Paul Krugman posted on the economics of catastrophe, and I have been meaning to follow up for a while. Krugman picks up on some research by Marty Weitzman looking at the distribution of outcomes of climate change. The basic idea is to look at the uncertainties and hence come up [...]
BAA to be rent asunder?
The FT reports that UK Competition Commission is considering forcing BAA to give up at least one of its London airports. Given that this government will never agree to the right step – nationalising BAA – I suppose that is a start. Update. So the competition commission is demanding that BAA sell not one but [...]
Tasting 100
I have been meaning for a while to blog about a post on VOX about wine pricing. To paraphrase heavily, Parker determines the en primeur price, but the price at maturity depends on how good the wine really is. Given that Parker isn’t a really great judge of how a wine will mature, and weather [...]
There’s nothing like leverage
From a recent Hussman Funds post, Nervous Bunny: if we include the fair value of preferred equity, we find that on a fair value basis, Fannie Mae is operating at a gross leverage multiple of 72.7 (total assets comprised primarily of mortgage loans, divided by shareholder equity). In other words, a slight 1.4% deterioration in [...]
Undercover equilibrium: Holiday reading 2
The other popular economics book I read on holiday was Tim Harford’s Undercover Economist. It’s an interesting if quick read, and I can entirely see how it stimulated admissions to undergraduate economics programmes. It strikes me, though, that Harford’s examples work best when the notion of price is unproblematic. He is presenting classical economics, so [...]
Soros and Equilibrium: Holiday Reading 1
While I was away, perhaps slightly masochistically*, I read the new Soros book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means. It is not a particularly good summary of what happened, nor a detailed analysis of why it happened, but it does make an interesting point. Soros claims, [...]
Investment strategies old and new
This is a very fine post on investment. I picked it up via Naked Capitalism, and I heartily recommend it.
Ball of steel or brains of lead?
In what is either a strong buy signal for the market or a strong sell signal on the stock, MBIA has announcing that it was not changing its projection of losses on its mortgage-related exposures. The FT story is here. Yes, they had some bizarre FAS 159 gains (CNN is here and my take on [...]
