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20h00 this evening is make or break for the DOW

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_nova
Super Contributor
Banks are hoarding cash in expectation of pay-outs on up to $400bn of defaulted credit derivatives linked to Lehman Brothers and other institutions, according to analysts and -dealers. This added pressure on the frozen financial system comes as authorities prepare to meet participants in the so-far unregulated $54,000bn credit derivatives market to speed up plans for the creation of a central clearing house. Twenty-two dealers will participate in the auctions, which will determine how much protection sellers will recover after paying out the insurance. The timeline for the auctions follows, according to JPMorgan. 9:45 a.m.-10 a.m. Auction participants will submit bids and offers for the debt backing the credit default swaps, which will be used to determine the initial recovery rate of the swaps. 10:30 a.m. Auction administrators Creditex and Markit will publish the initial recovery price and the open interest for the contracts will be published. The open interest reflects the amount of bids and offers that have been made, and will show if there are more buyers than sellers, or vice versa. 12:45 p.m. -1 p.m. Participating dealers will submit limit orders for the debt on behalf of themselves and their clients to fill the open interest 2 p.m. The final price of the auction will be published.
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9 REPLIES 9
_nova
Super Contributor
Guess what? DOW futures are down -228 at this time. The Lehman auction was a horror with values pegged around 8 to 9 c on the Dollar. Means insurers are going to doc up 90% of the default bill which is somewhere around $450bn. Looks like Barclays was heavy in this one... Anyone who still thinks that the 'mortgage crisis', a 700bn bailout (or is that wipeout?) and a direct investment of newly printed paper in banks is going to stop this monster??? ...well then you deserve to lose your shirt. This isn't over and CDS is going to take centre stage and OBLITERATE EVERY OTHER SO CALLED CAUSE OF THIS CRISIS somewhere between next week and next year. The only good thing that happened on Fri is that the LIBOR rate came down significantly, signalling some confidence from bankers. BTW, think on this. Stocks, Equities are a good lead indicator of asset valuation. If the JSE has lost 40% of it's mark-to-market value? ... then what does that mean for property in a country where the household debt ratio is above 70%, the currency a slave to commodities, and the curent account a target for every currency trader out there? I'm not saying I'm a bear, just looking at the little factoids that all add up to HKGK!
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niemand
Contributor
Ok. It is looking like a bloodbath on Monday and perhaps for a while to come. I suspect local casualities are going to be ABSA due to Barclays exposure. Anyone else? Off to draw all my saving and off to SAmint to buy the yellow metal...
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divz
Super Contributor
Hey Nova what happened at 20h00 on friday? or why did you make this comment just interested as the Dow almost green at one stage so i assume that was a make not a break
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YNWA
Super Contributor
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_nova
Super Contributor
YNWA thanx for that article, very informative but scary reading. Divz, the outcome was frightening at 90% insurance payout. But that was overshadowed over the weekend by the G7 promises. Remember this market will grab onto any positive news no matter how thin. The moves that 'leaders' are making is certainly positive and coordination will be key to stabilise things. But, here's the problem: There's still roughly $15tn in oustanding CDS out there and no one knows who carries the can for it. On 23 Oct the auction for WaMu comes up and that one makes Lehman look like a piggy bank. I'd be very, very careful of any rallies right now because the CDS problem has definitely NOT yeat sunk through to Main Street or even the average 'investor' out there. The impact of a potential $15tn wiped off balance sheets is way beyond my understanding. IMO, the thing to watch is how the big financials behave and what the LIBOR O/N and 3-MONTH do as that (and the VIX) will gauge the level of fear and trust out there
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divz
Super Contributor
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niemand
Contributor
Nova, How big is the WaMu CDS auction? and where does one find out how it went? Even if all the central banks guarantee everything, how can they possibly guarantee $15 trillion?
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_nova
Super Contributor
that's just the problem niemand, nobody knows. I'm trying to get a guesstimate. Even Lehman is still a bit of a guess but it seems fairly certain that the total is around $414bn now with another $110bn in bonds. Still nobody really knows who holds the can. The reason is it's an unregulated market and transactions are private. This is why bankers are not lending to each other or anyone else as they simply do not know what exposure borrowers have so they hoard any cash they can get their hands on. Well JPM now has WaMu assets and they're not letting on how bad it is. You can google all you want but you'll just get a confused jumble of opinions. No one knows
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niemand
Contributor
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