OK, it is a week or so since it happened but for my own book-keeping I want to blog on the fact that the first company in one of the more important iTraxx Europe CDS indexes has defaulted! The bankrupt petrochemical company LyondellBasells CDS was one of 50 speculative-grade CDS included in the iTraxx Crossover index. This index is one of the two most quoted iTraxx indexes, together with iTraxx Europe, and it has traded at very elevated levels, sometimes above 1000bp, for some time now.
The credit crisis continues, in other words, and it is probably not a very bold statement to claim that soon one of the 125 iTraxx Europe investment-grade firms will probably default as well. It is clear that the crisis has reached the corporate sector and not only financials are living on the edge these days. BTW, the day of the reckoning is approaching for GM, and GM is included in iTraxx Europe, and…….
Monday, March 30, 2009
Friday, March 27, 2009
Den nya planen för att få bort dåliga lån från bankerna
Den nya planen från Geithner (US treasury) har ett intressant upplägg. Den försöker involvera den privata sektorn genom att de får bjuda på problemlånen/värdepappren i bankernas portföljer (som successivt över månaderna som gått fått mindre och mindre oaptitliga namn ....toxic==>problem==>legacy....).
Detta tror jag är bra och det är något jag önskat sedan lång tid. Dock, det som oroar mig, trots att jag tycker denna plan ser bättre ut än de tidigare, är att priserna på lånen kommer att vara så låga att det i sig självt kommer att orsaka nya/fortsatta problem för bankerna som äger problemlånen i nuläget (förutom de uppenbara problemen med att planen är för liten, att investerare subventioneras av skattebetalare och att investerare möjligen är rädda för att bli bestraffade med bonusförbud etc. om de deltar i planen). Överhuvudtaget ser jag dock denna nya plan som ett intressant steg för att utröna om de låga priserna på problemlånen är orsakade av en (temporär) likviditetsbrist eller av en (permanent) förväntan om höga framtida kreditförluster.
Jag förutsåg tidigt de problem som bankerna skulle få pga kreditproblem (se tex This is crazy, från December 10, 2007) och jag tror jag vågar sticka ut hakan igen och hävda att jag inte tror det är över här och nu. Jag har länge satsat på att det är kreditproblem som ligger bakom dagens problem, inte i huvudsak likviditetsproblem.
Sanningens ögonblick är nära....
Detta tror jag är bra och det är något jag önskat sedan lång tid. Dock, det som oroar mig, trots att jag tycker denna plan ser bättre ut än de tidigare, är att priserna på lånen kommer att vara så låga att det i sig självt kommer att orsaka nya/fortsatta problem för bankerna som äger problemlånen i nuläget (förutom de uppenbara problemen med att planen är för liten, att investerare subventioneras av skattebetalare och att investerare möjligen är rädda för att bli bestraffade med bonusförbud etc. om de deltar i planen). Överhuvudtaget ser jag dock denna nya plan som ett intressant steg för att utröna om de låga priserna på problemlånen är orsakade av en (temporär) likviditetsbrist eller av en (permanent) förväntan om höga framtida kreditförluster.
Jag förutsåg tidigt de problem som bankerna skulle få pga kreditproblem (se tex This is crazy, från December 10, 2007) och jag tror jag vågar sticka ut hakan igen och hävda att jag inte tror det är över här och nu. Jag har länge satsat på att det är kreditproblem som ligger bakom dagens problem, inte i huvudsak likviditetsproblem.
Sanningens ögonblick är nära....
Wednesday, March 25, 2009
Hur mycket leveraged loan exponering finns det i det svenska finansiella systemet? – Del II
Som jag skrev i ett tidigare inlägg här (28 november 2008) så ojade jag mig över problemen på CLO-marknaden (Collateralized Loan Obligations) och att problemen snabbt skulle kunna sprida sig till private equity företagen. Sedan dess har vi mycket riktigt sett en ökad uppmärksamhet i media för private equity företagens trångmål.
