Learn Discounted Cash Flow Analysis, More Layoffs Coming At Banks

Learn discounted cash flow analysis courtesy of the Khan Academy. Didn't all of this analysis fail in the real world in 2006-7? At the end Sal Khan explains how these models fail. The financial industry keeps cutting thousands of jobs even after the mass layoffs during the financial crisis (Large layoffs loom on Wall Street - Fortune, 4/30/2012). "Banks haven't come up with a model that makes up the profits they used to get from propriety trading, CDOs and other structure deals they used to do," says Goldstein." And I'm reading at Business Insider that Bank of America/Merrill Lynch is planning to cut 2,000 jobs "in its investment banking, commercial banking and non-U.S. wealth-management units", which is "on top of the 30,000 planned layoffs the bank had already announced last fall." Maybe it's impossible to model asymmetric information.

Spain Now in Recession (-0.3% Q1 GDP), S&P Downgrades Spanish Banks

Source: Spain's National Statistics Institute
After Spain reported a 24.4% unemployment rate on April 27, today Spain's National Statistics Institute reported that GDP declined by 0.3% during Q1 2012. Spain is now officially in a recession. Also, today S&P downgraded 11 Spanish banks today after they downgraded Spain's sovereign debt to BBB+ from A.

Spain's National Statistics Institute (ine.es):

"According to the quarterly GDP advance estimate, during the first quarter of 2012, Gross Domestic Product (GDP) generated by the Spanish economy registered a real variation of –0.3%, as compared with the previous quarter, similar rate to fourth quarter 2011.

The interannual GDP variation was –0.4%, as compared with 0.3%, for the previous quarter. This behavior was due to the negative contribution by domestic demand, partly compensated by the positive contribution of foreign demand."

Reuters: TEXT-S&P takes negative rating actions on 16 Spanish banks (includes Banco Santander and BBVA)

"-- The sovereign downgrade has direct negative rating implications for the banks that we rate at or above the sovereign rating on Spain, and on most banks whose ratings incorporate uplift over their "stand-alone credit profiles" (SACP) to reflect Spanish government support.

-- In addition, the factors behind the downgrade of Spain could have potentially negative implications for our view of the economic risk and industry risk affecting the Spanish banking industry and for our analysis of specific rating factors that drive our SACP assessments on Spanish banks.

-- We are lowering our long- and short-term ratings on 11 banks. In addition, we are also placing on CreditWatch negative the long- and short-term ratings on six banks, and only the long-term rating on one bank. We are keeping the ratings on three banks on CreditWatch negative and the ratings on one bank on CreditWatch positive."

Prof. Bill Black: Our System is So Flawed That Fraud is Mathematically Guaranteed! (Part 1)

Professor William Black, who was a former bank regulator and prosecutor during the Savings and Loan crisis in the early 1990s, told Chris Martenson in an podcast that losses from today's control frauds in the financial system "exceed the financial losses from all other forms of property crime combined!" When Professor Black was asked what he thought about hedge fund Paulson & Co.'s role in picking subprime mortgage-backed securities that were referenced in the Abacus synthetic CDO that Paulson sold short via Goldman Sachs (who then sold long exposure to IKB and RBS/ABN AMRO), he went WAY back and explained how the whole mortgage fraud epidemic started in the 1990s after the S&L crisis, which became systemic when Washington Mutual and Citicorp bought the wholesale lender/largest subprime lender Ameriquest. He then mentioned how the FBI said there was a huge mortgage fraud epidemic in 2004, but bank regulators didn't even contact them. And in 2006 when one in every three loans were liars loans (fraud). Chris Martenson and Bill Black also discussed how asymmetric information in the financial system created an "intellectual hole" that was "enough to drive the world's largest financial bubble through and the biggest epidemic of elite fraud in the history of the world", which of course is the foundation of most derivatives.

Like 50 Cent's movie "Get Rich or Die Tryin'", the financial system gets rich or gets bailed out trying! Crony capitalism FTW! Listen to part #1 below and part #2 at Chris Martenson's site.

Video: President Obama at the 2012 White House Correspondents' Dinner

Here's the CSPAN video of President Obama at the 2012 White House Correspondents' Dinner. He ripped on Huffington Post's business model.

