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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (52722)	6/1/2000 12:45:00 PM
From: pater tenebrarum	Read Replies (4) \| Respond to of 99985

Les, since all types of spreads are widening (TED, corporate and agencies) it's more a sign of general malaise imo. e.g. the massive telecommunications debt load that has built up over the last year (some 500 billion dollars), is increasingly seen as very risky, with margins in this totally crowded marketplace contracting due to overinvestment. you can e.g. now buy an undersea cable from GBLX for the same amount of money that you had to pay annually to lease it a year ago. the internuts are of course practically worthless in terms of assets. once such a firm folds, there's nothing left for either bond or stock holders to recoup their investment. since virtually none of them make any money and seem highly unlikely to ever make money in fact, there's a slew of debt and equity going down the drain for sure. also the IRID debacle and the upcoming GSTRF debacle highlighted the immense risk inherent in telco plays. so the junk bond market has practically shut down. corporate America overall is up to its eyeballs in debt, much of which was used in recent years to finance stock buybacks, which is a complete waste of shareholders funds unless one can buy stock back below NAV. therefore another side-effect of the credit market crunch will be a slowdown in buy-backs. now players are also spooked w.r.t. agency debt ever since Gensler said government isn't going to guarantee it (about as credible as Greenjeans declaring the 'too-big-too-fail' concept to have been abandoned,LOL!). but anyway, take away the govt. guarantee, and you're looking at monstrous balance sheets at the GSE's, backed by ever more dubious collateral due to the real estate bubble and the tidal wave of second mortgages and 125% mortgages to finance consumption and stock market speculation. then of course you have the absolutely staggering 10-11 trillion dollars in USD denominated short term debt that needs to be rolled over every 6 months or less. a slowdown or a recession would wreak complete havoc...no wonder the credit markets are panicking. regards, hb PS: and i haven't even mentioned margin debt yet...:)