Nu har ett nytt regnmoln blåst in över Bermuda triangeln
private equity ------ CLOs ------ företagskonkurser
För några veckor sedan avslöjade nämligen ett av de stora rating instituten, Moody’s, att de troligen kommer att vara tvungna att nedgradera majoriteten av de CLOs de givit ratings (har ej kollat upp vad som sedan hänt)! Standard & Poor’s hintade om samma sak. Detta kommer troligen minska aptiten ytterligare bland CLO-investerare, vilket i sin tur i så fall troligen leder till ökade problem bland private equity investerare och deras företag.
Anledningen till Moody’s nedgraderingar är tydligen att de kommer att ändra antaganden bakom sin rating-process. Inte minst kommer de att öka den antagna konkurskorrelationen mellan industri-sektorer i deras ratings av CLOs. I detta sammanhang vill jag belysa hur jag redan innan krisen belyste detta problem i en av mina forskningsartiklar! I artikeln
Byström, H., Instantaneous Credit Risk Correlation, The Journal of Fixed Income 17 (2), 2007, pp. 5-12.
(som skrevs i slutet av 2006 och publicerades 2007) föreslår jag en ny metod att estimera konkurskorrelationer på. I ett enkelt test av metoden visar jag sedan hur gängse industri-industri korrelationer verkar vara alldeles för låga. Mina resultat pekar på mycket högre korrelationer än vad som normalt antas! Ska bli spännande att se hur mycket Moody’s justerar upp sina korrelationer. Återigen, hade mina antaganden använts hade de aldrig försatt CLO-investerna, och i förlängningen private equity bolagen, i den prekära sits de är i just nu!!
Här kommer ett citat ur min artikel Instantaneous Credit Risk Correlation:
It [my new correlation measure] could be useful for rating agencies in their ratings of CDOs. Default correlation estimates are very important for the rating of CDOs and other multi-name structured products, and we therefore propose a possible inclusion of our simple dispersion-based approach in the rating of such products. Just like us, in the example in the previous section, Standard & Poor’s, Moody’s and Fitch focus on industry sectors in their models (S&P [2001], Fender and Kiff [2004], Fitch [2006]) and they all typically divide the default correlations in the underlying pool into intra-industry and inter-industry correlations. Furthermore, the inter-industry default correlations are often assumed to be zero or close to zero. This clearly seems to be at odds with our findings; even if credit spread correlations of course are much higher than corresponding default event (or default-time) correlations it seems drastic to assume the latter to be zero considering the very high spread correlations (default probability correlations) observed in the previous section.
Nu har ett nytt regnmoln blåst in över Bermuda triangeln
private equity ------ CLOs ------ företagskonkurser
För några veckor sedan avslöjade nämligen ett av de stora rating instituten, Moody’s, att de troligen kommer att vara tvungna att nedgradera majoriteten av de CLOs de givit ratings (har ej kollat upp vad som sedan hänt)! Standard & Poor’s hintade om samma sak. Detta kommer troligen minska aptiten ytterligare bland CLO-investerare, vilket i sin tur i så fall troligen leder till ökade problem bland private equity investerare och deras företag.
Anledningen till Moody’s nedgraderingar är tydligen att de kommer att ändra antaganden bakom sin rating-process. Inte minst kommer de att öka den antagna konkurskorrelationen mellan industri-sektorer i deras ratings av CLOs. I detta sammanhang vill jag belysa hur jag redan innan krisen belyste detta problem i en av mina forskningsartiklar! I artikeln
Byström, H., Instantaneous Credit Risk Correlation, The Journal of Fixed Income 17 (2), 2007, pp. 5-12.
(som skrevs i slutet av 2006 och publicerades 2007) föreslår jag en ny metod att estimera konkurskorrelationer på. I ett enkelt test av metoden visar jag sedan hur gängse industri-industri korrelationer verkar vara alldeles för låga. Mina resultat pekar på mycket högre korrelationer än vad som normalt antas! Ska bli spännande att se hur mycket Moody’s justerar upp sina korrelationer. Återigen, hade mina antaganden använts hade de aldrig försatt CLO-investerna, och i förlängningen private equity bolagen, i den prekära sits de är i just nu!!