Spain's Unemployment Rate Hits 24.44%, Youth Unemployment At 52%, Not Good (Q1, 2012)

Spain Unemployment Rate 24.44% (source: INE)
Wow, the Spanish government is trying to cut its budget deficit through austerity measures with the unemployment rate at an 18 year high, Spanish government bond yields and CDS rising, banks stressed with bad property loans, and regional governments possibly needing bailouts! You can see why S&P chopped Spain's credit rating to 'BBB+' from 'A' the other day and thinks there's a risk net government debt could rise further.

Spain's unemployment rate rose to 24.44% in the first quarter of 2012, which is near the multi-decade high of 24.5% in 1994 (Reuters chart via @pdacosta). And the youth unemployment (ages 16-25) rate hit 52% during the quarter (MarkitEconomics chart).

From Spain's Instituto Nacional de Estadística's (National Statistics Institute) data release on April 27, 2012:

Video Tours of North Korea and a Google Presentation; Government Prevents Technical Breakouts

VICE founder Shane Smith went on a "highly orchestrated" tour of North Korea and even saw one of their labor camps in Siberia, Russia. I also embedded Google Tech Talk and National Geographic videos on North Korea, which provide more detail on the country. You'll learn more about the regime's prison camps and nuclear program, as well as hear a defector's story. But, since this is a financial blog, Siegfried Hecker, of Stanford's Center for International Security and Cooperation, briefly talked about North Korea's private market activity during his Google presentation. But, unfortunately, the government prevents technical breakouts.

"There are signs of market activity all over North Korea. And the markets have gone up and down over the years because as soon as they become successful, then the government becomes scared and tries to shut them down. Soon as it shuts them down, the people try to figure out, you know, where they can actually get something so they build them back up. And so it sort of oscillates over time. What the Chinese would really like to do, they say look what we did thirty years ago and sort of let the strings out on the free market. But the North Korean regime is much too scared of that, so it is very careful." (see last video)

S&P Downgraded Spain to 'BBB+' From 'A' On Risk Net Government Debt Could Rise Further

Source: Flickr/Xavier68
From the S&P release: Ratings On Spain Lowered To 'BBB+/A-2' On Debt Concerns; Outlook Negative:
  • We believe that the Kingdom of Spain's budget trajectory will likely deteriorate against a background of economic contraction in contrast with our previous projections.
  • At the same time, we see an increasing likelihood that Spain's government will need to provide further fiscal support to the banking sector.
  • As a consequence, we believe there are heightened risks that Spain's net general government debt could rise further.
  • We are therefore lowering our long- and short-term sovereign credit ratings on Spain to 'BBB+/A-2' from 'A/A-1'.
  • The negative outlook on the long-term rating reflects our view of the significant risks to Spain's economic growth and budgetary performance, and the impact we believe this will likely have on the sovereign's creditworthiness.

Visit this post I did three days ago to keep abreast of the situation in Spain: Spanish Bank and Sovereign Debt Risk Monitor (Maturity Schedule, Yields, CDS) 4/23/2012.

Fitch's Quarterly Report on U.S. High Yield Bonds, Leveraged Loans and CLOs (BofA Merrill 'CCC' Yield Chart)

I couldn't find Fitch's U.S. High Yield Chart Book (there was a European Chart Book released), but today Fitch released its Q1 2012 U.S. Leveraged Market Quarterly, which is packed with charts showing trends in the U.S. high yield bond, leveraged loan, and CLO (collateralized loan obligation) markets. Fitch mentioned that $86.9 billion of high yield bonds were issued in Q1 2012, a new record high. From the press release:

"The U.S. high yield bond market set a new quarterly issuance record with $86.9 billion in the first quarter. The previous quarterly record was $80.6 billion, set in the fourth quarter of 2010. February's issuance total of $34.4 billion, was the second busiest month on record. Nearly 52% of total issuance during the quarter was directed toward refinancing or redeeming other bonds or notes. High yield retail funds took in strong inflows totalling more than $15 billion during the quarter.

