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Thursday, June 26, 2008


rumors of credit trouble -- indymac failing?

they're all around, but across the curve sets it up:

There is a repo desk circulating a bid list of structured MBS product and that action has struck fear into the hearts of participants. The concern is that this smacks of a counterparty in trouble and forced liquidation. The concerns rise as June 30 and balance sheet snap shot date approaches.CMBS spreads are wider by 15 to 20 basis points as are the ABX indices. Plain vanilla pass through MBS is about 3 basis points wider to swaps.

whatever they're trying to move, it must be awesome to generate this kind of response -- NDX (-4.06%), SPX (-2.94%), IYF (-4.07%), BKX (-3.86%) @ 60.20 -- that last just atop what many see as a last-ditch line of defense before freefall. all kidding aside, john jansen has been a good read and has previously spotted turns in the credit market really well -- june 13 to button up for some turbulence, march 18 to call a turn for the better.

UPDATE: more, via calculated risk, from longtime bear bill fleckenstein.

I received a phone call from the Lord of the Dark Matter, who began the conversation: "It's about to blow!" He then repeated himself.

He went on to say that behind the scenes, many parts of the credit/mortgage market were "offered only." He said it had nothing to do with month-end or quarter-end. Instead, he believed it had to do with the enormous amount of inventory that would be looking for a home in the next quarter. He believed that the equity market was "miles behind what was occurring in the mortgage-backed/credit markets." Though he noted that he'd said it before, he repeated: "It's never been this bad."

it's just possible that a significant regional bank (outside the fed's lending firewall) is failing and trying to dump the works onto the credit markets, which of course would respond by running into the shadows.

UPDATE: in fact, that bank may be indymac. depositors are running the bank, and chuck schumer is writing letters to the FDIC as IMB calls in its political favors.

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Fluctuations in prices are also driven by supply and demand, which in turn are determined to a large extent on investor psychology. Seeing a stock rise in price may cause investors to jump on the bandwagon and this rush to buy drives the price even faster.
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