Här kommer ett citat ur min artikel Instantaneous Credit Risk Correlation:
It [my new correlation measure] could be useful for rating agencies in their ratings of CDOs. Default correlation estimates are very important for the rating of CDOs and other multi-name structured products, and we therefore propose a possible inclusion of our simple dispersion-based approach in the rating of such products. Just like us, in the example in the previous section, Standard & Poor’s, Moody’s and Fitch focus on industry sectors in their models (S&P [2001], Fender and Kiff [2004], Fitch [2006]) and they all typically divide the default correlations in the underlying pool into intra-industry and inter-industry correlations. Furthermore, the inter-industry default correlations are often assumed to be zero or close to zero. This clearly seems to be at odds with our findings; even if credit spread correlations of course are much higher than corresponding default event (or default-time) correlations it seems drastic to assume the latter to be zero considering the very high spread correlations (default probability correlations) observed in the previous section.
Monday, March 23, 2009
Treasury Announces $1 Trillion Plan to Buy Banks' Bad Debt
Finally, the Obama administration unveiled its long-awaited plan to remove toxic assets from the books of the nation's banks.And the next question would be: Does this works?
The $1 Trillion announced was not a small amount. If this measure failed, then, the whole of US sure would go into deep trouble (although now US is boiling the water over 100 Celsius).
This is because, US largest creditor - China - would be more concerned about their investment in US treasuries of over a trillions. China had voiced out their concerned lately. And, US re-assured to the world regarding their sound economic conditions. Then, USD had started to weaken against major currencies in the world.
I would rather asked: How safe was my investment in US treasuries?
If i get back my money with much less value, there is no point investing my money there !!!
Anyway, one thing is for sure. This $1 Trillion plan to remove toxic assets from banking system is the way forward to rescue banks from further write-downs.
Sunday, March 22, 2009
March09: Singapore Dollar will fall in April ???
YES... Attention to all working adults in Singapore, especially Malaysians.
Now, im writting this in March 2009, and if this is true, it would be bad news for Malaysians in Singapore.
Bad news 1: Singapore in recession since 2008
Bad news 2: Retrenchment and salary-cut is going and on...
Bad news 3: Our hard earned $$$ are becoming lesser against USD
Below is the facts:
1. Singapore main revenue (export market) had fallen on a double-digit basis
2. Singapore government most likely will further lower already low interest rate to spur economy. In other meaning, not attactive to hold SGD.
3. Cost of pump-primming projects would widening the figure of budget deficit, which needs several years to recover.
Now, the FX rate is SGD 1 = RM 2.4, which is a good rate to convert it into RM.
So, it is time to move your SGD now.
Proven: http://biz.thestar.com.my/news/story.asp?file=/2009/4/7/business/3643051&sec=business
Please take note of the DATE !!!
Now, im writting this in March 2009, and if this is true, it would be bad news for Malaysians in Singapore.
Bad news 1: Singapore in recession since 2008
Bad news 2: Retrenchment and salary-cut is going and on...
Bad news 3: Our hard earned $$$ are becoming lesser against USD
Below is the facts:
1. Singapore main revenue (export market) had fallen on a double-digit basis
2. Singapore government most likely will further lower already low interest rate to spur economy. In other meaning, not attactive to hold SGD.
3. Cost of pump-primming projects would widening the figure of budget deficit, which needs several years to recover.
Now, the FX rate is SGD 1 = RM 2.4, which is a good rate to convert it into RM.
So, it is time to move your SGD now.
Proven: http://biz.thestar.com.my/news/story.asp?file=/2009/4/7/business/3643051&sec=business
Please take note of the DATE !!!
Wednesday, March 18, 2009
Konferens i Berlin!
Imorgon ska jag till Berlin på en konferens. Jag ska presentera min artikel The Age of Turbulence - Credit Derivatives Style som behandlar finanskrisen och kreditderivatmarknaden.
Har inga andra direkta planer förutom att jag ska försöka få tid till att besöka Tempelhof flygplatsen, 30-tals flygplatsen som las ner för några månader sedan. Ett arkitektoniskt mästerverk!
Tuesday, March 17, 2009
Regulation or stimulation packages?
An important G20-meeting (The London summit) is coming up. At that meeting there will be a lot of discussion on how to jumpstart the world economy. The meeting will (probably) also see fierce discussions on how to reregulate the financial sector.