Fitch's European High Yield Chart Book For April 2012

Fitch's April 2012 European High Yield Chart Book is available for free with a login. Below is the press release and charts of European high yield bond spreads by credit category and spread differentials from the Fitch report. From the spread differentials chart: "CCC vs BB spread rallied the most in Q112, coming within range of 2011 pre-summer levels, reflecting the return of risk appetite. Widening BBB vs BB spread since end March 2012 shows demand for safer assets in view of recent market volatility." I'm going to search for the U.S. high yield chart book.

Image source: Fitch
"Fitch: European High Yield Is Principal Alternative As Loan Issuance Subsides
26 Apr 2012 8:08 AM (EDT)

Link to Fitch Ratings' Report: European High Yield Chart Book April 2012

Fitch Ratings-London/Frankfurt-26 April 2012: Fitch Ratings has published the first edition of its new quarterly European High Yield (EHY) chart book, which illustrates recent trends in high yield bond issuance, maturities, default rates, fund flows and relative performance, as well as secondary market risk-adjusted pricing.

FOMC Statement, Fed's Economic Projections and Bernanke's Press Conference Video (4/25/2012)

Source: federalreserve.gov/monetarypolicy/files/fomcprojtabl20120425.pdf
If interested, here is yesterday's FOMC statement, the Federal Reserve's economic projections for 2012-2014 (change in real GDP, unemployment rate, PCE inflation and core PCE inflation from January's projections), and a video of Federal Reserve chairman Ben Bernanke's press conference.

The "central tendency" of the Fed's real GDP projection for 2012 rose to 2.4-2.9 from 2.2-2.7 in January, but for 2013 its projection declined to 2.7-3.1 from 2.8-3.2 in January. The central tendency "excludes the three highest and three lowest projections." Click the image for further review. Jim Rogers recently told Fox Business that the U.S. is due for a recession in 2013. They occur every 4-6 years.

Jim Rogers Says U.S. Due For Recession, Happens Every 4-6 Years; Gold Could Move Lower (Video)

Jim Rogers on Fox Business
On Fox Business on April 23, 2012, Jim Rogers, Chairman of Rogers Holdings, said he was "short some stocks" and believes the U.S. is due for a recession because they occur every four to six years. Also, "substantial tax increases" planned on January 1, 2013 could, if enacted, put pressure on economic growth. Jim Rogers is a long-term commodity bull and currently owns gold and agricultural commodities in his portfolio, but he still thinks gold and silver could move lower if the current trend continues. He also owns the "terribly flawed" U.S. dollar just in case there is global turmoil. Watch the interview below.

Money, Power and Wall Street (FRONTLINE)

Frontline (PBS) is out with a two part documentary on the 2008 financial crisis titled "Money, Power and Wall Street". Watch the first episode of parts 1, 2, 3 and 4 below.

Bear Stearns documents (source: Frontline/PBS, click for the video)
From Chapter 1:

"In 1994, a team of young, 20-something JPMorgan bankers on a retreat in Boca Raton, Fla. dreamed up the “credit default swap” — a complicated derivative they hoped would help manage risk and stabilize the financial system. Fourteen years later, they watched in horror as that global system — weighed down by the risk of credit default swaps tied to morgtage loans — collapsed." (PBS.org)

FIN 501 #FAIL!

Spanish Bank and Sovereign Debt Risk Monitor (Maturity Schedule, Yields, CDS)

Chart source: Tesoro.es
Since Spain seems to be the new Greece these days, I thought I'd link to quotes and charts of Spanish government bond yields, Spain's 5-year credit default swap, Spanish bank CDS, the German-Spanish 10Y yield spread (if bunds remain a safe haven), and a chart of Spain's monthly debt maturity schedule in 2012. April, July and October are the biggest months. You can also search for Spanish stocks on Bloomberg.com that trade on the Bolsa de Madrid (Madrid Stock Exchange). In this post I just linked to quotes that are hard to find on the web. I'm not sure where Spanish bank bond quotes are. Credit default swaps are essentially tradable bond insurance contracts that price and protect against default risk in the illiquid cash bond market. If there's a credit event (default), or in Greece's case a "restructuring event", the CDS holders would get a payout at par. But it all depends on the type of credit event and the contract language. The Spanish 5Y CDS spread (rate) made a new record high on 4/10/2012.

FYI: Letras del Tesoro = 3-18 months; Bonos del Estado = 3-5 years; Obligaciones del Estado = 10-30 years. More info here: http://www.tesoro.es/en/deuda/index_deuda.asp.

