C.M.O. 3.17.2009
Credit Market Overview
March 17, 2009
“Beware the Ides of March”. For Caesar these words had dreadful consequences and from his point of you, yes, unintended too. In the financial markets there is a Caesar as well only this one might seem a cross breed with Medusa as many times throughout this financial crisis we have seen multiple extensions of this self-proclaimed “Emperor for life” appear in crucial positions in Washington simultaneously.
If all of that was not enough to give it away the company in question is Goldman Sachs and it seems as if being the co-focus of the cover page in this week’s Barron’s did as much for it’s stock as the seer in ancient Rome did for Caesar’s life expectancy.
GS was down $4.90 yesterday, 4.96% for those who prefer things in percentage terms. This needs to be put in context however as it had also enjoyed a 33.6% run off of its near term low close of $73.95 on March 9th. 33.6% is a pretty long way to go in 4 trading sessions and it is without question that any investor would think they had Caesaresque qualities if they could put together a portfolio of stocks to perform similarly every 5 days.
The CEC Strategy bought GS on March 12th and unfortunately, MS on Friday. There is hope, however, as the CDS spreads for each of these names (the main driver of the CEC Strategy) continued lower yesterday closing at 258.35bps for GS after peaking at 371.5bps on March 9th. The same day the stock closed at the previously mentioned low.
The move down in GS’s CDS equaled 30.46% by yesterdays close so the negatively correlated CDS/equity relationship seems to be moving in near lock step both with regard to timing and degree. From years of observation I can tell you that is a rare occurrence.
MS the other company to make Barron’s front page suffered a worse fate losing $2.39 or 9.40% yesterday. The CDS spreads here too continued lower yesterday having moved down 116.22bps or 24.45% since March 9th. The stock had outperformed GS in the short term gaining $8.95 or 54.31% in the same period GS rose 33.6%. The move in MS did not have the symmetry of GS’s and is much more typical of how the CDS/equity relationship seems to operate.
The financials, in general started the day strong only to fade in the afternoon. Exceptions here were C, FNM and FRE but gains of 30.90%, 28.57% and 21.43% respectively need to be put in context as starting the day with stock prices of $1.78, $0.42 and $0.42 it doesn’t take a big $ move to make a big % move.
In context, given the choice, how many would prefer to be among that group of three just mentioned vs. the co-stars of the cover page?
Enjoy the weekend.
Jim Delaney
March 17, 2009
“Beware the Ides of March”. For Caesar these words had dreadful consequences and from his point of you, yes, unintended too. In the financial markets there is a Caesar as well only this one might seem a cross breed with Medusa as many times throughout this financial crisis we have seen multiple extensions of this self-proclaimed “Emperor for life” appear in crucial positions in Washington simultaneously.
If all of that was not enough to give it away the company in question is Goldman Sachs and it seems as if being the co-focus of the cover page in this week’s Barron’s did as much for it’s stock as the seer in ancient Rome did for Caesar’s life expectancy.
GS was down $4.90 yesterday, 4.96% for those who prefer things in percentage terms. This needs to be put in context however as it had also enjoyed a 33.6% run off of its near term low close of $73.95 on March 9th. 33.6% is a pretty long way to go in 4 trading sessions and it is without question that any investor would think they had Caesaresque qualities if they could put together a portfolio of stocks to perform similarly every 5 days.
The CEC Strategy bought GS on March 12th and unfortunately, MS on Friday. There is hope, however, as the CDS spreads for each of these names (the main driver of the CEC Strategy) continued lower yesterday closing at 258.35bps for GS after peaking at 371.5bps on March 9th. The same day the stock closed at the previously mentioned low.
The move down in GS’s CDS equaled 30.46% by yesterdays close so the negatively correlated CDS/equity relationship seems to be moving in near lock step both with regard to timing and degree. From years of observation I can tell you that is a rare occurrence.
MS the other company to make Barron’s front page suffered a worse fate losing $2.39 or 9.40% yesterday. The CDS spreads here too continued lower yesterday having moved down 116.22bps or 24.45% since March 9th. The stock had outperformed GS in the short term gaining $8.95 or 54.31% in the same period GS rose 33.6%. The move in MS did not have the symmetry of GS’s and is much more typical of how the CDS/equity relationship seems to operate.
The financials, in general started the day strong only to fade in the afternoon. Exceptions here were C, FNM and FRE but gains of 30.90%, 28.57% and 21.43% respectively need to be put in context as starting the day with stock prices of $1.78, $0.42 and $0.42 it doesn’t take a big $ move to make a big % move.
In context, given the choice, how many would prefer to be among that group of three just mentioned vs. the co-stars of the cover page?
Enjoy the weekend.
Jim Delaney
Labels: CDS, correlation, credit, equity, Jim Delaney
posted by Jim Delaney at
3:49 AM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home