Thursday, November 6, 2008

Icelandic CDS Freezer Burn

As some of you may know, Iceland declared bankruptcy about 2 months ago and they had a few banks that had to go through the credit default swap (CDS) auction to determine the amount that protection sellers had to pay for these banks' debt. We haven't heard anything regarding the results, but the below link revealed the results from the CDS auction.

As you will read, the freezer burn from this auction was pretty bad for the protection sellers. It turns out that those entities that sold protection will be on the hook to pay 93.375% of the senior. In comparison, when the CDS auction was performed on Fannie and Freddie debt, protection seller's only had to cover about 10 cents on the dollar. With these Icelandic banks, the protection seller is on the hook for almost 94 cents on the dollar. Ouch!!!!

The good news is that the amount of money that will switch hands for these Icelandic CDS bets is in the ball park of about $34.3 billion. Although this is a huge amount of money, it is really peanuts compared to the $400 billion that was involved in the Lehman CDS bets.


Unedited Censored SNL Bailout Skit

As the market tanks today, the Oracle thought that he would share a little humor to raise your spirits. The link below goes to a SNL video about the bailout bill that was censored from being broadcasted recently. It's entertaining and one of the SNL cast member really nails the Barney Frank's role.

Here is the video:

Wednesday, November 5, 2008

Meredith Whitney Updates the Financial Sector

For those that don't know who Meredith Whitney is, she is the executive director of equities research for Oppenheimer. She is one of the few people on Wall Street that provides a very good and raw opinion as to the health of the financial sector. Below is the CNBC video of her interview. Her opinions continue to be extremely bearish for the financial sector and all viewers of this video should pay close attention to her statements.

Saturday, November 1, 2008

A look at the credit crisis in the UK

As we have read on the news, the credit crunch is global and affecting countries all over the world. Here is a little news segment from BBC World showing how bad things have become in the UK. From what the Oracle has read, things in Eastern Europe are much dire than the UK. The Oracle believes that as the problems of Eastern Europe spreads, UK's situation will deteriorate even more.

Here is the BBC video. Unfortunately the people that put the video on Youtube did not allow for embedding. So here is the link.

Friday, October 31, 2008

The AIG Debacle

This news has made it to the front pages, but is still important enough to cover.  According to the linked NY Times article, in a matter of 1-2 months, AIG has spend most of the $123 billion bailout money it received from taxpayers.

But the latest news from today show that not only did AIG blow through most of the $123 billion bailout.  They are getting another line of credit for $21 billion!!!!

So you must be asking yourself why are we giving so much money to AIG?  Why don't we let them fail?  It turns out that there is more to the AIG implosion than what most people know.   In the linked video of CNBC's Fast Money, there is a small little segment where one of the show's hosts, Karen Finerman, reveals something that is of interest between Goldman Sachs and AIG. She doesn't go into much detail around the 6 minute mark of the video, but she does state that there is some sort of interest that binds AIG with Goldman Sachs.

Peter Schiff on Bloomberg 10/28/08

The Oracle has been a big Peter Schiff fan for quite some time.  For those that don't know who he is, Mr. Schiff has called for an economic crisis for many years now because he saw that our government went on a wild spending spree since Bush took office and we are now paying for the consequences of this irresponsible fiscal policy. 

There is nothing the Oracle disagrees with here and below are the Bloomberg videos. 

Part 1: 

Part 2:

Wednesday, October 29, 2008

$3.25 trillion in European bonds to hit the market next year

The Oracle found this little article on the internet and boy does it give you a glimps of what is to come here and abroad. According to the linked article, Europe will issue a total of about $3.25 trillion in bonds next year. This provids for a very interesting situation because as the market is flooded with debt, the market will suddenly become a buyer's paradise.

Why? The reason is because with so many different types of bonds in the market, investors will be able to demand higher interest rates from the issuer. Those with lower rates will simply not be bought. This is the good news for investors.

The bad news is that with so much debt in the market, some bonds simply will not be bought. There is currently a flight to safety by investors. If safety is a huge concern, why would he choose high yielding corporate debt (something we have seen completely impload in the last year with derivative bonds) when he can invest in bonds that are backed by governments?

The possible outcome of this is:

1. Some debt will not be bought.

2. Governments will also have to back corporate debt.

3. Both of the above.

The Oracle thinks that answer number 3 is probably the correct answer because if there is no safety net for corporate bonds people will simply not buy them. Governments will be forced to back corporate debt as it will give the appearance of safety. In addition, $3.25 trillion is a lot of money. That doesn't even include the explosion of debt that will be released in the US markets. There is simply going to be too much debt in the market and some of that debt will not be bought.

You got to love deleveraging.