Credit-default swaps are complex financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. Their value falls as investor confidence increases. Recently, many credit-default swaps collapsed along with the market for mortgage backed securities. This is what prompted the government fearful that the entire credit-default market would unravel to lend $85 billion to insurer American International Group, one of the world's biggest insurers of the bonds.
Example ABC Inc.
1) Investor buys a bond from ABC Inc.
2) The investor gets insurance for the bond by paying a bank a fee, usually as a percentage of the value of the bond.
3) Bank insures the bond for the investor and agrees to pay the investor the value of the bond if
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ABC Inc. defaults.
Among the risks:
The bank may not have the assets on hand to pay the investor if ABC Inc. defaults
The investor may be speculating that ABC Inc. will default and use the transaction to make a profit
The credit-default swaps on ABC's debt in the market may exceed the value of ABC's bonds many times over.
US Markets Go Up
Positive news is Banks are lending each other. Ted Spread tightens. The spread has been decreasing today and traders are taking it as a sign the credit market is in the process of unclogging and are buying equities in the hopes that corporate liquidity concerns will ease.
Also there has been no negative news this weekend has helped the stock market and high yielding currencies recover. The liquidity that central banks have pumped into the financial markets are also finally having an effect on the credit markets. As indicated by the table below, everything from 3 month LIBOR spreads to the TED spread and currency volatilities have fallen since Friday and most of these indexes are down sharply from last Monday. This shift indicates that banks and other counterparties are becoming less risk averse and more willing to lend to each other which is helping equities and carry trades rally.
Also there has been no negative news this weekend has helped the stock market and high yielding currencies recover. The liquidity that central banks have pumped into the financial markets are also finally having an effect on the credit markets. As indicated by the table below, everything from 3 month LIBOR spreads to the TED spread and currency volatilities have fallen since Friday and most of these indexes are down sharply from last Monday. This shift indicates that banks and other counterparties are becoming less risk averse and more willing to lend to each other which is helping equities and carry trades rally.
http://www.nytimes.com/interactive/2008/10/08/business/economy/20081008-credit-chart-graphic.html
Lehman CDS Payout On October 21: One of the most expensive payouts in the history of this market.
What is Credit Default Swap?
Suppose you are Citi Bank & bought bonds worth Rs 100 Cr from Lehman, now your bond value might go up or down so you have take an insurance from Barclays by paying say just Rs 10 Lakhs. In fact you are securing safety of your Rs 100Cr bond by paying just Rs 10 Lakhs. There are some people who do short selling of these bonds, like selling bonds without buying it and they also get these bonds insured, they are called naked CDS.
And just like in case of Nifty future trading & Nifty Spot market volume if you compare, you will see futures are traded 5-6 times more in volume compare to volume of spot market. So, in this case too naked CDS will be worth 5-6 times or more compare to spot CDS.
On Oct 10th payout was done done for those who were holding bonds, and the payout amount was $138bn. On Oct 21st payout for naked CDS will be done which is expected to be 5-6 times more than spot CDS, hence it might be $400-600bn who knows? Since Lehman is bankrupt hence those guys who insured these naked bonds need to pay such a hugh amount. We expect 2-3 big banks who insured these naked CDS to go bankrupt on Oct 21st, Watch Out!!!
In theory, a CDS is a contract in which a bondholder buys insurance — known as protection — against that bond defaulting. In practice, however, CDSs have become hugely popular among investors trading on the likelihood of a bond default without holding the underlying bond. The market has proved particularly popular with hedge funds, in part because it offers an opportunity to "short sell" bonds.
Idiots who made money by selling insurance on Lehman bonds will learn a lesson on Oct 21st. These idiots were betting that Lehman will be rescued like Bears! $400 billion in CDS’s — just take a look at the bond debt issued by Lehman on its bankruptcy schedules, it was $138 billion, so you know there are some naked CDS’s out there. $60 trillions CDS are outstanding 90% held by people not owning the underlying bonds with no regulation or exchange……………regulation …………what regulation?
Who will get impacted most or might go belly up?
Derivatives specialists insist it is impossible to predict which investors will be hit hardest by the losses on Lehman CDSs, which are spread far and wide, as Lehman was one of the most actively traded credit default swaps. Barclays and Royal Bank of Scotland are likely to be prominent among those required to pay out on Lehman CDSs. Meanwhile, counterparties failing to meet their CDS obligations to the two banks could lead to significant writedowns. Against this, tangible shareholders' equity bases of £20bn to £30bn seem like cloth tents in a hurricane.
On the heels of similar auction processes for Fannie Mae, Freddie Mac and Washington Mutual late last month, on Oct 10th auction for CDS of Lehman were done for the bond holder and on Oct 21st payout will be done for naked bond holders. For now, traders in the equity market are concerned about the prospects for the settlement, adding that its uncertainty is casting a dark cloud over the most likely holders of the debt — big banks such as Morgan Stanley, Goldman Sachs and J.P. Morgan Chase.
