Latest Posts

  • End of the World Trade

    Jul 2, 2008 / 4:16am / in Americas, derivatives, International Investing

    I asked one investment banker what might cause half of North America’s top corporations to default. No ordinary economic recession or natural disaster short of an asteroid strike could do it: no hurricane, for example, and not even ‘the big one’, a catastrophic earthquake devastating California. All he could think of was ‘a revolutionary Marxist government in Washington’. That’s not a likely scenario, yet the cost of insuring against it had shot up ten-fold. Normally one can buy $10 million of end-of-the-world insurance for between two and three thousand dollars a year.

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  • Insurers to Banks: Swap Guarantees for Nothing

    Jun 24, 2008 / 6:28am / in derivatives, International Investing

    Let’s say you file a claim with the insurance company after a disaster. Instead of getting a check, the insurance company tells you that it would prefer NOT to pay the claim since that would put the insurance company in a precarious financial position. What would your reaction be? Some banks are confronting a similar question with their CDS insurance.

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  • The New Breed of SPE’s

    Jan 23, 2008 / 11:48am / in Americas, derivatives, General, housing bubble, International Investing

    This WSJ article about ACA Capital Holding, shows financial firms adeptness in managing their balance sheet. ACA, ostensibly an insurance firm, was undercapitalized from the beginning. Based on the firm’s ‘A’ credit rating, the firm has a veneer of security which fell apart when S&P downgraded them to triple-C in December – a canary in the subprime coalmine. To avoid collapse, the firm is negotiating with the banks to avoid posting collateral.

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  • Do You Know What Level 3 Assets Are?

    Nov 12, 2007 / 10:16am / in Americas, derivatives, General, International Investing

    Mauldin describes Level 3 assets - what they are and where they are.

    Under FASB terminology, Level 1 means assets that can be marked-to-market, where an asset's worth is based on a real price, like a stock quote. Level 2 is mark-to-model, an estimate based on observable inputs which is used when no quoted prices are available. You can go get several bids and average them, or base your assumption on what similar assets sold for.

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  • VIX Hits 4 Year Highs

    Aug 16, 2007 / 10:55am / in derivatives, Equities, General, International Investing

    Bloomberg has the details here. Keep in mind you can run the correlations anyway you want, VIX does not correspond to market direction.

    VIX 8-16-07

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  • Wall St On Edge and Scrambling To Avoid Sub-Prime Domino Effect

    Jul 6, 2007 / 9:25am / in Americas, derivatives, General, hedge funds, housing bubble, International Investing

    From BusinessWeek:

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  • Blood flows from UBS and Galena

    Jul 6, 2007 / 8:30am / in derivatives, Fixed Income, General, hedge funds, housing bubble, International Investing

    Per HedgeWorld,

    Peter Wuffli's sudden departure from his role as chief executive of Swiss banking giant UBS has caused some speculation among the local press, who are describing it as a "surprise move." ...

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  • Buyers shy away from Bear's "toxic waste"

    Jul 5, 2007 / 6:46am / in Americas, derivatives, General, hedge funds, housing bubble, International Investing

    According to the Financial Times, buyers are showing no interest whatsoever in the wreckage left over from Bear's two subprime hedge funds -- at least, not at Bear's ask price of 11 cents on the dollar.

    Investors in the worse-hit of two stricken Bear Stearns hedge funds are offering to sell their holdings for as little as 11 cents on the dollar but still finding no buyers, according to unfilled trades on Hedgebay, a secondary market for funds.

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  • The irony of "private equity"

    Jun 22, 2007 / 4:05am / in Americas, Asia, derivatives, Equities, Fixed Income, General, International Investing

    Now KKR wants to IPO?

    In my opinion, Blackstone was just in time. I wonder if Blackstone quietly passed some money to help Bear Stearns take the hit for its two blown-up CDO funds.

    A loud 'pop' in the market for CDOs would ratchet up bond yields yet again, squeezing Blackstone's bottom line and badly marring its IPO.

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  • What's up with Bear Stearns?

    Jun 21, 2007 / 9:59am / in Americas, derivatives, General, housing bubble, International Investing

    The WSJ:

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