If you want a measure of:
A. How broken the credit markets are, or;
B. How totally fucked we are,
The fact that credit default swaps for 10-year protection on U.S. government debt have jumped to 56 points is a good candidate. Which one is really at work here, A or B is anyone's guess.
"There is a lot more money to be spent and it is not clear how it is going to be financed," said Tim Brunne, a Munich-based credit strategist at UniCredit SpA. "Credit spreads don't reflect expectation of default, just the uncertainty over the enormous cost to the government." [emphasis ours]
Yeah, we don't get that quote either.
The Fed's new plan to kick-start markets for loans to students, car buyers, credit-card borrowers and small businesses means it will be taking on credit risk by buying debt. The central bank pledged to purchase as much as $500 billion in mortgage-backed securities as well as up to $100 billion in direct debt of Fannie Mae and Freddie Mac, the world's two largest mortgage buyers, and Federal Home Loan Banks.
Treasury Credit Swaps Soar to Record on New $800 Billion Pledge [Bloomberg via Alea]
Posted by guest , Nov 26, 2008 10:28AM
And yet TIPS are in the crapper. Stupid.
Posted by guest , Nov 26, 2008 10:28AM
Long CDS on the treasuries is like being long armageddon...
Do you really think the counterparty will be in place to hold their end of the deal if the treasury defaults?
Posted by guest , Nov 26, 2008 10:29AM
It would have to be more of A rather than B.
The TED Spread has come down from 4.53BP on 10/10 and been bouncing around 2-2.21 BP since 11/4.
Therefore the crisis has abated but we are still not out of the woods and there is more work to do.
I would not anticipate rapid activity until after the new Govt gets organized and starts spending.
Posted by guest , Nov 26, 2008 10:29AM
I guess its to be expected but not convinced it matters all that much.
Posted by guest , Nov 26, 2008 10:35AM
@2 buffet is the counterparty. he's better than the gov't.
Posted by guest , Nov 26, 2008 10:38AM
@5- Buffet is looking like Jordan with the 45 on his back these days. I guess he's fine as long as he's not Wizards Jordan.
Posted by guest , Nov 26, 2008 10:38AM
Where is the freeze happening? Repo's, CP? Or in consumer credit? I find it hard to believe that one could not go and get a car loan or mortgage if needed and having solid credit.
All MSM talks about is how the credit makrkets are seized up - where is the empirical data for this?
Posted by guest , Nov 26, 2008 10:42AM
Local NewsReport: Warning of plot against transit system
Wednesday, November 26, 2008
Eyewitness News WASHINGTON -- Federal authorities are warning law enforcement personnel of a possible terror plot against the New York City transit system during the holiday season.
An internal memo obtained by The Associated Press says the FBI has received a "plausible but unsubstantiated" report that al-Qaida terrorists in late September may have discussed attacking the subway system.
Department of Homeland Security spokesman Russ Knocke said the warning was issued as a routine matter, but added that there may be an increased police presence in New York and other large metropolitan areas.
The report indicates that al-Qaida terrorists "in late September may have discussed targeting transit systems in and around New York City. These discussions reportedly involved the use of suicide bombers or explosives placed on subway/passenger rail systems," according to the document.
"We have no specific details to confirm that this plot has developed beyond aspirational planning, but we are issuing this warning out of concern that such an attack could possibly be conducted during the forthcoming holiday season," states the warning, which is dated Tuesday.
While federal agencies regularly issue all sorts of advisory warnings, the language of this one is particularly blunt.
Intelligence and homeland security officials are working with local authorities to try to corroborate the information "and will continue to investigate every possible lead," the memo says.
Knocke, the DHS spokesman, said the warning was issued "out of an abundance of caution going into this holiday season."
No changes are being made to the nation's threat level, or for transit systems at this time, he said.
"However, transit passengers in larger metropolitan areas like New York may see an increased security presence in the coming days.
This includes uniformed and plain clothed behavior detection officers, federal air marshals, canine teams, and security inspectors," Knocke said.
----
Posted by Adam , Nov 26, 2008 10:42AM
UK is even worse at 89bps (as of yesd). Other European countries are even higher than that - it's absolutely nuts.