This Lehman credit default swaps settlement auction will likely be one of the most expensive payouts in the history of that market, something the government is certainly keeping an eye on.
Suppose you are Citi Bank & bought bonds worth Rs 100 Cr from Lehman, now your bond value might go up or down so you have take an insurance from Barclays by paying say just Rs 10 Lakhs. In fact you are securing safety of your Rs 100Cr bond by paying just Rs 10 Lakhs. There are some people who do short selling of these bonds, like selling bonds without buying it and they also get these bonds insured, they are called naked CDS.
And just like in case of Nifty future trading & Nifty Spot market volume if you compare, you will see futures are traded 5-6 times more in volume compare to volume of spot market. So, in this case too naked CDS will be worth 5-6 times or more compare to spot CDS.
On Oct 10th payout was done done for those who were holding bonds, and the payout amount was $138bn. On Oct 21st payout for naked CDS will be done which is expected to be 5-6 times more than spot CDS, hence it might be $400-600bn who knows? Since Lehman is bankrupt hence those guys who insured these naked bonds need to pay such a hugh amount. We expect 2-3 big banks who insured these naked CDS to go bankrupt on Oct 21st, Watch Out!!!
In theory, a CDS is a contract in which a bondholder buys insurance — known as protection — against that bond defaulting. In practice, however, CDSs have become hugely popular among investors trading on the likelihood of a bond default without holding the underlying bond. The market has proved particularly popular with hedge funds, in part because it offers an opportunity to "short sell" bonds.
Idiots who made money by selling insurance on Lehman bonds will learn a lesson on Oct 21st. These idiots were betting that Lehman will be rescued like Bears! $400 billion in CDS’s — just take a look at the bond debt issued by Lehman on its bankruptcy schedules, it was $138 billion, so you know there are some naked CDS’s out there. $60 trillions CDS are outstanding 90% held by people not owning the underlying bonds with no regulation or exchange……………regulation …………what regulation?
Who will get impacted most or might go belly up?
Derivatives specialists insist it is impossible to predict which investors will be hit hardest by the losses on Lehman CDSs, which are spread far and wide, as Lehman was one of the most actively traded credit default swaps. Barclays and Royal Bank of Scotland are likely to be prominent among those required to pay out on Lehman CDSs. Meanwhile, counterparties failing to meet their CDS obligations to the two banks could lead to significant writedowns. Against this, tangible shareholders' equity bases of £20bn to £30bn seem like cloth tents in a hurricane.
On the heels of similar auction processes for Fannie Mae, Freddie Mac and Washington Mutual late last month, on Oct 10th auction for CDS of Lehman were done for the bond holder and on Oct 21st payout will be done for naked bond holders. For now, traders in the equity market are concerned about the prospects for the settlement, adding that its uncertainty is casting a dark cloud over the most likely holders of the debt — big banks such as Morgan Stanley, Goldman Sachs and J.P. Morgan Chase.
This Lehman credit default swaps settlement auction will likely be one of the most expensive payouts in the history of that market, something the government is certainly keeping an eye on.
Credit Crisis Indicators
The credit markets are a more important measure of the severity of the financial crisis than the stock markets, as Henry Paulson, the Treasury secretary, and others have noted.
Below indicators are used to measure credit crisis
Treasury Bills
Libor Rates
Ted Spread
Commercial Paper
High Bond Yeilds
For credit crisis indicators daily movement check out on nytimes.
http://www.nytimes.com/interactive/2008/10/08/business/economy/20081008-credit-chart-graphic.html
Below indicators are used to measure credit crisis
Treasury Bills
Libor Rates
Ted Spread
Commercial Paper
High Bond Yeilds
For credit crisis indicators daily movement check out on nytimes.
http://www.nytimes.com/interactive/2008/10/08/business/economy/20081008-credit-chart-graphic.html
Is Europe Acting Better than US?
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Labels:
Economy
Europeans have proved more nimble than Americans at getting to the root of the global financial crisis.
After initially dithering, Europe’s leaders came up with a financial bailout plan that has now set the pace for Washington, not the other way around, as had been customary for decades.
That was clear when the Treasury Department decided to depart from its own initial bailout plan — the one approved by Congress earlier this month — and invest up to $250 billion directly in the nation’s banks. The nuts and bolts of that approach had been laid out days earlier by European leaders as they tried to save their own financial system.
C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington, a centrist economic policy center, summed up the week this way: “When it came to crisis-response mode, the Europeans, especially the British, did take the lead and the U.S. changed course.”
