BAILOUT INSTEAD OF SHAKEOUT?
The 2-year treasury note traded down to 4% yield last night as Japan caught a fit of jitters, down almost 17% from 4.85% just a month ago. (Supposedly over the yen, but it's probably more about worries that Global Growth may be in for a slowdown). Investors who usually have to wait a half a year to pocket 2% or so from holding these securities, have gotten about that much since the futures contract bottom in mid June.
This will set the stage for those with junk to possibly off load it. If it doesn't, how much more can "we" offer, really? (Prices on debt hopefully go up as rates go down, hopefully trimming the losses that some people have and improving the chances that they won't be out of business if they have to sell it at a loss).
Those people with the junk, as it should be fairly clear by now (as it was to many back in February/March), are not banks, by and large, but non-bank financial companies, including hedge funds and 'financial facilities' set-up by some to "facilitate the financing" of ... mortgages-gone-wild.
WELL PAST TIME TO CONSIDER CAPITAL ADEQUACY TESTS FOR THE LARGEST NON-BANK FINANCIALS
As long as we continue to have visible, meaningful "warnings" about disruptions due to major hedge funds collapsing, as did LTCM so spectacularly in 1998, it's well past time to consider capital adequacy regulation for large "non bank financial institutions". For pity's sake, LTCM was leveraged 28-to-1! That's like, when you have three-and-a-half pennies and someone lends you a dollar, because of it!
FINDING BOTTOM
It's reported this morning that the stultified Sentinel Funds have found a buyer, who is paying 85-90% for their stuff. This continues to put a floor under the market.
Also, Moody's has put out for public consumption - finally! - its estimate of the total dollar amount for piggyback loans.
You'd think it would be several hundreds of billions, the way people are talking, right? No. It's $25.5 Billion. And some people are calling that "Armageddon"? Just for perspective, a consortium of private buy-out folks are pulling together $52 Billion even as we speak, just in the ordinary course of business.
Friday, August 17, 2007
Massive Rate Decline Sets Stage For Yahoos To Move Paper
