PrefBlog

The concept of credit protection on the United States of America has captured imaginations all around, with Accrued Interest referring to it as a “chaos trade” – defining this as “positions designed to produce big returns if all hell breaks loose” and Naked Capitalism comparing US Treasuries to senior debt of the GSEs. Certainly the greenback continues to sink against the Euro.

Equities did very poorly today, with General Motors suspending its dividend.

Cheyne Finance, last mentioned on October 22 and November 13, is having a $6-billion fire sale:

The first auction of assets by a structured investment vehicle drove Moody’s Investors Service to downgrade the Cheyne Finance Plc SIV by five levels, describing it as a “fire sale.”

The $6 billion SIV set up by London-based Cheyne Capital Management (UK) LLP is scheduled to auction its assets this week or transfer them to a new company under a reorganization by receivers Deloitte & Touche LLP and Goldman Sachs Group Inc. Moody’s said it cut the SIV’s senior debt to Ca, its second- lowest grade, in a report today.

And Willem Buiter fulminates on the real meaning of the GSE bailout:

The Treasury has taken another big step on the road to Utter Fiscal Obfuscation. It is doing everything it can to disguise the fact that it is entering in commitments that create potentially massive contingent liabilities for the US tax payer. Even if the purpose served by this increase in contingent liabilities is worth the cost, the manner in which it is done is designed to avoid fiscal accountability. This is as welcome to the Executive as it is to the Congress.

Note to all aspiring politicians: guarantees are not a cost-free method of accomplishing social goals. They will be called in at the most inopportune time.

Here’s an interesting factoid:

The S&P 500 Financials Index dropped 3 percent, capping its steepest-ever five-day retreat and giving the industry a smaller market value than health care for the first time since 1992, S&P data show.

Amidst all this gloom, I will remind readers that Bombardier first halved, then suspended its common dividend a few years back – the common dividend has only recently been reinstated. But the preferreds kept on paying through the period. First loss protection is not just a theoretical construct!

What a life! If anything, the panic is spreading … the price-movers list is longer today than it was, there were a number of block trades in the volume highlights and the PerpetualDiscount index was down more than a point for the second day running, to yield 6.58% … 9.21% interest-equivalent, long corporates +311bp. On the other hand, a few CM issues were up significantly on the day … which could imply the emergence of bottom fishers, it could be a dead-cat bounce, or it might mean absolutely nothing at all. I’ll let you know when it’s all over.

There were thirty other index-included $25-pv-equivalent issues trading over 10,000 shares today.

This entry was posted on Tuesday, July 15th, 2008 at 9:50 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.