At the core of the division of work and outcomes from this summit is the question of which is the most important cause of this crisis; global imbalances (China-US etc) or deficit regulation of the financial system coupled with a failure of market discipline? If you ask me, I think this issue will become central over the next couple of weeks. Not the least at the G20-summit.
Ideologically, I am a free-market spirit and dream about Somalia-like economies without regulation and government support (NB, here I of course compare free-wheeling Somalia with state-controlled Ethiopia and the likes, not with rich centrally run countries like Sweden). Pragmatically, however, I understand that this is something for our grand-children or grand-grand-children at best (unless, god forbid, we see a scaled up version of the European outcomes of the 1930s great depression that is……). Ignoring these unlikely scenarios there is of course no chance of governments around the world, neither voluntarily or by force, giving up their newly won supremacy at this stage. Therefore, at this stage of history I am convinced that government intervention is what we have to live with. Therefore, let’s make the best out of the situation and let’s spend the money as wisely as we can.
Now, I am quite sure that the global imbalance issue is less important than the deficit regulation/market discipline issue. I therefore hope this will be the outcome of the London summit, i.e. more and better regulation on a global scale. At least I find this much more appealing than pleas for global action on pumping up (short-lived) artificial demand and continued spending on piece meal bail-out package after bail-out package that one day has to be paid by us the tax payers through raised taxes and inflation (I don’t think there will be sufficient demand for all the debt issues, neither by the big and mighty countries nor by the small and irrelevant, waiting around the corner).
IMF seems to be of the same opinion (thanks Björn for sending me an excellent article on this). Like me, they argue that the global imbalances could not have caused the crisis without the failure of the regulative framework and the coupled excessive risk taking by financial institutions. Like me, they want an increase in the scale and scope of financial regulation, not the least when it comes to the shadow banking system. (I have stressed these things many times in this blog, s for instance Don’t blaim it all on the banks! where I discussed my view of the regulative mistakes.) The US government, meanwhile, seems to be of a diametrically opposite point of view. It will be interesting to see if they (still) have enough power to make (force) the rest of the world respond to their emphasis on global action!
At the core of the division of work and outcomes from this summit is the question of which is the most important cause of this crisis; global imbalances (China-US etc) or deficit regulation of the financial system coupled with a failure of market discipline? If you ask me, I think this issue will become central over the next couple of weeks. Not the least at the G20-summit.
Ideologically, I am a free-market spirit and dream about Somalia-like economies without regulation and government support (NB, here I of course compare free-wheeling Somalia with state-controlled Ethiopia and the likes, not with rich centrally run countries like Sweden). Pragmatically, however, I understand that this is something for our grand-children or grand-grand-children at best (unless, god forbid, we see a scaled up version of the European outcomes of the 1930s great depression that is……). Ignoring these unlikely scenarios there is of course no chance of governments around the world, neither voluntarily or by force, giving up their newly won supremacy at this stage. Therefore, at this stage of history I am convinced that government intervention is what we have to live with. Therefore, let’s make the best out of the situation and let’s spend the money as wisely as we can.
Now, I am quite sure that the global imbalance issue is less important than the deficit regulation/market discipline issue. I therefore hope this will be the outcome of the London summit, i.e. more and better regulation on a global scale. At least I find this much more appealing than pleas for global action on pumping up (short-lived) artificial demand and continued spending on piece meal bail-out package after bail-out package that one day has to be paid by us the tax payers through raised taxes and inflation (I don’t think there will be sufficient demand for all the debt issues, neither by the big and mighty countries nor by the small and irrelevant, waiting around the corner).
IMF seems to be of the same opinion (thanks Björn for sending me an excellent article on this). Like me, they argue that the global imbalances could not have caused the crisis without the failure of the regulative framework and the coupled excessive risk taking by financial institutions. Like me, they want an increase in the scale and scope of financial regulation, not the least when it comes to the shadow banking system. (I have stressed these things many times in this blog, s for instance Don’t blaim it all on the banks! where I discussed my view of the regulative mistakes.) The US government, meanwhile, seems to be of a diametrically opposite point of view. It will be interesting to see if they (still) have enough power to make (force) the rest of the world respond to their emphasis on global action!
Subscribe to:
Posts (Atom)