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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Ken98 who wrote (54530)	8/10/2006 10:37:54 AM
From: YanivBA	Read Replies (1) \| Respond to of 116555

There is an even higher ratio at GM and Ford. I am not surprised. Does anyone know where this ratio and the ratio of other CDS to underlying debt can be viewed? In what scenario would this end badly in your opinion? Since the traders in this market live on margin and are all betting that historical norms (each trader and his set of norms) will continue to prevail I would say that the only way that this market is not going to end in tears is if historical norms indeed prevail (all of the norm sets, forever). Other than the obvious mess of the naked buyers scrambling to obtain debt product to deliver. This, IMO will only be the first wave of destruction. The second wave will be the more obvious one where even CDS owners that managed to get hold of the bond find that the insuring party never really had the capital to cover the claim. The whole time they where paying premiums the insurer was trading on margin just for the 20% personal cut. The market is set up in such a way that any extraordinary loss ends up at the banks front gate via hedge fund bankruptcies. Once that happens then the real endgame starts. But we have been there before. The central bank would probably ride again for the rescue. And ride again. And again. Until they realize what are they doing and the Greenspan put officially expires. wouldn't cash settlement fix this going forward? Other than the counterparty risk... The way I see it if cash settlements were to start trading tomorrow than tomorrow is the day the whole CDS market goes belly-up. Just imagine the spread opening between the physical delivery contract and the cash delivery contract. That is the quickest endgame you can find. If you hear of a cash settlement contract that starts trading please let me know. Selling the physical and buying the cash on day one is practically arbitrage (and that is why it will never happen). YanivBA.