C.M.O. 3.13.2009
Credit Market Overview
March 13, 2009
It’s a bit ironic that on Friday the 13th, after a three day 10.97% run off the lows in the SPX, the market seems to be gaining a bit of a pulse which cannot be said for any of Jason’s victims.
The CEC Strategy developed buy signals in GS, PHH, FCX, AGN, BBY, KSS, TJX, GLW and PX yesterday as well as short signals in ETR, FE and SO.
In late February it was the other way around with a majority of shorts being generated (AET, CI, GR, UNH, WLP, AYE, DTE, DUK, ED, FE, MIR, DVN, XOM, NUE, IR, MHK, RPM, AVP, JNJ, ABC, LLY, LLL, MDT, BA, GD) and just a few longs (MLM, PCG). These second set of positions was closed out on Monday in anticipation of “Turnaround Tuesday” and having a decent unrealized P/L number in the books.
CDS spreads, at the index level, spent from January 6th to March 9th of this year moving from 1100 to 1924.6 in the high yield area and 194.7 to 261.9 on investment grade paper. The high yield index has since come down to 1714.2 a 210.4 point or 10.93% reduction, while the investment grade index now sits 25.6 points or 9.78% lower at 236.3.
It should be noted that it is rare for the CDS and stock indexes to move in such close proportion, especially in the short term so no conclusions should be drawn from the similar percentages of those moves.
What has been good to see is that as CDS spreads have come down and as the market moved higher these past few days, correlation among the names in the CEC universe has come off the “lock limit up” figure of 1.0 that it had once again regressed to during the 1/6/ - 3/9 period. This had also occurred a number of times last year, Bear Stearns, TARP announcement, AIG and the pure despair that overtook the markets after Lehman’s collapse.
The high correlation, low dispersion (I say tomato, you say tah-mah-to) environment does not allow the CEC Strategy to fully exhibit its strengths as differentiation between the specific economics of individual companies is superseded by what can best be described as macro panic or euphoria depending on the government’s latest action.
Being up ~11% after starting the year down 226.72 S&P points or 25.1% and 888.62 points or 56.78% since October of 2007 doesn’t mean it’s all up from here by any stretch of the imagination. What is encouraging however, is that if even for brief periods, the natural characteristics of the markets come back when the imminent threat of “incoming” from Washington subsides, if even just at tad.
From the death toll it seems no one needs to spend time on Crystal Lake. I’m sure, however, that many of us wouldn’t mind a peak inside a crystal ball.
Enjoy the weekend.
Jim Delaney
March 13, 2009
It’s a bit ironic that on Friday the 13th, after a three day 10.97% run off the lows in the SPX, the market seems to be gaining a bit of a pulse which cannot be said for any of Jason’s victims.
The CEC Strategy developed buy signals in GS, PHH, FCX, AGN, BBY, KSS, TJX, GLW and PX yesterday as well as short signals in ETR, FE and SO.
In late February it was the other way around with a majority of shorts being generated (AET, CI, GR, UNH, WLP, AYE, DTE, DUK, ED, FE, MIR, DVN, XOM, NUE, IR, MHK, RPM, AVP, JNJ, ABC, LLY, LLL, MDT, BA, GD) and just a few longs (MLM, PCG). These second set of positions was closed out on Monday in anticipation of “Turnaround Tuesday” and having a decent unrealized P/L number in the books.
CDS spreads, at the index level, spent from January 6th to March 9th of this year moving from 1100 to 1924.6 in the high yield area and 194.7 to 261.9 on investment grade paper. The high yield index has since come down to 1714.2 a 210.4 point or 10.93% reduction, while the investment grade index now sits 25.6 points or 9.78% lower at 236.3.
It should be noted that it is rare for the CDS and stock indexes to move in such close proportion, especially in the short term so no conclusions should be drawn from the similar percentages of those moves.
What has been good to see is that as CDS spreads have come down and as the market moved higher these past few days, correlation among the names in the CEC universe has come off the “lock limit up” figure of 1.0 that it had once again regressed to during the 1/6/ - 3/9 period. This had also occurred a number of times last year, Bear Stearns, TARP announcement, AIG and the pure despair that overtook the markets after Lehman’s collapse.
The high correlation, low dispersion (I say tomato, you say tah-mah-to) environment does not allow the CEC Strategy to fully exhibit its strengths as differentiation between the specific economics of individual companies is superseded by what can best be described as macro panic or euphoria depending on the government’s latest action.
Being up ~11% after starting the year down 226.72 S&P points or 25.1% and 888.62 points or 56.78% since October of 2007 doesn’t mean it’s all up from here by any stretch of the imagination. What is encouraging however, is that if even for brief periods, the natural characteristics of the markets come back when the imminent threat of “incoming” from Washington subsides, if even just at tad.
From the death toll it seems no one needs to spend time on Crystal Lake. I’m sure, however, that many of us wouldn’t mind a peak inside a crystal ball.
Enjoy the weekend.
Jim Delaney
Labels: CDS, correlation, credit, equity
posted by Jim Delaney at
4:14 AM
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