North Korea Threatens to Attack South Korea

Kim Jong-Un, Flickr/PetersSnoopy
Some breaking geopolitical news tonight via @mpoppel of BNO News:


On KCNA's site (says April 20):

I'm not sure what Lil' Kim is up to here, but definitely something to keep an eye on. ES (e-mini S&P) and GC (gold) are down 0.20% and 0.04%, respectively.

The Biggest Bubble of All: This One Has Yet to Deflate (Are You Ready?) - Elliott Wave International

Total Credit Market Debt % of U.S. GDP 1915-2011 (3Q) - Elliott Wave
Syndicated post by Elliott Wave International

The Biggest Bubble of All: This One Has Yet to Deflate (Are You Ready?)

More Threatening Than Any Single Economic Sector

April 20, 2012

By Elliott Wave International

History shows that once a financial bubble bursts, it can take a long time to bounce back.

Recent history offers an example: Real estate prices topped in 2006-2007 -- then came the worst part of the sub-prime mortgage crisis in 2008.

Yet instead of recovering with the passage of time, real estate prices just keep getting worse:

Home prices dropped for the fifth consecutive month in January, reaching their lowest point since the end of 2002.

-- CNNMoney, March 27

Greek Town Develops Bartering System Without The Euro!

Bartering is making a comeback! Watch the BBC news clip after the jump (hat tip Zero Hedge).

Links For April 18, 2012

Natural Gas from 1999
 (DoubleLine Capital via BI)
  • DoubleLine Capital's conference call slides: "To QE3 or not to QE3, That is the Question" (Jeff Gundlach/Jeff Sherman, April 17, 2012) - Business Insider
  • Notes from Jeff Gundlach's conference call (says buy S&P 500 at single digit p/e ratio, likes natural gas) - Business Insider
  • Ray Dalio's Bridgewater Says Spain Is Worse Off Than It Was Before The LTRO - Business Insider
  • George Soros's Speech at Opening Session (INET Berlin) - Slides / Video 
  • George Soros: The Future of Europe 3/6 (INET Berlin) - Video
  • Is Mercantilism Doomed to Fail? China, Germany, and Japan and the Exhaustion of Debtor Countries (Joseph Stiglitz's speech at INET Berlin) - Slides / Video
  • The World in Balance Sheet Recession: What Post-2008 West Can Learn from Japan 1990-2005 (Richard Koo's speech at INET Berlin) - Slides / Video
  • "Not if, but when" for Spanish bailout, experts believe - Reuters

Best Buy is Closing 50 Big Box Stores In 2012, Here is Their Store Strategy (BBY)

After Blockbuster (update), Borders and Sears dumped square footage all over the retail commercial real estate market, now Best Buy is closing 50 big box stores in 2012. Here's the list of stores closing. Going forward, Best Buy plans to roll out more smaller stores ("Best Buy Mobile") and their new "Connected Store" format. I found the details in Best Buy's Q4/FY 2012 earnings release:

"U.S. Store Format Improvements
Best Buy's retail store strategy is to increase points of presence, while decreasing overall square footage, for increased flexibility in a multi-channel environment. The company intends to remodel key stores with a new Connected Store format in fiscal 2013, and to continue to build out the successful Best Buy Mobile small format stores throughout the U.S.

    Janet Tavakoli on Bank "Control Fraud", Credit Default Swaps, MF Global's Total Return Swap-to-Maturity Trade (and Missing Money)

    If you want to know everything that's going on in the illiquid, opaque world of OTC derivatives and bank/broker-dealer fraud, Janet Tavakoli, founder and president of Tavakoli Structured Finance, is the one to listen to. She was interviewed by Lauren Lyster on RT's Capital Account on 3/26/2012 and discussed the shadow banking system, how "control fraud" blew up the investment banks during the credit bubble, how Jon Corzine's $11.5 billion (gross notional value) "total return swap-to-maturity" trade on risky European sovereign debt bankrupted MF Global via margin calls and ended up misappropriating $1.6 billion of client funds, and how credit default swaps are essentially leveraged bets with little money down and big upside potential (example: John Paulson's ABX trade betting against subprime MBS). She also said derivatives are now dominated by speculators that are distorting markets (example: JPMorgan lost money on a coal derivatives bet in 2010).

