tag:blogger.com,1999:blog-30643134.post1761996426600166985..comments2023-12-26T01:10:26.319-05:00Comments on Accrued Interest: But how am I to know the good side from the bad?Accrued Interesthttp://www.blogger.com/profile/05096191765979971184noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-30643134.post-48436784826477035022007-11-23T23:54:00.000-05:002007-11-23T23:54:00.000-05:00It has been a very interesting time for the monoli...It has been a very interesting time for the monolines indeed. I remember talking to a dealer two weeks ago, about the real possibility of one of the more "in the news" names, starting to trade with points up front. After today's marks, who knows? the headlines keep pushing this stuff tighter......Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-43377687222841884592007-11-20T10:12:00.000-05:002007-11-20T10:12:00.000-05:00I'm not saying markets are efficient, I'm saying t...I'm not saying markets are efficient, I'm saying that between, say.... January 2004 and January 2007 they were MUCH more efficient than at any other time.Eyal Barhttps://www.blogger.com/profile/17087265134301877825noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-15656726282959294902007-11-17T01:30:00.000-05:002007-11-17T01:30:00.000-05:00Gramps,You really need to start a blog. If you ne...Gramps,<BR/><BR/>You really need to start a blog. If you need any help, post an e-mail address that you have created anonymously (so that you don't get your identity thefted) and plenty of people will help.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-5199314515773604642007-11-16T17:43:00.000-05:002007-11-16T17:43:00.000-05:00The markets may be efficient some of the time, but...The markets may be efficient some of the time, but anyone who says they are efficient now has forgotten the key characteristics needed for them to be efficient.<BR/><BR/>First and foremost, markets need to have a large number of <B>INDEPENDENT</B> participants, each making their own independent evaluation of a security.<BR/><BR/>Most Wall St houses (and the hedge funds they spun off) are incredibly clique-y. Far more so than any high school you went to. They all went to the same prep schools, the same colleges, they belong to the same golf clubs / social clubs. They all sit around trading floors exchanging Bloombergs with the same group of people they have been talking to for years.<BR/><BR/>Wall Street "research" has become a total oxymoron. Mostly, you have the same group of perma-bulls spewing out the same market color they always have. <BR/><BR/>The traders all use the same Bloomberg, CQG, Reuters, whatever data. They plug the same data into models that have various blinking lights, but underneath the hood are all materially the same thing. So they all reach pretty much the same conclusions, at pretty much the same time.<BR/><BR/>There is no diversity of opinion, which is just another way of saying this market is <B>not</B> made up of millions of independent bets -- its basically two or three bets, even if they happen to be put on by a couple dozen dealerships and their hedge fund offspring. Even those 2-3 bets aren't all that different.<BR/><BR/>This is not an efficient market. It is at best an oligopoly. It is dysfunctional no matter you cut itAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-38106255294826911352007-11-16T16:03:00.000-05:002007-11-16T16:03:00.000-05:00What a great post!What a great post!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-48133109445302262082007-11-16T15:08:00.000-05:002007-11-16T15:08:00.000-05:00Eyal:I'm not here to claim the market is inefficie...Eyal:<BR/><BR/>I'm not here to claim the market is inefficient, just that it can be. Obviously something is up when CDS widen substantially, somebody thinks something is up. But it <I>might</I> be that some one expects real money accounts to panic. OR it <I>might</I> be that there is something worth panicing about. You can't know which it is when you're in the middle of it.<BR/><BR/>Take a look at Capital One spreads in 2000-2002. They're still around. Or Tyco. Or Time Warner. There were others from back then that I'm not remembering I'm sure.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-91774396256202561062007-11-16T13:24:00.000-05:002007-11-16T13:24:00.000-05:00As an academic I would say that you can think of i...As an academic I would say that you can think of it as two markets.<BR/><BR/>A real money market based on fundamentals that responds essentially in the way that the models expect accept with relatively large transaction costs that mean a move doesn't occur unless there is a significant change in fundamentals.<BR/><BR/>The there is a low transaction cost fast money market which is, as you say, trying to guess the next move in the real money market.