Are we heading for stagflation on a close-to-global scale? - Part II

For a while now, I have quietly wondered when stagflation expectations will explode. I am working on a quick and easy way of easuring this and my message of the day is - the expectations seem to have risen dramatically over the last week. Let's see if it lasts. And if they (we) are right.....

En lekman i Baltikum - Del III

Nu verkar fastighetspriser och hyror sjunka i Estland. Som jag sagt tidigare tror jag, bl.a. av den magkänsla en turistande nationalekonom ibland kan få, att det finns en stor risk för kreditförlutser för de svenska bankerna i baltikum och nu kommer siffror som visar att vissa av de svenska storbankerna skrivit upp sina kreditförluster i Baltikum. Trist! Och tristare tror jag det blir!

Detta är också skrämmande - del V

En split av de största bond insurers skulle kunna få stora effekter på credit default swap (CDS) marknaden! Vi börjar röra oss tillbaks till situationen i mitten av CDS marknadens korta historia (~2005-2006) . Efter något år av snabb tillväxt började man inse att det finns många komplicerande faktorer inblandade när ett CDS kontrakt ska klareras (efter default). Som att det kanske inte finns några ”deliverable bonds”, eller att köpare och säljare har olika åsikt om dessa obligationers markandsvärde, eller att recovery rate antaganden är diskutabla. Som sagt, nu tror jag vi snart är där igen, eftersom vi kan komma att se fler defaults som triggar CDS utbetalningar. Början kan väl vara visa sig vara bond insurer marknaden där många banker håller CDS kontakt skrivna på de stora bond insurers.

Has the turn come to the CPDOs – Part III?

I wrote in earlier entries (Dec 16 and Dec 30 2007) that I keep thinking that we are going to see a large number of downgrades of CPDOs. The instrument that convinced me that the credit party was close to be over is still (not surprisingly) suffering downgrades. Moody’s downgraded a range of CPDOs last week and what surprises me is not that they actually downgrade these highly leveraged instruments en masse but that they didn’t do it earlier. Credit indicies in Europe as well as the US have widened dramatically over the last year (hundreds of %), without any real hope for a return to the previous pathetically low levels, and this might trigger the forced unwinding of these structures. We are not there yet, but I think we’ll soon be there!

Microfinance for the richest of the poor!

One of the main business newspapers reports that Grameen bank, the micro lender, has started operations in the US (in Queens, NY). They are not the first microlender to focus on urban poor in the US but it is nice to contemplate on how microbanks step in where ordinary banks fail. When credit availability now seems to be back to normal, i.e. when poor people are stopped at the door, it’s is nice to think that the concept of microcredit could expand further into our rich western nighbour. I certainly think that is possible! in another news entry it is mentioned that Credit Agricole is teaming up with Grameen Bank to support microentrepreneurs around the world. The commercialisation of microfinance keeps going on! When at it I could as well market my own research on microfinance. One of my papers can be found here http://swopec.hhs.se/lunewp/abs/lunewp2006_014.htm. It is to appear in World Development in 2008.

Höj räntan - Del II

Jag har tidigare efterfrågat en räntehöjning (se min blog 18/12 2007) och nu kom den. Äntligen! Jag tycker Ingves gör helt rätt! Det finns inget att tillägga, alla känner till hur diskussionen går kring ett beslut som detta.

Very high high-yield spreads in Europe!

High yield spreads in the 500-600bp range were unthinkable a year ago. Absolutely unthinkable! And now we are there. Scarry! At the same time default rates are unsignificant. How can that be?
I have talked about cov-lites and other inventions in earlier blogs and I think these have something to do with the difference between default probabilities and outright defaults. I wonder when this will change? My guess is second half of 2008. My guesstimate is that we will see default rates above 5% in the high-yield market in one year's time.
In addition to all the other troubles this might cause, I see the untested DCS market as one that will show its true colours in 2008 due to these defaults!

$1000bn of losses?

I know, it is easy for an outsider like me to make predictions about the total credit losses due to the current crisis. But still, I cannot resist.
Figures in the range of $100bn to $500bn seem to be some kind of consensus in the market. If I have to make a guess, it is of course just a guess, it would be 4-5 times that! I think we will see losses at least in the range of $1000-1500 at the end of 2009 if all credits are included. if anyone is interested........

CDPC-credit derivatives product companies!

One of the major CDPCs presented large losses for the fourth quarter of 2007 last week. I was intreagued about these firms when I first heard about them two years ago. When spreads continued to fall, however, my initial excitement turned to a slight fear; a number of these firms must be on the wrong side of the bet and with these tiny spreads there will be a lot of action if spreads start to unwind. Now they have done that and now there are losses on the table. It will be interesting to see how the other CDPCs will perform. It is not the most important segment of the industry but still I think its performance (if made public) will give us valuable information.

En lekman i Baltikum - Del II

I fredags (1/2) nedgraderade ratingbyrån Fitch Estland från "stable" till "negative"! Kanske inte någon jättehändelse, ens för esterna, men ändå...... Bara en början?