    Understanding the Risk of Synthetic CDOs (By Federal Reserve Economist in 2004, Where Was Greenspan?)

    I found a research report that was written by Federal Reserve economist Michael S. Gibson in 2004 titled "Understanding the Risk of Synthetic CDOs". Did Alan Greenspan read this?

    img: FCIC/Wikipedia
    "The paper highlights key issues for investors in synthetic CDO tranches as well as for dealers who structure synthetic CDOs for clients. Investors in mezzanine CDO tranches are taking on leveraged exposures to the underlying credit risk of the reference portfolio. A tranche's credit rating does not convey all aspects of the tranche's risk. If investors disclose the notional amounts of their portfolio, broken down by credit rating, the leveraged nature of a mezzanine tranche's risk exposure would not be obvious.

    The paper also touches on some of the risks to dealers who structure and make markets in synthetic CDO tranches for clients. A complete set of synthetic CDO tranches may not be fully hedged by selling single-name credit default swap protection on the CDO's reference portfolio if the CDO tranches are structured as swaps whose payouts do not depend on the flow of income from the reference portfolio. Dealers in CDO tranches, including those who structure single-tranche CDOs, are exposed to model risk and, because of the dynamic hedging required, liquidity risk that are not present in traditional cash CDOs."

    Duolingo Lets You Learn a Language For Free Online

    Finally, an easy way to learn a new language. I'm going to try this out. Visit Duolingo's website here and watch the video below.

    Gary Shilling: S&P 500 Falls 43% to 800 (SPX 6-year Weekly Chart)

    After Gary Shilling, president of A. Gary Shilling & Co, was interviewed on Daily Ticker on 3/22, he then discussed his market outlook and S&P 500 target in more detail on Bloomberg TV on 4/11. Gary Shilling thinks the S&P 500 will fall 43% to 800 (or 41.6% below Friday's closing price of 1,370.27) as U.S. consumers "retrench", China sees a hard landing, and the sovereign debt crisis and recessions in Europe lower earnings and boost the U.S. dollar. Here are Gary Shilling's targets summed up from the video: $80 EPS (earnings per share) + 10 P/E (price/earnings multiple) = $800 S&P 500 target. He also mentioned that consensus analyst estimates are calling for S&P 500 EPS at $102. So, if he's right, expect major downside revisions ahead for S&P EPS. And remember that corporate profit margins are currently at record highs (via John Hussman).

    Gary Shilling Predicts Huge Drop In S&P Earnings, Lower House Prices and Treasury Yields (Deflation)

    Gary Shilling, president of A. Gary Shilling & Co., was interviewed by Henry Blodget on Daily Ticker on 3/22 and said he expects deflation, lower house prices, lower Treasury bond yields (higher prices), and a huge negative surprise for S&P operating earnings going forward. And to top it off, he sees a new recession in 2012. Get ready...

    On the 30 year Treasury bond bull market (not from an official transcript):

    "I don't think it's over. I still think that we're probably more headed for deflation than inflation. That the world is going to see a lot slower economy, if not recessions, and Treasuries will be their usual safe haven. So I'm holding out for 2.5% on the 30-year, and probably 1.5% on the 10-year. The 2.5 is where they got at the end of 2008 after Lehman collapsed."

    On stocks and a possible huge negative surprise for S&P earnings:

    German Bund Yields Make New Lows, Spanish Bond Yields Spike, CDS at New Record High

    Sovereign debt fears are back in the eurozone again and money is piling back into German bunds as a safe haven. At what point do the eurozone bailouts start to affect the German bund market? The 10-year Spanish government bond yield is currently at 5.978%, 75 basis points below the previous high of 6.729% on 11/25/2011. The 10-year Spanish-German bond yield spread is at 4.33 (433bps), 36 basis points below the high of 4.69 (469bps) on 11/22/2011. Keep an eye on Portuguese, Italian, and French bond yields as well.

