Wouldn't a nationalization kill the banks because of the dilution of the government taking a huge equity stake?
definitely the best post so far and could not be closer to the truth. People who try to predict will get killed over time, whether it be by price action (gaps) or lack of emotional stamina. Why not simply following price action. You wont catch tops or bottoms but you are aligned with the markets, I cant wish for more to be honest.
that was with vix at 40, vix is at 70 so we could technically see 17% x let's say 50% more volatility than in 2001 = 25.5% LOL i dunno if that would happen
We'll start finding out Monday - UK announcing equity stakes and probably interbank guarantees Monday 7AM London time. Germany floating a draft today and they expect to finalize it tomorrow (Sunday). Should be a damn interesting week.
article above was written by a complete ignorant. i find it fantastic how much misunderstood the cds market is even after 10 years of its existence. I hear it daily from idiots, ET members, investors, academics and smart people alike. the lack of transparency is the only flaw cds market has - otherwise we are much better today with cds market than without it. note that the problem with mortgages was not that ABX (cds) existed - but rather that the cash loans were not provided at historically reasonable levels, e.g. LTV = 70%. there is no reason why its sheer size (much bigger than the underlying bond/loan/LOC/etc market) should be a problem - in the same way that sum of longs in equities which is much bigger than total market cap does not cause any problems. In fact the opposite is true - the fact that people can short in equities improves the price discovery mechanism. i lived through many cds auctions before this crisis and they always went smoothly - even when there was many times cds contracts than cash instruments (e.g. DAL). next there are no big losses on cds written on other companies done with LEH. everything is collateralized and as LEH problems were rising the limits for uncollateralized exposures were cut - effectively moving MtM changes between counterparty and LEH on daily basis. All contracts are done under ISDA, i.e. with netting clause. Furthermore everybody was monitoring LEH exposure since BSC collapse and effectively managed exposure via (hated) cds. If now banks need to replace hedges (previously done with LEH) they will have to do it at higher spreads - but so what - they were compensated up to now via collateral agreements mentioned above. There should not be much pressure from cds rebalancing to new counterparties - CDS is zero sum game + every bank has internal limits on single credit entity anyway. I could go on an on - my professional life before retirement can be summed up pretty much in two words - "credit derivatives". plain vanilla cds are blessing we have - and especially in the credit crunch . the argument is slightly more difficult when we get to structured credit though - if only because complex payout profiles in structured credit are much more difficult to replicate than complex product in rates/equities..
may i draw your attention to the hollow red candle from Friday? this is far from a sure thing, but i did notice that this type of candle formed at EXACT Jan and March bottoms. in both cases we had an oversold market and the bounce that followed lasted at least a week. both times we had a VERY LARGE UP move on the day following the hollow red candle.
This is most "probable" given the current environment. Weakest hands are usually the last to the door.... B