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Lehman CDS Auction Ends, Now What?

by: Babak October 12, 2008 | about stocks: DIA / F / GM / LEH / QQQQ / SPY    

Babak

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As mentioned Thursday, the market tell everyone was watching Friday was the Lehman Bros. (LEH) CDS auction. The results were not unexpected with the bidding coming in at just under 10 cents on the dollar.

The market continues to slide lower with the VIX volatility index reaching an eye-popping ~72%+

As I hinted Thursday, LIBOR may have topped because today it is down very slightly (at least it didn’t go up!). The overnight LIBOR rate is down to 2.47% from Thursday’s 5.09% - the chart below is for 3 month LIBOR. But the TED spread continues to creep up. What makes this wealth erosion devastating is that we are stair-stepping down in the stock market, rather than free-falling in full crash mode.

libor rate october 10 2008

Something that has been pushed off the radar by the financial crisis is the dismal state of both Ford (F) and General Motors (GM). There was a time when Wall St. looked at GM as a barometer of the economic health of the US. The stock is now trading at single digit levels it was during the 1950’s when the Dow was trading at the 200 level.

Iceland, as you’ve heard, is now bankrupt and is listed on eBay. Their currency is worthless as banks refuse to even touch it.

Headlines are shouting: “The End of American Capitalism” and worse. Rothschild is purported to have said:

“It requires a great deal of boldness, and a great deal of caution, to make a great fortune.”

The trick is to be bold when everyone else is fearful and to be fearful when everyone else is bold. If you can do that, then come back and teach me.

If nothing else, all this will make for a great story for your grandchildren, in some Mad Max distopian future.

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This article has 5 comments:

  •  
    Oct 12 01:01 PM
    The CDS continue to be the bomb under the bridge. The under a dime sale says a great deal about the whole CDS concept, and the way the market was run suggests that the treasury is still terribly dependent on the dealers to untangle the CDS mystic which few understand sufficiently to own them.

    As for what is next, a slow slide into recession. Surly F and GM are in trouble, but will the government let them go? It means something symbolically and sort of puts the US out of the global game. But if you must worry (and it does not help) think about depression since it appears to be foreordained in the firms that must cut employment levels and the others that will go out of business. It is then that fiscal stimulus will drive price levels. Think PM.
    Reply
  •  
    Oct 12 01:03 PM
    This highlights an important aspect of the current market crash. The Fed underestimated the effect of not bailing out Lehman. In short hind sight this was a huge error. With the collapse of Lehman Brothers the insurers that guaranteed its bonds needed to come up with enormous amount of cash. These insurers held very large equity and commodity positions that they needed to sell at any price to come up with their insurance promises to Lehman bond holders. This is quite possibly many times greater than the hedge fund liquidations. There have been suggestions that the U.S. government buy commodity futures to stabilize the market, as the commodity crash will effect the U.S. agricultural production in the immediate future.
    Reply
  •  
    Oct 12 05:49 PM
    GM should be broken up into 4 or 5 smaller automakers. All independent of each other. Move to and spread out to 3 or 4 States where there is no union influence. Get rid of most of the overpaid workers and train all new workers. This is the only way to survive. Otherwise it will only repeat history of failure. Another solution is to move out of this country entirely. Just set up sales department in this country.
    Boeing should do the same thing before it follows GM's path.
    Reply
  •  
    Oct 13 12:32 AM
    The CDS settlement doesn't mean much anymore because over the weekend the FED suspended market to market claiming that all institutions can give any value they want to their illiquid assets. I am sure they are not giving their $60 trillion in CDS values $0.10 which keeps it a nice black box until they declare bankruptcy or require a few $100 billion in bailout money. The action Friday and over the weekend are as synthetic as Japan before their market tanked for 20+ years.
    Reply
  •  
    Oct 14 11:36 PM
    It seems that one (1) of the Few Owners of the FED was Let To Take A FALL for the Sake of The Others,But Who or Whom Got the Best PARTS LEFT of LEH,Made Sure there Was no LOSS to WHO? Not LEM ! The TAX PAYERS DID! Who are the Owners of the FED? 98% of Americans do not Know,WHY? All of Lehmans Big Dogs & Blue DOGS Should be Exposed! The FEDs Apparent Manipulation in many Markets,you name it,they are there & ready to do more! I hope you people know there is a Document that has LAW over All of This!?YOU Better READ IT QUICK! IT MIGHT SAVE THIS NATION!!!!AND YOUR ASS!!
    Reply
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