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Credit Markets Dip Into Absurdity in forum [NotSoBreaking]
Korejdk
Posts: 166
Incept: 2008-03-12
NYC
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Source: http://www.forbes.com/business/2008/11/1 ....
To judge from the crystal ball of debt markets, next year will bring some incredible calamity, maybe a depression, maybe worse. Bond prices suggest nearly one in five companies with high-yield debt could slip into bankruptcy with certain loans fetching just 70 cents on the dollar. The differences between corporate bonds and Treasurys now stretch beyond some investors' beliefs.
"Spreads are more than ridiculous," said David Kotok, chairman of Cumberland Advisors in Vineland, N.J. "Either we have dysfunctional credit markets evidenced by absurd pricing, or the market pricing is accurately forecasting the Great Depression of 2009, '10, '11, '12 and '13."
With three-quarters of high-yield bonds trading at distressed levels, the market implies a one-year default rate of 18.5%, according to Garman Research. That's worse than most expectations and higher than previous peaks of 13% in 1991 and 11.5% in 2002. Standard & Poor's forecasts a 7.6% default rate in a year from now. The rating agency's worst-case scenario has the default rate hitting 9.6% at the end of 2009.
Most bond market participants blame a flood of forced sales as hedge funds, mutual funds and trading desks unload assets to meet margin calls and return cash to unhappy clients, rather than approaching apocalypse. Investors pulled $39 billion from taxable bond funds from mid-September to Oct. 31. Hedge funds lost a record $30 billion in September--2% of assets. October was likely worse. The result is that many trading desks send out reckless bid lists instead of making orderly sales.
Since Lehman Brothers (nyse: LEHMQ - news - people ) filed for bankruptcy on Sep.15, bond market buyers have remained spooked. High-yield loans have dropped from 89 cents on the dollar to 71 cents on Nov. 7, according to Standard & Poor's. In the same period, corporate bonds have fallen from 93 cents on the dollar to 79 cents. Junk bonds now yield 16 percentage points over Treasurys. "Clearly, at those spreads, there is fear in the market," said Diane Vazza, head of fixed income research at S&P.
Once all this forced selling finishes, bond markets should begin to improve and companies may again find they can sell debt at reasonable rates. Still, there's another problem. Many large players in the fixed-income market, such as collateralized loan obligations and Lehman Brothers, no longer exist.
"A lot of the buy side has just disappeared," said Mike McGonigle, head of fixed-income research at T. Rowe Price.
2008-11-11 18:54:40
Drumm23
Posts: 325
Incept: 2008-02-14
Nurburgring
Report This As A Bad Post Add To Your Ignored User List There was a dude on CNBC europe today saying that one of GE's issues, maturing in 18 months, would yield approx 35% in that time. I had a look for the specific bond (bit of a bond newbie) and couldn't find it - or anything yielding that close. Also asked in the Fixed Income forum, but didn't get any pointers... Can anyone see a GE bond with that sort of yield?
thanks.
Drumm.
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"Whenever you find yourself on the side of the majority, it is time to pause and reflect." - Mark Twain
2008-11-11 19:04:33
Nejla
Posts: 68
Incept: 2008-02-08
San Francisco
Report This As A Bad Post Add To Your Ignored User List One of the biggest mouthpieces for the ruling elite is calling for a potential depression. Jesus-****ing-dog-lick! What the **** is j6p waiting for? Where the hell is the anger?
2008-11-11 19:09:57
Bdh
Posts: 545
Incept: 2007-12-16
U.S.
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Quote:
"Either we have dysfunctional credit markets evidenced by absurd pricing, or the market pricing is accurately forecasting the Great Depression of 2009, '10, '11, '12 and '13."
Well let's see.
Many large companies are making a mad dash to the TARP and are saying loudly that if they don't get a bailout they will be bankrupt.
Companies that can't access the TARP are going bankrupt.
The Credit Crisis Crash has caused a good majority of consumers to be fearful.
A good percentage of consumers are in effect, insolvent.
Unemployment is rising at a dramatically increasing rate.
The government has already spent a Trillion dollars in an attempt to prevent this.
Yet the bad recession is just starting.
How does anyone not think that thousands of companies are going to go bankrupt?
And no one know which ones.
Last modified: 2008-11-11 19:17:11 by bdh
2008-11-11 19:15:27
Bdh
Posts: 545
Incept: 2007-12-16
U.S.
Report This As A Bad Post Add To Your Ignored User List Also Korejdk, I'd be careful. This doesn't seem to belong in Breaking News.
2008-11-11 19:18:30
Chris11
Posts: 67
Incept: 2008-02-09
Germany
Report This As A Bad Post Add To Your Ignored User List "Also Korejdk, I'd be careful. This doesn't seem to belong in Breaking News."
O.k. Are we already in the state that a call for "accurately forecasting the Great Depression of 2009, '10, '11, '12 and '13." is not breaking news but
rather taken for granted on mainstreet?
If yes, I wonder why the 300 Million Amerikans do not raise hell for the folks responsible for this mess.
2008-11-11 22:14:50
Phirang
Posts: 322
Incept: 2008-10-25
Report This As A Bad Post Add To Your Ignored User List Heh, there is no solution except getting down to about 200 million Americans...
don't think it can happen?
2008-11-11 22:18:18
Hendrek
Posts: 17
Incept: 2008-10-10
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Quote:
Heh, there is no solution except getting down to about 200 million Americans...
don't think it can happen?
Not only do I think it can happen. I think it will / must happen.
"Look to your left. Look to your right. One of you three won't survive this."
I'm not kidding. Got meek?
2008-11-12 00:00:58
Poyayan
Posts: 364
Incept: 2007-11-27
Report This As A Bad Post Add To Your Ignored User List You know why? They haven't fix the rating agencies yet.
Would you trust rating from rating agencies that have subprime mortgage as AAA?
2008-11-12 00:19:22
Expy
Posts: 2782
Incept: 2007-09-05
Report This As A Bad Post Add To Your Ignored User List "There was a dude on CNBC europe today saying that one of GE's issues, maturing in 18 months, would yield approx 35% in that time."
Tell me that's sustainable for any length of time...
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"IT'S THE INCOME/CASHFLOW SILLY"! {c expy } Where are incomes and profits/revenues coming from to recover the economy after the spiral down? Certainly not the "New Service Economy". W/out massive new debt creation, [unlikely], and useful productivity, the public and business are probably screwed by a Great Depression II, having no foreseeable means of recovery.
Ben is an academic, likely with an unusually high IQ. The downside with people like that is they generally have an abundence of arrogance and LITTLE COMMON SENSE and when it rains you have to ask them to come inside so they don't get wet and catch cold.
2008-11-12 00:31:34
Saphire
Posts: 969
Incept: 2008-03-11
Report This As A Bad Post Add To Your Ignored User List Weird article, seemed like there was way more to say on the subject but it just ended
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That is the whole point of the unknown, well you don't know-- D. Ratigan 3/17/08
2008-11-12 00:43:30
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