Distressed Volatility

Well the overnight futures opened and at 8:00, according to insidefutures.com, The S&P Overnight Futures are at -36.6, and the Dow Jones Industrials Overnight Futures are at -286. Here are the 90 minute charts going back 3 weeks for the overnight futures. You can see the big gap down tonight. It's crazy how all of the big investment banks are all intertwined with counter party Credit Default Swap risk exposure, and with Lehman insolvent it could bring big problems. There are some good articles about the counterparty CDS risk on bloomberg.com.


S&P Overnight Futures (insidefutures)

Dow Overnight Futures (insidefutures)

While I'm writing this news update just popped up. Bank of America Agrees to Buy Merrill Lynch for $44 Billion: WSJ- AP. That's a 38% premium to it's $21 book value for it's most recent quarter! Is BAC going to make MER write downs in the future??? It has to be related to the billions of counter party swap exposure because it doesn't seem like the right time to make a 38% premium bid over book value for a financial institution.

It will be interesting to see if the Bank of America/Merrill news out weighs the Lehman Brothers News. Of course if there is a deal for Lehman to sell the Neuberger Berman unit by Monday morning and survives, things might not be that bad!

And just think, it all started with the two Bear Stearns Subprime funds that blew up in July, 2007. Here's the letter Bear sent to shareholders, from the WSJ.