TickerHound.com

Have credit rating agencies become irrelevant?

Wed, 15 Oct 2008 05:14:16 -0400

For example, GE's AAA rating clearly means nothing to investors who bid credit default swaps on the company's bonds up to a price of 500 to 700 basis points! Remember, triple-A means creditworthiness on a par with that of the U.S. Treasury, and credit default swaps on Treasury bonds have never traded above 35 basis points. If investors no longer trust credit rating agencies, what does that mean for the future?

What will happen to the credit default swaps?

Tue, 14 Oct 2008 21:52:08 -0400

Now that banks have been bailed out and, hopefully, credit starts to flow again, what will happen to the $60 trillion credit default swaps (CDS)? These are assurances by a first party to a second party that any defaults by a third party, the borrower from the second party, will be made good by the first party. But the only asset the first party has is a CDS with a fourth party, which has one with a fifth, etc. When these dominos fall, who can stop it?

Where is the bottom?

Tue, 07 Oct 2008 22:37:08 -0400

Theoretically, the potential bottom of this bear market can be calculated. It is the highest top pivoted around the least-squares trend line of historic stock prices. Can anyone calculate that value?

Is it possible that G. W. Bush is a look-alike plant by Al-Queda?

Sun, 05 Oct 2008 03:50:55 -0400

Is the real G. W. Bush locked up or dead? Certainly, the actions of the President of the US could not be more destructive to the US if Al Queda had planned it!

Should the Government nationalize the operators that caused this mess?

Sat, 27 Sep 2008 04:41:29 -0400

In the US, corruption is negligible, but incompetence by regulators is rife. As a result, the Government will pay more for the "bailout investments" than they are worth. The vast injection of new money will cause inflation. Eventually, the Government will sell its "investment" at a loss. The loss is based on two grounds: (i) the underlying value was not there in the first place; and (ii) the dollar it gets back is not worth as much as the dollar it has spent. But the really scary bit is that the bailed-out operators may not "do business" with the cash, but will put it in their pocket. In this case, the reason for the bailout is defeated and another great depression is inevitable. The only "investment" that makes sense is to nationalize the operators that caused this mess. The Government should take over at a properly discounted current value all of the sharp operators' businesses. To top it off, it should throw the operators in jail and confiscate their assets.

Where are the suicides?

Wed, 24 Sep 2008 06:54:10 -0400

In the last Great Depression, many people who failed committed suicide. Now we are heading into the Mother of all Depressions, and instead of suicides we see claims by the CEOs of failed institutions that they will not accept the Government's rescue plan unless their golden parachutes are guaranteed?

What will happen to the bailout money?

Thu, 25 Sep 2008 05:15:31 -0400

I see two possibilities: 1) the objective to restore normal business will be achieved; or 2) the bailout money will be siphoned off by the sharp operators, normal business will not be restored, and the mother of all depressions will not be averted. Congress is aware of the risk that No 2 will prevail unless it puts strong measures in place. But history has shown that the operators outsmart Congress by a big margin.

A simple question

Thu, 18 Sep 2008 03:37:47 -0400

CDS stands for "credit default swap". It is a contract where a buyer makes periodic payments to a seller in consideration of the seller making good any loss on the possible default under a loan made by the buyer to a third party. A CDS resembles an insurance policy. However, there is no requirement that the seller holds assets to enable it to meet its obligation under the contract. Clearly, this has been a godsend for speculating banks and brokers over the last few decades since deregulation by Congress allowed this kind of behavior. Credit default swaps are the most widely traded credit derivative product. The Bank for International Settlements reported the outstanding credit default swaps to be $42.6 trillion in June 2007. A large part of this $42.6 trillion is in loans that have no underlying value. It is money siphoned off by crooks, cronies and collaborators. Do you really think a few hundred billion dollar bailout by the FED and Congress can avert the final reckoning?

How do I put a question on my watch list?

Mon, 22 Sep 2008 05:14:59 -0400

What category should I choose for this question?

Do you take advantage of mispriced options?