And the markets seemed to respond accordingly. When stock exchanges around the world bounced back last week from the rout earlier in the month, European shares were big winners. They ended the week up 8.2 percent, compared with a 4.5 percent gain for Wall Street. Many Europeans can’t resist crowing. “European capitalism is better suited to meet the challenges of the current financial crisis,” Trouw, a Dutch newspaper, declared recently.
In London, where Britain’s willingness to follow the United States into Iraq five years ago still evokes outrage, officials have been especially quick to point out they didn’t follow Washington’s lead this time.
“There’s no doubt that it was a British plan that was copied by the U.S.,” said Leon Brittan, who served as Home Secretary under Margaret Thatcher and was a top official at the European Commission. “It shows that the American conception of Europe as an economic basket case is outmoded and wrong.”
“Europe showed the capacity to respond to a crisis more quickly than the U.S.,” he added. “The U.S. went through agonies to come up with a plan.”
Not everyone was quite so triumphalist in tone, or so confident of generalizing from this one moment. While the course of action that emerged in recent days was smart, it doesn’t make up for a long period of denial about Europe’s own problems with credit practices before leaders finally recognized that the global financial system was collapsing, said Jean Pisani-Ferry, a former top financial adviser to the French government who is now director of Bruegel, a research center in Brussels. “For too long, they said the crisis was in the U.S. and wouldn’t affect them,” Mr. Pisani-Ferry added.
Europe, in fact, still has plenty of problems, notably high unemployment and the likelihood of a prolonged recession, as Britain, Ireland, Spain and other countries suffer through a housing bust of their own.
And the fact that France and Germany, Switzerland, Spain and Britain are together anteing up more than $1 trillion to rescue their own financial institutions challenges any assertions that European bankers were any smarter or more prudent than their American counterparts.
After initially dithering, Europe’s leaders came up with a financial bailout plan that has now set the pace for Washington, not the other way around, as had been customary for decades.
That was clear when the Treasury Department decided to depart from its own initial bailout plan — the one approved by Congress earlier this month — and invest up to $250 billion directly in the nation’s banks. The nuts and bolts of that approach had been laid out days earlier by European leaders as they tried to save their own financial system.
C. Fred Bergsten, director of the Peterson Institute for International Economics in Washington, a centrist economic policy center, summed up the week this way: “When it came to crisis-response mode, the Europeans, especially the British, did take the lead and the U.S. changed course.”
And the markets seemed to respond accordingly. When stock exchanges around the world bounced back last week from the rout earlier in the month, European shares were big winners. They ended the week up 8.2 percent, compared with a 4.5 percent gain for Wall Street. Many Europeans can’t resist crowing. “European capitalism is better suited to meet the challenges of the current financial crisis,” Trouw, a Dutch newspaper, declared recently.
In London, where Britain’s willingness to follow the United States into Iraq five years ago still evokes outrage, officials have been especially quick to point out they didn’t follow Washington’s lead this time.
“There’s no doubt that it was a British plan that was copied by the U.S.,” said Leon Brittan, who served as Home Secretary under Margaret Thatcher and was a top official at the European Commission. “It shows that the American conception of Europe as an economic basket case is outmoded and wrong.”
“Europe showed the capacity to respond to a crisis more quickly than the U.S.,” he added. “The U.S. went through agonies to come up with a plan.”
Not everyone was quite so triumphalist in tone, or so confident of generalizing from this one moment. While the course of action that emerged in recent days was smart, it doesn’t make up for a long period of denial about Europe’s own problems with credit practices before leaders finally recognized that the global financial system was collapsing, said Jean Pisani-Ferry, a former top financial adviser to the French government who is now director of Bruegel, a research center in Brussels. “For too long, they said the crisis was in the U.S. and wouldn’t affect them,” Mr. Pisani-Ferry added.
Europe, in fact, still has plenty of problems, notably high unemployment and the likelihood of a prolonged recession, as Britain, Ireland, Spain and other countries suffer through a housing bust of their own.
And the fact that France and Germany, Switzerland, Spain and Britain are together anteing up more than $1 trillion to rescue their own financial institutions challenges any assertions that European bankers were any smarter or more prudent than their American counterparts.
Will markets rise next week?
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Labels:
Stocks
Key data to be watched for is
This week global money markets will be watched closely for cues on the credit crisis. If overnight borrowing costs ease further, it would be the first sign of a bottoming out in equity markets. The unlocking of credit markets would mean fresh flows of money into equities.
This week, investors would be riveted to RBI’s mid-term monetary policy review on 24 October to see what the central bank does, especially against the backdrop of an industrial slowdown and tremors in the services sector. A cut in interest rates by 50 basis points (one basis point is one-hundredth of a percentage point) is most likely and already factored in by the street. Any additional aggressive measures by the bank would boost sentiment and may trigger bargain buying.
This week global money markets will be watched closely for cues on the credit crisis. If overnight borrowing costs ease further, it would be the first sign of a bottoming out in equity markets. The unlocking of credit markets would mean fresh flows of money into equities.
