Big week

[Skydaemon]

"Bear, Goldman Sachs, Lehman Brothers, and Morgan Stanley all report earnings in the coming week"

This will be a major swing week in both financials and the dow huge earnings reports for financials with the whole world already training microscopes on them.

As it turns out the bankruptcy of bear sterns could be more important than I originally thought too. This article said the magic word, default swaps, though it barely mentions them.

sterns article

Default swaps are the things that have the potential to turn into phase 2 and possibly dwarf the subprime problem. I didn't think they were at risk before the economy had bankruptcies in regular businesses but now it seems like maybe bear was a large counterparty for some unknown amount of it. If so this could melt down now, well before the economy hits bankruptcies.

Bear also has at least one set of talks starting with Royal Bank of Scotland too.

Keep some funds free for the fun. =)

[Grizzums]

Originally Posted by Skydaemon

"Bear, Goldman Sachs, Lehman Brothers, and Morgan Stanley all report earnings in the coming week"

This will be a major swing week in both financials and the dow huge earnings reports for financials with the whole world already training microscopes on them.

As it turns out the bankruptcy of bear sterns could be more important than I originally thought too. This article said the magic word, default swaps, though it barely mentions them.

sterns article

Default swaps are the things that have the potential to turn into phase 2 and possibly dwarf the subprime problem. I didn't think they were at risk before the economy had bankruptcies in regular businesses but now it seems like maybe bear was a large counterparty for some unknown amount of it. If so this could melt down now, well before the economy hits bankruptcies.

Bear also has at least one set of talks starting with Royal Bank of Scotland too.

Keep some funds free for the fun. =)

You have had me thinking a lot of about these credit derivatives. For those that do not fully understand what credit options or swaps are I thought I'd help to add some color on them...

http://www.tavakolistructuredfinance.com/CDS.pdf
http://www.newton.cam.ac.uk/preprints/NI05022.pdf
http://www.jpmorgan.com/cm/ContentSe...=1136555202065
http://www.isda.org/

[Skydaemon]

Goldman Sachs hinting at a $3b loss.

[Skydaemon]

"According to ISDA, at the end of 2004, the notional amount for the interest rate and currency derivatives market was US$183.6 trillion Credit derivatives comprised 4.4% of the entire derivatives market at US$8.42 trillion The players include insurers, reinsurers, financial guarantors and hedge funds; but the largest players are commercial banks, who are net buyers of protection."

I read your above article there Grizz, that's a quote from the jpmorgan link.

Wow lightbulbs are going off.

If I'm reading this right banks and so on are holding 183 trillion worth of currency and interest rate insurance bets at the end of 2004? Is that what that says?

Now the fed is doing everything in it's power to slash interest rates, add liquidity, and flat out print money buying distressed mortgage assets and now whatever they're throwing at stearns. Add that to a weak economy and the US is basically daring currency traders to run the USD down substantially.

So if there are all this nearly 200 trillion of currency and interest rate insurance policies out there, I'd imagine some of them are going to come due if the dollar starts dropping hard across the board and all kinds of central banks have to make big moves to their interest rates.

Is this the way the fed plans to recapitalize the banks? By devaluing the currency to trigger counterparty claims from overseas banks holding this stuff? Possibly collapsing them to support the banks here?

Sorry to get all paranoid here, don't mean to be dumping the conspiracy theories but it's been a nervous day of lightbulb thoughts for me. Just wow.

[Grizzums]

Originally Posted by Skydaemon

"According to ISDA, at the end of 2004, the notional amount for the interest rate and currency derivatives market was US$183.6 trillion Credit derivatives comprised 4.4% of the entire derivatives market at US$8.42 trillion The players include insurers, reinsurers, financial guarantors and hedge funds; but the largest players are commercial banks, who are net buyers of protection."

I read your above article there Grizz, that's a quote from the jpmorgan link.

Wow lightbulbs are going off.

If I'm reading this right banks and so on are holding 183 trillion worth of currency and interest rate insurance bets at the end of 2004? Is that what that says?

Now the fed is doing everything in it's power to slash interest rates, add liquidity, and flat out print money buying distressed mortgage assets and now whatever they're throwing at stearns. Add that to a weak economy and the US is basically daring currency traders to run the USD down substantially.

So if there are all this nearly 200 trillion of currency and interest rate insurance policies out there, I'd imagine some of them are going to come due if the dollar starts dropping hard across the board and all kinds of central banks have to make big moves to their interest rates.

Is this the way the fed plans to recapitalize the banks? By devaluing the currency to trigger counterparty claims from overseas banks holding this stuff? Possibly collapsing them to support the banks here?

Sorry to get all paranoid here, don't mean to be dumping the conspiracy theories but it's been a nervous day of lightbulb thoughts for me. Just wow.

Hmm...had to get my hands around that. I went to a bbq earlier and just saw the BSC deal and Asian reaction to it. I'll admit, I thought $2 was a typo not $20? Man, this is going to get ugly. LEH is going to get crushed, I think. BSC had some very aggressive units that were the backers of this crazy mortgage paper, LEH had some pretty aggressive units as well (from what I hear). Look how wrong the market was here, "mark to market" for the financial sector will be very interesting to watch unfold.

Yes, that is how I am reading that. Commercial banks must have some serious ir/currency exposure and any heavy swings are not going to be good. As far as what you are implying on the FED is interesting or may I say, disturbing...Id rather think some more before moving in that direction.

I recommend you not read books like "The Road to Serfdom" by Hayek...

[Grizzums]

This news will not help support the USD.

"Euro-zone inflation hits an all-time high"

http://www.marketwatch.com/news/stor...E86E3D4A475%7D

Markets there were predicting a possible ECB rate cut but will now have to think twice about that. A hold steady at 4% won't help the reeling USD, but they are concerned where they should be, imo, with inflation.

[BadThad]

ONE WORD.....

GOLD

[Skydaemon]

video about derivatives

Looks like the television type news is noticing the size of the derivative threat. They post it as $500 trillion which may be accurate but I think it's mostly interest and currency swaps, even though she makes a comment about credit derivatives I think those are only about 10% of the total.