    Technicals: SPY Broke Uptrend Line, 2011 Support, and 50DMA

    When SPY tripped on the uptrend line, that was a decent signal to protect against downside risk, imo. It broke the uptrend line at around $140, and is now trading at 136.63, which is below 2011 support (the high, now support) and the 50 day moving average. Is the market falling because of the disappointing employment report on Friday? Spanish sovereign debt and bank risk rising in Europe? Poor S&P earnings ahead? If there isn't a positive market catalyst, SPY (the S&P ETF) could trade in a channel between the the pre-flash crash high (around $121) and the high May 2011 high ($137).

    Source: FreeStockCharts.com

    Winning or Losing Equals Winning With Empty Creditors

    So, is this why business schools train their students so hard in finance/accounting? To learn how to insure every credit with the banks taxpayers? How hard is this?!:

    "The truly troublesome feature, though, has to do with the “empty creditor” problem. Empty creditors are lenders (to a corporation or government) that cease to be concerned about whether the borrower fares well or poorly." (Another troublesome feature of CDS usage - Financial Times).

    Basis Trader Says Credit Default Swaps Are Fatally Flawed, Replace With Bond Futures

    source: Adamt4 (flickr)
    While I'm on the topic of credit default swaps, on March 19, CDS trader (or basis trader, where they own both the bonds and CDS) Ben Heller told Reuters blogger Felix Salmon on Felix TV that credit default swaps are a "fatally flawed product" and should be replaced by bond futures. He thinks CDS are flawed, not because of the spike in systemic counterparty risk CDS created in 2008, or that CDS encourages a creditor to pull the plug on a company to collect an insurance payout (credit default swaps = tradable financial life insurance only available to banks, institutional investors), but because the Greek "restructuring credit event", which occurred when Greek government bond holders (PSI) took a 53% haircut on their bonds in exchange for new bonds so Greece would avoid a "payment default", almost didn't trigger Greek CDS payments. First, here is ISDA's (International Swaps and Derivatives Association) reaction to the credit event in a blog post. The ISDA governs the OTC derivative markets and the documentation. They have a committee made up of banks and investment funds that determine credit events, which is interesting.

    Links: Defusing Structured Credit Bombs and Distorting Credit Default Swap Indexes (CDX)

    From the movie 'Margin Call'
    Former head of structured credit: 'We saw numbers behave in ways barely conceived possible' (The Joris Luyendijk Banking Blog - Guardian)

    JPMorgan Trader Iksil’s Heft Said to Distort Credit Indexes (Bloomberg)

    'London Whale' Rattles Debt Market (WSJ)

    JPMorgan Trader Accused Of "Breaking" CDS Index Market With Massive Prop Position (Zero Hedge)

    Hedge funds and the Whale, credit index edition (FT Alphaville)

    Synthetic CDO’s – When Risky Isn’t Risky – Or Free Equity (TF Market Advisors)

    While I'm linking, read this: The Market’s Obsessive Fixation on The Fed & QE (Economic Musings)

    Related:

    VIX Option Traders Are Selling Puts, VIX Cash Around 2-year Low (16.44)

    VIX (stockcharts.com)
    Today on the OptionMonster Volatility Sonar Report, Jamie Tyrrell, of Group One Trading, said traders were selling VIX puts yesterday and today. Watch the video below. It looks like the VIX, or volatility index, which uses S&P 500 option prices to measure forward looking (implied) expectations of market volatility, closed around the 2010 and 2011 lows today at 16.44. In 2010, the VIX bottomed at 15.23 and spiked to 48.20 during the flash crash, and in 2011, the VIX bottomed at 14.27 and spiked to 48 when Standard & Poor's downgraded the United States' credit rating. Last month (March 2012) the VIX hit a new low of 13.66.

    The VIX is interesting because when the index is this low, it's all about timing the next eruption in volatility. The market can do nothing for months, like it did in the first half of 2011 ex-the earthquake/tsunami in Japan. But a low VIX can also mean, or present the idea, that volatility is cheap (S&P option premiums) to hedge against a fearful move in the S&P 500 index.

    Icahn to CVR Energy's Board: "Admit Defeat!", The Icahn Lift" on 60 Minutes, and Icahn's Guest Lecture at Yale

    Watch this 60 Minutes segment from August 2008 on the day in the life of activist investor Carl Icahn. A few months later, in November 2008, Icahn gave a guest lecture to Robert Shiller's class at Yale. I put that video up as well. Also, here is Icahn's statement to CVR Energy's board after he put in a bid (tender offer) to buy CVR Energy (CVI) at $30 per share or $2.26 billion, and "64% of the shares owned by shareholders unaffiliated with me (Icahn) were tendered into our offer." Here it is via sec.gov.