Posted by guest , Nov 26, 2008 10:43AM
Is any new stimulus really going to help systemically? Isn't that just like taking a shot of tequila? You get a buzz temporarily but soon after you get a rotted out feeling in your stomach?
How is another $200-600 (if not less) going to revive the economy over a longer term (say 12-24 months)? So a person buys an Xbox or saves it or pays down some debt - I don't see how this extrapolates to improving the economy. Bush's obviously didn't solve anything for the long term since when they sent out those checks last year things have gotten FAR WORSE.
Position: Long Apocalypse Soon.
Posted by guest , Nov 26, 2008 10:45AM
What's the upfront on those Treasury CDS's ??
Seriously, CDS on US Treasuries have to be the dumbest financial contract on earth. Who is dumb enough to buy it??
If you want to buy re-insurance from Buffett on the Sun exploding, I'm sure he will sell you that too.
Posted by guest , Nov 26, 2008 10:49AM
@7 Empirical evidence is loose spreads.
The problem is there are few people who are credit worthy to lend to.
The people who are credit worthy don't want to add to or take on more debt.
Posted by guest , Nov 26, 2008 10:56AM
A CDS spread of 56 was equivalent to a AA rating last year when markets were working. This means Bush-Obama is now less credit worthy than Goldman Sachs or Berkshire last year. Are they crazy??
Posted by guest , Nov 26, 2008 11:08AM
@12...word.
And the people that are credit worthy who don't want to take on more debt are credit worth for a reason - they are SMART.
Posted by guest , Nov 26, 2008 11:11AM
@11
I use to say the same thing as well. But it is really a question of counter party and currency rather than credit worthiness isn't it? It is possible for the government to go bankrupt and if you can structure the contract to be paid back in JPY from an Tokyo bank, it stops looking so dumb and starts looking like cheap insurance for holding assets in a risky currency.
Posted by guest , Nov 26, 2008 11:13AM
@12...is correct. now go long C, BAC, JPM, etc
Posted by Suits , Nov 26, 2008 11:25AM
11, greater fools.
Posted by guest , Nov 26, 2008 11:27AM
Why would CDS spreads on treasuries go up because the FED is purchasing $600B of assets? The FED isn't the Treasury, they aren't financing anything with T-Bills. The FED just prints money and addds to their balance sheet whatever they purchase.
The FED does buy T-Bills in the open market to inject cash into the system, but if you look at the FED's balance sheet now as compared to say, a year ago, T-Bills are down almost 50%. Of the $2T+ on the sheet, most of it is the FED printing money and taking on assets acquired by its variously named Term lending facilities.
If you think the FED is taking on risky assets that will default, then buy CDS on those assets. The systemic risk to such a default is not US insolvency. Rather, it's devaluation of the dollar and, eventually, inflation. Inflation, of course, leads to recession and lower tax revenues, which in turn affect the Treasury's ability to pay off their debts. But we've never had a recession that caused government defaults, and god hope we don't see one anytime soon.
This is what people don't seem to realize about the bailout. When the FED lends money or purchases something they're not using taxpayer dollars. They're literally printing money. The only way it affects taxpayers (outside of long-term dollar devaluation), is if the FED goes directly to Treasury and get the securities in a new issuance. But why would they do this when they could acquire those securities on the open market? I suppose they could turn around and sell them to finance an asset purchase, but the FED is never in need of financing it has all the dollars it could ever need.
Posted by guest , Nov 26, 2008 11:29AM
Campbell Soup CDS is tigher than U.S.
Posted by guest , Nov 26, 2008 11:30AM
Here is a question for those of you with more historical background. When various countries in the last thirty years or so have "defaulted" on their bond obligations (Russia, Argentina, etc) did they default on bonds they were obliged to pay in their own currency or in bonds they were obliged to clear in dollars?
Because I don't see how there can be any risk in buying an obligation to pay money from an entity that can create an infinite supply of it.
The only reason a country would default on debt denominated in its own currency is to either a) outright steal from people or b) avoid hyperinflation. Our government has demonstrated that it does not fear hyperinflation. Therefore, I don't understand how there can be any CDS market for USG obligations in the first place. Somebody 'splain me, please.