Sun, 06 Apr 2008 16:58:35 -0400

In answering a question about straddles and strangles, MNSL quoted the following numbers by way of example: stock price and strike prices all $15, time to expiry one month, cost of call option $2, cost of put option $1. The numbers served the purpose of answering the question. However, what if you actually see these prices quoted? Clearly, there is some mispricing. Using the calculator at http://www.futuresandforex.info/strategies1.shtml I see that the call price of $2 has an implied volatility of 115%, at which the put price should be $1.95; and the put price of $1 has an implied volatility of 61%, at which the call price should be $1.08. Would you take advantage of this mispricing by buying the put and selling the call and going long the stock? Then, no matter where the marked is after one month, you will make $100 per position of 100 shares. Test three market scenarios: (i) unchanged, (ii) at $10, (iii) at $20. In each case, the outcome is $1 profit.

Non-borrowed reserves are negative $61.8 billion?

Sun, 30 Mar 2008 16:11:15 -0400

Have a look at http://www.federalreserve.gov/releases/h3/Current/ What a slide! Of total reserves of $44.5 billion, non-borrowed is NEGATIVE $61.8 billion. Does that mean deposit-taking institutions have borrowed $106.3 billion from the Fed? As recently as December 2007, nearly 100% of reserves was non-borrowed, as it should be, because borrowed reserves are NOT reserves. What do you make of such a slide? What is the true state of affairs in the economy?

Whose heads should roll?

Sat, 05 Apr 2008 18:15:31 -0400

Following up on the question "Should tax payers call for the heads of congressmen?". The Bill to amend the Federal securities laws to equalize the regulatory treatment of participants in the securities industry, and for other purposes was sponsored by John D. Dingell and cosponsored by John W. Bryant, Norman F. Lent, Edward J. Markey, Thomas McMillen, Bill Richardson, Matthew J. Rinaldo, Gerry E. Sikorski, Jim Slattery and Ron Wyden. Would anybody know who voted for the bill?

Should tax payers call for the heads of congressmen?

Sat, 05 Apr 2008 17:04:46 -0400

Please read this testimony, given by Stephen Pizzo on 13 September 1991... http://www.newsforreal.com/written.html or see a synopsis here... http://www.salon.com/tech/htww/2008/04/04/the_next_black_monday/index.html Do you agree that Congress should be held accountable for the mess the banking system is in? Mr. Pizzo's testimony is based on his analysis of the Savings & Loans crisis. He had this to say: "As we autopsied dead savings and loans, we were absolutely amazed by the number of ways thrift rogues were able to circumvent, neuter, and defeat firewalls designed to safeguard the system against self-dealing and abuse. One of the favorite methods was to link up like-minded thrifts in the daisy chains through which they could circulate inflated assets and hide their rotten loans to each other and to each other's customers from regulators." He said "Banks ... will do exactly the same thing" if they are deregulated. But Congress did not listen.

Is the employment situation a reliable indicator of things to come?

Thu, 03 Apr 2008 01:55:57 -0400

See http://www.bls.gov/bls/proghome.htm for the data. The three-month rate of change in the employment situation has demonstrated an extraordinary track record: in the eleven economic recessions since 1956, the three-month rate of change has fallen below the zero line on every one of those eleven occasions, and never on any other occasion. Now is the twelfth time that U.S. non-farm employment has fallen below the zero line. Does it mean anything, and if so, how should we react?

Of the 8,533 FDIC-insured banks and institutions, which ones are likely to go under in a melt-down?

Sun, 30 Mar 2008 17:10:45 -0400

See http://www.fdic.gov/bank/statistical/stats/2007dec/industry.html Total assets are $13,039 billion, covered by equity of 10.37%. If the value of the assets of a bank has gone down by more than its equity ratio, the bank is bankrupt. Many of the assets (mortgages, shares and properties) have lost significantly more than 10%, but how do you value an asset when there is no market for it? And if a bank goes under, how much money will the government have to print and how will this printing affect the economy? For example, a 30% loss equals $3,900 billion. The insurance payout would be $2,600 billion.