    "CARL ICAHN TO CVR ENERGY BOARD OF DIRECTORS:
    “ADMIT DEFEAT AND LET THE SHAREHOLDERS HAVE THEIR MONEY!”


    Bank CDS Indexes Added To S&P/ISDA CDS Sector Indices, Are CDS Index Futures Coming Soon?

    Lehman Brothers, Merrill Lynch, Morgan Stanley, Goldman, 
    Citi, JP Morgan CDS in 2008 (Bloomberg chart via Mish)
    CreditLime, a blog that covers the credit default swap market, reported that S&P/ISDA added two bank indexes to its family of CDS Sector Indices, the S&P/ISDA CDS U.S. Financials Select 10 Index and S&P/ISDA CDS European Banks Select 15 Index. On ISDA's website you can track the daily activity of the S&P/ISDA CDS indices, the most active single name reference entities (with some historical percent change data), and Markit's CDX and Itraxx indices (there are short-term charts available at Markit's site). So, when do CDS index futures start trading on exchanges? And what about exchange traded credit protection (insurance, hedges, or whatever you want to call it) on single name corporate bonds and sovereign debt? More on this later. Here is more info on the new CDS indices via ISDA.org:

    Update on Terrafugia's Flying Car (Video)

    Here's an update on Terrafugia's flying car that I blogged about in 2010 and 2009. The "Transition Street-Legal Airplane" had its first flight on 3/23/2012. It looks really simple, watch the video below.

    "New York, NY & Woburn, MA – (April 2, 2012):
    The Transition® Street-Legal Airplane is now a significant step closer to being a commercial reality. The production prototype of the Transition® Street-Legal Airplane completed its successful first flight at Plattsburgh International Airport in Plattsburgh, NY on March 23, 2012. The same vehicle has also successfully conducted initial drive and conversion testing, demonstrating the Transition’s capability to provide unmatched freedom, flexibility and fun in personal aviation. Developed by Terrafugia, Inc., the Transition® is a two seat personal aircraft capable of driving on roads and highways, parking in a single car garage, and flying with unleaded automotive fuel. (Terrafugia)

    Marc Faber: Massive Wealth Destruction Coming Down The Line (CNBC Video)

    via CNBC
    Marc Faber, editor and publisher of the "Gloom Boom Doom" report, shared his gloom and doom views on the market and economy in an interview with CNBC's Andrew Ross Sorkin this morning on Squawk Box.

    "Well, basically I think that the whole bailout and the money printing will not create long-lasting wealth, nor will it create healthy economic growth. And if I look at the world, then i see essentially well-to-do people that have done unbelievably well and I see the middle class and working class that hasn't done well. And I think somewhere down the line we will have a massive wealth destruction that usually happens either through very high inflation, or through social unrest, or through war, or a credit market collapse. Maybe all of it will happen but at different times."

    "I would say that well-to-do people may lose up to 50% of their total wealth. They'll still be well-to-do; instead of a billion, they'll have say 500 million. But, I think there is a massive wealth destruction coming down the line. I'm not saying it's coming tomorrow, but looking at the bailouts and the money printing, they have postponed the problems and actually made them larger in the sense that the government debt has increased dramatically, and somewhere a solution will have to be found for this government debt."

    Home Price Index Makes New Low in January, Annual Decline Possibly Leveling Off (ITB)

    S&P/Case-Shiller Home Price Index (pdf)
    The S&P/Case Shiller Home Price Index made a new low in January (chart on the right), which isn't a good sign for the $717 billion in negative home equity outstanding.

    "S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed annual declines of 3.9% and 3.8% for the 10- and 20-City Composites, respectively. Both composites saw price declines of 0.8% in the month of January."

    I guess you could say it is positive that the annual decline seems to be leveling off (chart below). Detroit led the composite with a 1.7% annual gain, followed by Phoenix and Denver with gains of 1.3% and 0.2%, respectively. I wonder if anyone made money on that IndyMac foreclosed home in Detroit that was going for $600.