This week, investors would be riveted to RBI’s mid-term monetary policy review on 24 October to see what the central bank does, especially against the backdrop of an industrial slowdown and tremors in the services sector. A cut in interest rates by 50 basis points (one basis point is one-hundredth of a percentage point) is most likely and already factored in by the street. Any additional aggressive measures by the bank would boost sentiment and may trigger bargain buying.
Job Losses
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Labels:
Economy
EUROPE:
COMPANY SECTOR NUMBERS DATE
Alitalia Airlines 3,000 Sept 15
Akzo Nobel Manufacturing 3,500 Sept 29
Nissan Auto 1,680 Oct 13
Renault Auto 6,000 Sept 9
Stora Enso Paper 3,150 Sept 10
Telecom ItaliaTelecoms 5,000 Sept 19
UPM-Kymmene Paper 1,600 Sept 10
Volvo Auto 1,400 Sept 30
REGION:
USA:
COMPANY SECTOR NUMBERS DATE
Daimler AG Auto 2,300 Oct 14
eBay IT 1,600 Oct 6
Hewlett-Packard IT 24,600 Sept 15
Micron Technology IT 2,800 Oct 9
PepsiCo on Tuesday said it would cut 3,300 jobs, almost 2 percent of its work force, in a bid to cut costs.
Danaher, which also makes Craftsman tools, said on Thursday it would lay off 1,000 workers and close 12 plants.
Rockwell Automation Inc said it would lay off about 3 percent of its staff, or 600 people. That news came on September 30, the last day of the U.S. manufacturer's fiscal year.
Textron Inc, the world's largest maker of corporate jets, said an unspecified number of jobs would be cut as it scales back its financial operation.
Leggett & Platt Inc, which makes bed springs and store shelving, said it was cutting back hours at some factories and, in the words of Chief Executive Dave Haffner, "must move to reduce staff. We are already doing so." It did not disclose the number of jobs it plans to eliminate.
1,500 workers in south China have fallen victim to the current global financial crisis as they will have to find new jobs when their factory closes next week.
Hong Kong-listed BEP International Holdings Limited announced it would shut its factory in Shenzhen, Guangdong Province, on Monday after its exports had dropped drastically this year registering huge deficits, a company spokesman told Xinhua on Saturday.
Ford cuts 450 jobs.
COMPANY SECTOR NUMBERS DATE
Alitalia Airlines 3,000 Sept 15
Akzo Nobel Manufacturing 3,500 Sept 29
Nissan Auto 1,680 Oct 13
Renault Auto 6,000 Sept 9
Stora Enso Paper 3,150 Sept 10
Telecom ItaliaTelecoms 5,000 Sept 19
UPM-Kymmene Paper 1,600 Sept 10
Volvo Auto 1,400 Sept 30
REGION:
USA:
COMPANY SECTOR NUMBERS DATE
Daimler AG Auto 2,300 Oct 14
eBay IT 1,600 Oct 6
Hewlett-Packard IT 24,600 Sept 15
Micron Technology IT 2,800 Oct 9
PepsiCo on Tuesday said it would cut 3,300 jobs, almost 2 percent of its work force, in a bid to cut costs.
Danaher, which also makes Craftsman tools, said on Thursday it would lay off 1,000 workers and close 12 plants.
Rockwell Automation Inc said it would lay off about 3 percent of its staff, or 600 people. That news came on September 30, the last day of the U.S. manufacturer's fiscal year.
Textron Inc, the world's largest maker of corporate jets, said an unspecified number of jobs would be cut as it scales back its financial operation.
Leggett & Platt Inc, which makes bed springs and store shelving, said it was cutting back hours at some factories and, in the words of Chief Executive Dave Haffner, "must move to reduce staff. We are already doing so." It did not disclose the number of jobs it plans to eliminate.
1,500 workers in south China have fallen victim to the current global financial crisis as they will have to find new jobs when their factory closes next week.
Hong Kong-listed BEP International Holdings Limited announced it would shut its factory in Shenzhen, Guangdong Province, on Monday after its exports had dropped drastically this year registering huge deficits, a company spokesman told Xinhua on Saturday.
Ford cuts 450 jobs.
Christians of Orissa
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Labels:
Terrorism
- 50,000 Christians (men, women and children) have fled to nearby jungles for safety
- 18,000 have been seriously injured
- 4,300 homes destroyed
- 100's churches burned
- 57 murdered
- Christian women gang raped, one in public and near a police station (with no response from the police)
http://www.orissablog.com/
- 18,000 have been seriously injured
- 4,300 homes destroyed
- 100's churches burned
- 57 murdered
- Christian women gang raped, one in public and near a police station (with no response from the police)
http://www.orissablog.com/
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