Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1243.5 | -7.6 | -0.61% |
| Eurostoxx Index | 2276.2 | -15.240 | -0.67% |
| Oil (WTI) | 94.14 | -0.120 | -0.13% |
| US Dollar Index (DXY) | 77.16 | 0.249 | 0.32% |
| 10 Year Govt Bond Yield | 2.03% | 0.00% |
Greek Prime Minister George Papandreou stepped aside to allow the formation of a new Unity government which will implement the required measures to receive 130 billion euros in financing. Holders of Greek debt will receive 50 cents on the dollar. Surprisingly ISDA (who oversees derivative contracts) will not consider this to be a “credit event,” so if you had hedged your Greek sovereign debt holdings with credit default swaps, you are out of luck. This adds a brand new risk element to debt / CDS investing – interpretation risk – or the risk you can get crammed down and have it not be considered a credit event. It will be interesting to watch the dynamic here – CDS levels might start giving misleading indications. Since credit default swaps are basically puts, their put value will decline as investors factor in the possibility that they won’t get paid if, say, Italy or Portugal does a similar cramdown plan. Watch the bonds, not the swaps.
Earnings season is more or less over. While companies generally reported strong results, analysts are taking down 2012 estimates. FWIW, there has been a “V” shaped recovery in corporate profits, but that has not extended to employment. From my perch overlooking the mortgage market, I am seeing companies miss out on business because they don’t have the staff to handle it. They are pulled in different directions from increased activity, and paralysis from having no clue how the regulatory environment is going to look. Strange times indeed.
We have a few minor economic data releases this week, but nothing really market moving, except for Initial Jobless claims on Thurs morning. Europe will continue to dominate the market until the January fiscal retailers report Q3 numbers in a few weeks.
-ashotinthedark
I thought Triumph the Insult Comic Dog’s visit to OWS was too funny not to share.
Filed under: Uncategorized |
All Things in Moderation 
" FWIW, there has been a "V" shaped recovery in corporate profits, but that has not extended to employment. From my perch overlooking the mortgage market, I am seeing companies miss out on business because they don't have the staff to handle it."This seems crazy to me. Say I see some new business on the horizon, and decide to hire some folks. Turns out, business isn't what I thought, I let those people go. How big is my hit, outside of the expensive of temporarily employees those people? Why can't I hire temps? I suppose I might have training expenses, etc.. It just seems odd that I'm so skittish I'd rather pass on business opportunities that hire a few people (probably at a discount) in a soft labor market.
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Well, the mortgage business is ground zero in uncertainty right now, both from a regulatory standpoint and from a plain vanilla "how will this business look two years from now?" standpoint.Hiring and firing isn't necessarily cheap either.
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Well, the mortgage business is ground zero in uncertainty right now, both from a regulatory standpoint and from a plain vanilla "how will this business look two years from now?" standpoint.I agree Brent. There is still so much downward trend and little resolution in sight in the foreclosure crisis that most of us know we're still in wait and see mode, or wait and pay down mode, if you prefer. This piece typifies what's happening here in CA and with the Obama Administration IMO. I don't believe there will ever be a clearly defined resolution and so we're still at ground zero, here in CA at least.The first indication that as California AG Harris was more sympathetic to the Obama side of the ledger on banking is that one of her first decisions as AG was to let off Angelo Mozilo without admitting to wrong-doing or personally paying a fine (the small money that went to restitution came from Bank of America shareholders). I suspect the issue is actually more personal to her than legal, not because she particularly cares about finance or foreclosures, but because her friends and allies are very concerned about ensuring that the banks get a release. In their view, this will cause the housing market to clear, the economy to recover, and then help reelection chances.The political problem for Harris is that she was elected by liberal votes, and she’s getting enormous public pressure to resist signing on to a settlement that is perceived as favorable to the banks. While she backed out of an immediate settlement a few weeks ago, she refused to join the joint investigation by Eric Schneiderman and Beau Biden of the foreclosure fraud crisis. She has sat on the sidelines, trying to figure out what to do.
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"… paralysis from having no clue how the regulatory environment is going to look."What regulatory change is imagined here?I am guessing anything dramatic would be a statutory change, not a regulatory one.Are you suggesting the potential of principle cramdowns? I am not being argumentative; I want to know what government action the mortgagees fear.
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"Surprisingly ISDA (who oversees derivative contracts) will not consider this to be a "credit event," so if you had hedged your Greek sovereign debt holdings with credit default swaps, you are out of luck. This adds a brand new risk element to debt / CDS investing – interpretation risk – or the risk you can get crammed down and have it not be considered a credit event. "If you are a Greek bondholder, technically you still have to "agree" to this cramdown as it's "voluntary" correct?Also, correct me if I'm wrong, but a "naked" CDS is where you hold a CDS against a bond, but don't actually hold the bond? My impression is that the EU has enacted a ban on naked CDS, but it's not in effect yet?
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jnc:Yes, that is a naked CDS. But the ban that was enacted was only on sovereign debt. And member states have the ability to opt out.Also, I think you are right about the cramdown being "voluntary", although I am not sure regarding the logistics of how that would work, so it's not clear to me that it would be entirely "voluntary" on an individual basis.
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@mark,the government (at all levels – state, local, federal) has thrown up roadblocks to foreclosing properties, such that the timeline has become stretched. the vast majority of these foreclosures are not robo-signed, tainted foreclosures. So those foreclosures will hit the market at some time. In the meantime, professional investors sit on their hands, and the servicers are getting annihilated as their advances balloon and they hit their limits on their credit lines from the banks. Not only that, but there have been all sorts of changes to the way loan officers are compensated and the use of points in loan closing. Suffice it to say, things are a mess in mortgage-land.@jnc4p: you are correct on naked CDSs, but there are tons of swaps out there that predate the rule. As far as the "voluntary" aspect, creditors always have to agree in a bankruptcy hearing, but that is still a credit event.
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"@jnc4p: you are correct on naked CDSs, but there are tons of swaps out there that predate the rule. As far as the "voluntary" aspect, creditors always have to agree in a bankruptcy hearing, but that is still a credit event. "Yes, but theoretically an actual bondholder could chose not to agree to the debt restructuring and trigger the credit event whereas a naked CDS holder couldn't?
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Don't know how things work in Europe, but generally in the US, the creditors vote for a re-org. If you are small, you can try and hold out, but generally the big guys with the most paper run the show. Which in this case are the governments themselves who own bonds in bad banks.Whether you are hedged or naked on the CDS shouldn't make a difference since the entire class of creditors gets the same deal.
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"Don't know how things work in Europe, but generally in the US, the creditors vote for a re-org. If you are small, you can try and hold out, but generally the big guys with the most paper run the show. Which in this case are the governments themselves who own bonds in bad banks."Yes, but that would actually be in the context of bankruptcy which is a "credit event". The original discussion was how the Europeans were trying to prevent the CDS triggers while still writing down the debt on a "voluntary" basis. My point is, at the end of the day, an actual bondholder could still seek redress in court and trigger the "credit event" whereas a naked CDS holder may end up stuck if all the actual bondholders agree to go along and the ratings agencies (or whomever else is the group that determines what is a "triggering event) don't dispute that.
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ash — thanks for the link to triumph.
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Brent, thanks, that all is perfectly sensible. We are not having the wave of foreclosures in Austin or in Texas or I would have known this.While we were in Flagstaff, however, I saw many foreclosures and REOs.
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There are a few areas of strength in the real estate market – TX, Coastal CA, Washington DC, and the "nowhere else to go but up" areas like Detroit.
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