Posted by guest , Nov 26, 2008 11:34AM
@18...but it is not only the Fed making purchases - Treasury is giving the money too so it is tax dollars.
@19...Long soup lines?
Posted by guest , Nov 26, 2008 11:36AM
@20...it is the casino we call Wall Street.
If you can think it - you can purchase/invest it.
Posted by guest , Nov 26, 2008 11:37AM
19 Is that really true? I'm not seeing it.
Posted by mj , Nov 26, 2008 11:48AM
@18 Yesterday's news caused buying in agy MBS. TBA's correspond to the 10yr, and ppl hedge that trade by bying the actual Note, the TYA, other futures contracts on the 10yr, and 10yr swaps (not CDS). The CDS are trading on the back of that. Whole lotta nuthin.
@23 CPB cash were trading as tight as any credit until their lackluster results and a Merrill downgrade.
Posted by guest , Nov 26, 2008 12:28PM
@7 & @12,
The people with solid credit:
1. Aren't even close to the number of the same group a year ago;
2. If they were smart enough to have good credit now, are smart enough to not add any more debt right now.
Posted by guest , Nov 26, 2008 12:30PM
Those wondering who is selling this? Smart bankers at DB. It is all euro denominated (if you were wondering how you overcome the Armageddon situation) and it is being sold mostly to European investors who need it to "hedge" something or another because their models don't allow for UST to be risk free for some reason.
The reality is those quotes are well dumb since there are only a handful of dumb idiots in Europe buying it. If you look at who is determining that price you rapidly realize that price isn't worth looking at.
Posted by guest , Nov 26, 2008 12:47PM
@26
DB cannot sustain a default in US Treasuries even if it's euro denominated. No counterparty in the world can. Maybe the North Koreans or Somali Pirates can, but definitely not the Germans.
Posted by guest , Nov 26, 2008 12:49PM
@25
Those with good credit scores and no debt, the very smart ones, will take the 30K interest free one year credit card loan and go buy a CD with it and say, "thank you Chity, fuckers."
4.25%
Posted by guest , Nov 26, 2008 1:23PM
Doesn't matter if X isn't in a position to claim in the event of USTs defaulting. Mark to market people, mark to market, collateral. Read my lips
Posted by guest , Nov 26, 2008 1:50PM
LOOKING FOR 800,000 UPRIGHT CITIZENS TO COME TO THE AID OF THEIR COUNTRY.
PLEASE PONY UP $56K EACH TO INSURE EIGHT TRILLION DOLLARS OF U.S DEBT.
IF U.S SHOULD GO OUT OF BUSINESS, TREASURY HOLDERS, PLEASE CALL:
(PICK ONE)
-REMAINING BRANCH(ES) OF US MILITARY
-FAITH BASED CHARITIES
-RED CHINA
Posted by guest , Nov 26, 2008 4:15PM
Keep printin it up
Hyperbling bling
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Posted by guest , Nov 26, 2008 5:06PM
IF US SHOULD GO OUT OF BUSINESS, TREASURY HOLDERS, PLEASE CALL:
-DENNIS HOPPER
Posted by guest , Nov 26, 2008 5:20PM
IF US SHOULD GO OUT OF BUSINESS, TREASURY HOLDERS, PLEASE CALL:
-PARTY BOSS JIM TAYLOR
Posted by guest , Nov 26, 2008 5:23PM
IF US SHOULD GO OUT OF BUSINESS, TREASURY HOLDERS, PLEASE CALL:
-MUMBAI SCOTCHERS
Posted by guest , Nov 26, 2008 5:36PM
IF U.S SHOULD GO OUT OF BUSINESS AND ALL ELSE FAILS CALL:
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Posted by guest , Nov 26, 2008 6:02PM
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Posted by guest , Nov 26, 2008 6:06PM
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PEACE AND LOVE
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Posted by guest , Nov 27, 2008 9:39PM
you don't get it because its a quote coming from Munich ? - Come on fellow jews this anti Germany thing is getting way overdone - Everyone has suffered losses at some point in this short history of the world. - Lets keep looking towards the future and not waste efforts on bad energy.