John Pitera's Market Laboratory Message Board

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Strategies & Market Trends : John Pitera's Market Laboratory

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To: Hawkmoon who wrote (10083)	9/26/2008 12:54:23 AM
From: John Pitera	2 Recommendations Read Replies (4) of 33421

Hawk, I don't belive that is the case. that CDS are primarily traded via indices like the ABX, CDX and itraxx: they are traded against and hedged against these indicies; however I don't believe that more than 20 percent of the credit default swaps are counterbalanced against index positions. HOWEVER, I don't know.... I'm not sure that anyone can give a ready reference to answer this question. And I don't know if that answer is based in fact. I am highly dubious that any type of index related product can be of substantive value in the valuation or the current pricing of all of these credit default swaps. They don't address any aspect of CounterParty Risk or several other key aspects of CDS's. This is GROUND ZERO. why do you think that the US GOVT. has not worked out the bailout. Why did AIG implode into an unknown and uncalculable cascade of Credit Default Swap erosion........ 999 out of 1000 people do not realize the extreme gravity of this situation. Those that do are dumbfounded by this. I don't know how the work out will develop. We probably need a really vicious 50% hit to our US equity markets to bring the fear of GOD into mainstreet. This event is being treated as far to much of a theoretical execise in how capitalism can structure these workouts. John

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