<BR/><BR/>A large fraction of the fast money play is zero sum, but that is made up for by the times when its beats the fundamental market to the punch.<BR/><BR/>They can both be modeled as rational agents the difference is in the transaction cost - which is really related to time and effort spent analyzing information.Karl Smithhttps://www.blogger.com/profile/05863281026797375080noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-48152992530752526452007-11-16T12:49:00.000-05:002007-11-16T12:49:00.000-05:00I think something's missing in your post. Over the...I think something's missing in your post. Over the past few years, there has been a system which incentivized smart people to start their own hedge funds and dedicate their days to generate alpha for clients. This has produced a sort-of efficient market, a very quiet low-volatility reasonably-priced market, albeit with a twist of complacency & undervaluation of credit risk. In that market, market action became trustable. When a company's CDS, bonds or stock declined, you knew there's probably trouble brewing. This was the case for example in early 2007 when the subprime wholesalers started seeing their stock decline sharply. We saw much more of this and recently it has hit the credit insurers. The thing is, maybe everything has gotten so wacko now that a decline in stock or a rise in CDS premiums doesn't mean anything. I don't know but I still - very marginally - tend to fall on the side of those who believe we are in the 2nd/3rd inning of "credit Armageddon".Eyal Barhttps://www.blogger.com/profile/17087265134301877825noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-3768795477672621892007-11-16T08:48:00.000-05:002007-11-16T08:48:00.000-05:00I think you have to realize how wacky the muni mar...I think you have to realize how wacky the muni market is. Many buyers NEED a AAA rating. Now what I suspect will happen is two things:<BR/><BR/>1) Issuers will stop doing deals without underlying ratings. Right now there is a severe penalty for insured bonds without underlying ratings.<BR/><BR/>2) Insurers will do more business with revenue issuers and less with GO issuers compared to now. So their muni book will decline in quality. This will force them to keep more capital on hand, although whichever insurers survive this will already have to had increased their capital reserves anyway.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-13534362189049594652007-11-16T08:32:00.000-05:002007-11-16T08:32:00.000-05:00I think the key question for the monolines is do t...I think the key question for the monolines is do the current levels of CDS spreads hurt their business. I can't believe a rational muni buyer in this market is going to pay anything for a AAA wrapper. Seeing that we have massive defaults coming down the pike I can't see the CDS spread normalizing anytime soon? So how can they stay in business? What am I missing?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-81234060136372702942007-11-16T07:46:00.000-05:002007-11-16T07:46:00.000-05:00Really enjoyed today's post, particularly the conc...Really enjoyed today's post, particularly the conclusions in the final paragraph.<BR/><BR/>I think members of the public who pay attention to the markets without being actively involved (I'm not talking about a bit of PA trading here) do indeed tend to hold market participants in some contempt and frequently it stems from this daily noise. I like to blame the media because, well, because I enjoy blaming the media, but also for their preference for taking Fact A, then taking Fact B then sticking the words "because of" between said facts.<BR/><BR/>Anyway, keep up the good work.<BR/><BR/>LFYAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-52319771616047834772007-11-16T02:04:00.000-05:002007-11-16T02:04:00.000-05:00the cds trader's guide to making money:1) wait for...the cds trader's guide to making money:<BR/><BR/>1) wait for market to be a bit jittery<BR/>2) buy a load of protection on a credit<BR/>3) talk to a few of your friends on the hedge fund side, get them to lift some other dealers on that name<BR/>4) send round to all clients something negative on that name<BR/>5) once clients have seen your negative article AND get reports from other dealers that some hedge funds have been buying protection on that name, they will try and buy it from the dealers that don't seem to havee been involved yet<BR/>6) offer out your cds at a higher level than you bought it<BR/>7) lift the street once in a sloppy manner at a high price (optional)<BR/>8) dumb clients come in and pay up to buy the cds since rest of street is wary on offering it out while situation uncertain.<BR/><BR/><BR/>repeat as desired!<BR/><BR/>i love thin markets.Anonymousnoreply@blogger.com