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Random Thoughts: CDO Investors Take a Haircut


Lehman, Icelandic bank failures rippled through the pond.


Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community. See also The Other Side of the Trade: Bear Trap!

The Hump Day Cometh! - 9:39 am

Good morning and welcome back to the flickering pack. We power up our Wednesday pup to find the world a messy stress, with Europe shouldering mas supply, commodities under considerable pressure and pre-market futures taking it on the chin. Just another day at the office, eh? Some top-line vibes as we roll up our sleeves:

  • I'll begin with a Mea Culpa to ye faithful. I nibbled on some Sandisk (SNDK) for a trade yesterday morning with while I communicated that I was paring my risk in the afternoon. I failed to mention that Sandisk was unwound as a part of that process.

  • I pride myself on my name and word and, as such, I take that oversight personally. I planned to touch on it but got swept up by the combination of the Truman Show and my weekly syndicated vibe. Time management has never been my strong suit but these days, I feel like an A.D.D. moth in a light bulb factory.

  • Focusing on the here and now, I encourage Minyans to read The Other Side of the Trade: Bear Trap that I referenced yesterday and posted today.

  • When we offered that we may have seen the 2008 trading lows, we flagged the greenback as the greatest risk and warned that if it rallied, "all bets were off." It's been sticky green of late and that remains a key macro tell.

  • Developing nation borrowing costs hit a five-year high as concerns of a second Argentine default mount. Russia's ruble, the Korean won and Polish zloty--that darn zloty!-are also feeling the heat. This "fits" into the Dot.Gov theme that Minyan Peter touched on yesterday and I channeled to masses.

  • This seems as good a time as any to remind Minyans that a layer of demand (support) is absorbed with each subsequent retest of a particular level. Keep that in mind if and when S&P 920, 870 and 840 (the three intra-day higher lows) approach.

  • Investors will take up to a 90% haircut on the $1.2 trillion CDO market tied to corporate credit as the failures of Lehman Brothers and Icelandic banks ripple through the global pond. After $660 billion in sub-prime related losses, this particular domino could be painful.

  • Homeland Security Secretary Michael Chertoff warned of a terrorist attack in the next six months as we pass the presidential baton. And I quote, "You have to be concerned it will create an operational opportunity for terrorists." Sigh.

  • Over on the "reaction to news is more important than the news itself," Apple (AAPL) is obviously a focus, as is EMC (EMC), McDonald's (MCD) and the banks (Wells Fargo (WFC)/Wachovia (WB)).

  • Last night, President Fish, Pledge Alex and I gathered at Chez Harrison and watched in the 20th Anniversary Wall Street Documentary (that I happened to be featured in). The line that popped out to us all was "Seduction, Corruption, Redemption." Indeed, the more things change, the more they stay the same.

  • Good luck today Minyans--be the ball and keep it small.


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