Monthly Archives:

October 2007

MLEC: &#39initial&#39 thoughts

The big investment banks (led by Citigroup) have clubbed together to create a colossal $75bn SIV (Structured Investment Vehicle), which the banks hope will help solve many of their problems. The fund has been set up so that banks can pool and price bank debt, as well as CDOs, CLOs, residential mortgage backed securities (and anything else they can chuck in) that they’ve had problems selling and…

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Lies, Damn Lies, and Argentinian Inflation Statistics

It turns out that the Argentinian President may well have been fiddling the nation’s inflation numbers. As a result it’s estimated that holders of Argentinian inflation-linked bonds have lost $250 million in interest payments, and the bond prices have fallen by 24% this year. Merrill Lynch reckons that inflation is actually rising at 17% per year, twice the published rate from the bonds price.

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Northern Lights

Another day, another trip by Northern Rock’s treasurers down to the City by GNER (presumably first class), in order to load the briefcases up with cash from the Bank of England’s vault. All in an effort to keep the Northern Rock lights on. This time Northern Rock borrowed £4.7bn, and the running total is now over £20bn. Try putting £20,000,000,000 into a basic calculator – they were not designe… Read the article

Merrill Lynch reveals huge write-downs

In its Q3 results, Merrill Lynch today reported a write-down of $7.9bn across CDOs and US sub-prime, significantly greater than the $4.5bn disclosed in its earnings pre-release. Net revenues fell by 94% on Q3 2006 – as the joke goes, you can only lose 100% of your revenues, although this wasn’t far off. Both S&P and Fitch cut Merrill Lynch’s rating from AA- to A+, with S&P’s analyst describing …

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High yield market still not pricing in recession risk

Alan Greenspan made the headlines at the beginning of this year when he said that the risk of a US recession was 1 in 3, and has since said that recession risk had risen. Larry Summers (former US Treasury Secretary and Chief Economist at the World Bank) put the risk at 50/50 in September. The truly horrendous data coming from the US housing market makes us think that the risk of recession is pr…

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The global default rate can only go one way from here

Data from Moody’s shows that the global high yield default rate fell to just 1.27% in September, the lowest rate since March 1995. The global default rate has now been below 2% for 25 consecutive months, the longest stretch since 1978 (when the high yield market didn’t really exist).

The steady decline in the default rate has been a bit of a surprise – indeed, Moody’s model has been predicting …

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Building pessimism in the US

Confidence among US home builders has hit an all time low in October, breaking the previous record set in January 1991. All components of the survey were weak – present sales fell to an all time low (breaking the January 1991 record), future sales were unchanged (staying at an all time low), and prospective buyer traffic slipped below the previous record set in December 1990. The data suggests…

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International investors sell a record amount of US assets

The US Treasury Department announced yesterday that August saw a record net outflow of $69.3bn from US assets (equities, notes and bonds). This is particularly alarming considering that expectations had been for a $60bn inflow. The outflow was a combination of international investors selling US assets, and US investors buying international assets.

Perhaps most interesting of all was that Chines…

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Structured credit markets still look unattractive

Credit markets have enjoyed a fairly strong rally over the last few weeks, with spreads back to levels seen at the beginning of September. Some of the biggest gains have been in the areas that previously saw the largest losses, although asset backed securities (ABS) and mortgage backed securities (MBS) have still been among the biggest losers since the financial crisis began in June. One type o… Read the article