C.M.O. 3.4.2009
Credit Market Overview
March 4, 2009
After declaring GE’s dividend sacrosanct Jeffrey Immelt’s recent reversal begged of episodes that have become all too common since stocks peaked in October of 2007. (How different did things look back then?!). Members of the “C” suites of Bear Stearns and then a few months later, Lehman Brothers appearing on the small screen declaring “All is well in Happy Valley” only to collapse a short time later.
Cries of predatory hedge funds profiting from those events seem toothless now that many of those same funds had their worst year on record and have seen withdrawals of double digit percentages and as the WSJ recently reported are being besieged by additional requests in the 20%-30% range.
Credit default swap levels for GE have risen from as low as 324 on January 6th of this year to an all time high of 1029.44 in New York yesterday. Everyone it seems s been focusing on the problems the company is facing here in the States with it financial subsidiary GECC which, while not is involved in the residential mortgage market provides financing for commercial real estate and other ventures at the business to business level.
The recent troubles of countries like Poland, Turkey and some of the Baltic States are also having an affect on GE’s prospects. The company’s 2008 annual report said that 11% of it’s financial receivables were in developing markets (Eastern Europe and Mexico). The WSJ estimates that the Eastern European portion of this exposure could amount to $30BN.
Adding to investor’s anxiety is the current debate by European Union leaders as to how to handle what is becoming an increasing dicey situation in Eastern Europe. The EU’s charter expressly prohibits the bailing out of any one member by another member. That same set of rules also requires members to keep deficits below 3% but it looks like 7 of the 15 Eurozone countries could cross that line this year.
Germany has much to lose in all of this as the Eurozone countries are that nation’s leading export market. Having the most solid economy in the region is good for Germany in that there are fewer questions of it’s surviving the current global crisis.
That question doesn’t seem to elicit the same answer with regard to Germany’s weaker siblings however. While no one is asking out loud yet, there are doubts about how financially conservative Germany would react if asked to participate should one of the euro-family fall gravely ill.
With the gap between yields on German bonds and the bonds of some of the weaker links at levels not seen since the Eurozone’s inception 10 years ago it might be a question the market is already answering.
Enjoy the week.
Jim Delaney
March 4, 2009
After declaring GE’s dividend sacrosanct Jeffrey Immelt’s recent reversal begged of episodes that have become all too common since stocks peaked in October of 2007. (How different did things look back then?!). Members of the “C” suites of Bear Stearns and then a few months later, Lehman Brothers appearing on the small screen declaring “All is well in Happy Valley” only to collapse a short time later.
Cries of predatory hedge funds profiting from those events seem toothless now that many of those same funds had their worst year on record and have seen withdrawals of double digit percentages and as the WSJ recently reported are being besieged by additional requests in the 20%-30% range.
Credit default swap levels for GE have risen from as low as 324 on January 6th of this year to an all time high of 1029.44 in New York yesterday. Everyone it seems s been focusing on the problems the company is facing here in the States with it financial subsidiary GECC which, while not is involved in the residential mortgage market provides financing for commercial real estate and other ventures at the business to business level.
The recent troubles of countries like Poland, Turkey and some of the Baltic States are also having an affect on GE’s prospects. The company’s 2008 annual report said that 11% of it’s financial receivables were in developing markets (Eastern Europe and Mexico). The WSJ estimates that the Eastern European portion of this exposure could amount to $30BN.
Adding to investor’s anxiety is the current debate by European Union leaders as to how to handle what is becoming an increasing dicey situation in Eastern Europe. The EU’s charter expressly prohibits the bailing out of any one member by another member. That same set of rules also requires members to keep deficits below 3% but it looks like 7 of the 15 Eurozone countries could cross that line this year.
Germany has much to lose in all of this as the Eurozone countries are that nation’s leading export market. Having the most solid economy in the region is good for Germany in that there are fewer questions of it’s surviving the current global crisis.
That question doesn’t seem to elicit the same answer with regard to Germany’s weaker siblings however. While no one is asking out loud yet, there are doubts about how financially conservative Germany would react if asked to participate should one of the euro-family fall gravely ill.
With the gap between yields on German bonds and the bonds of some of the weaker links at levels not seen since the Eurozone’s inception 10 years ago it might be a question the market is already answering.
Enjoy the week.
Jim Delaney
Labels: CDS, correlation, credit, equity
posted by Jim Delaney at
4:01 AM
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