Credit Swap Investors Increase Bets on ‘Double Dip’ Recession
May 21, 2010, 8:12 AM EDT
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May 21 (Bloomberg) -- Traders in the credit-default swaps market are increasing bets the global recovery will stall and push Europe into a “double dip” recession, according to BNP Paribas SA.
As a hedge against a renewed slump, investors are buying protection on the Markit iTraxx Europe HiVol Index of swaps on lower-ranked investment-grade companies and selling the higher grade Markit iTraxx Europe Index, said BNP’s Pierre-Yves Bretonniere. They expect to profit as the riskier HiVol rises relative to the iTraxx Europe gauge as the economy slows.
“The market is starting to question the sustainability of the recovery and the possibility of a double dip,” Bretonierre said. “It makes sense to take positions that would benefit from the increase of probability of a double-dip scenario.”
Europe’s sovereign debt crisis, elevated jobless rates in the U.S. and declining business confidence in Germany are persuading traders to guard against the economy slipping back into recession. The euro retreated from its highest level in a week as investors speculated this week’s rally, the biggest since October, overstated prospects for economic growth and higher interest rates in the 16-nation region.
Markit’s HiVol index includes credit-default swaps on steelmaker ArcelorMittal, commodities trader Glencore International AG and Xstrata AG, the world’s largest exporter of thermal coal. The gauge has soared 74 basis points this month to 201, a 58 percent rise, according to JPMorgan Chase & Co. Contracts on Glencore have risen 361.5 basis points to 531.5, CMA DataVision prices show.
Europe Index
At the same time, Markit’s Europe index, including Akzo Nobel NV, the world’s largest maker of paints, Deutsche Bank AG, Germany’s biggest bank, and luxury automaker Daimler AG, has increased 47 percent to 128.5 from 87.25 basis points, JPMorgan prices show.
The ratio between the indexes has risen to 1.56, the highest in three months, from 1.46 at the start of the month and from a low of 1.33 on May 10, the data show.
The cost of protecting against default on high-yield and financial companies rose today, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly junk credit ratings increased 13.5 basis points to 619. The Markit iTraxx Financial Index of 25 banks and insurers rose 5 to 174 and the subordinated index rose 15 to 265.
“It will be only a matter of time before the double-dip discussion will return to the agenda,” Philip Gisdakis, a credit strategist at UniCredit SpA in Munich, wrote in a note to investors today. “It is more likely that growth worries will now move to center stage again.”
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a credit-default swap contract protecting 10 million euros ($12.5 million) of debt from default for five years is equivalent to 1,000 euros a year.
--Editors: Michael Shanahan, Paul Armstrong
To contact the reporter on this story: Abigail Moses in London at Amoses5@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.ne

Ever notice that when Obama gives a speech on the economy or finance the markets take a dive?

2012 can't get here soon enough.

if you believe that the markets take a dive because of Obama speaking, then you have little to no understanding of how they work. i remember them completely collapsing into smithereens when Bush , your boy, was president.

aC is lucky - makes lot of money with all that volatility!
S.

Another case of reading what you want to read. I never said that Obama speaking was the only reason the Stock Market takes a dive.

The economic downturn during the end of the Bush era was a correction that many saw coming.

But if you think that Obama's policies isn't hurting us economically then you are part of the problem.

None of Obama's policies are hurting us. Instead it is the Republican conspiracy to bring down the economy that is hurting America. As soon as Obama took office and started a series of measures to drive some relief into the economy, Republicans instituted an all out policy to obstruct ever effort this current Adminstration made.

First Republicans instructed ever core member who were Small Business owners, Corporate CEOs, Managers and Supervisors in charge of hiring and firing to terminate, lay-off ever employee they could. Instructing their core members to deliberately operate their respective businesses, Companies and Corporations or shoestring budgets. This obstructive conduct was design to create high unemployment in the country and discontent among the people who otherwise would be employed during such economic times.

This discontent or anger because of unemployment , was targeted toward the policies of the current administration. The Health Care issue, Immigration Reform, Corporate Bail-outs are some of the issues that were targeted by Americans angry, not because of any real concern about these issues, but angry because they are unemployed and out of work. They need someone, some issue to vent their frustrations at. i.e. Healthcare, Blacks, illegal immigrants or even a Black President and just about anytingor anyone they can think of, instead of the Republican CEO, manager, superisor or small business owner who fired them.

During the Bush Adminstration, it was Muslims and so called "terrorists". During Bush's father's term and Reagan's terms, it was Blacks and high crime. I noticed that there was no mention of any high crime rates in the U.S. during the 8 yrs of the Bush adminstration, all I heard was "terrorist" this "terrorist" that. All B.S. designed to create alot of bias and prejudice against all Musilims or people that look like them. This descontent all see today is yet another example of a Republican conspiracy to blame some minority (Obama) and all those who look like him for all America's problems. Perhaps one day the rest of you, who know little or nothing about American history will understand what is really going on. Hopefully you will realize that by November, 2012, when Obama is re-elected to a second term by a landslide over Sarah Palin.

Obama Offers Citizenship to Mexicans Who Help Clean Up Giant Oil Spill


Hey gringo, I'm coming to clean your beach, then your government


In a stroke of political genius, President Obama has figured out a way to kill two birds with one oil blob. He has offered full American citizenship to any illegal immigrant who brings a mop, bucket or leaf blower down to the Gulf Coast and helps clean up the giant oil spill washing ashore.

In a hastily arranged press conference, President Obama could hardly contain his excitement. "It looks like the good Lord has provided us with a solution and given us an army of the best of the best when it comes to cleaning up a mess."

The first line of defense will be 20 million Mexicans with leaf blowers who will attempt to change the course of the spill by blowing it into a neighboring country. If that doesn't work, another 75 million buckets and mops are waiting to go to work.

Obama announced they expect the work will be slow and deliberate involving entire families, but the beach will look better than ever when finished.

Buses are currently leaving Arizona crammed with workers and they are expected on the beach by dawn.

"When the job is finished we are going to have a gigantic ceremony on the sparkling clean beach and grant everyone full citizenship and all the rights thereof," Obama Announced. "Then they can all return to Arizona and vote all those white crackers out of Office."

The State of Alabama, on the other hand, cutting off its nose to spite its face, has refused to let any Mexicans cross the state lines and help out. Instead, a group of fat dopey white people are going to sit in the fly infested stench of dead oily sea life and complain that "der ain't no one talkin' in no danged anglish nomores."

Wow!!!! So much ignorance...where do I start?

I guess my favorite was

There was no mention of a high crime rate because the crime rate was low!

Crime is always the same, arguments about crime is merely a way polictians use Blacks and other minorities to stir up racism and disrcimination to get votes. Bush did this doing his years in office, but instead of the usual corprits, his adminstration chose musilims and everyone who looked like a musilim. This plan did'nt pan out well at first until Richard Reed came along, the "shoe bomber". In his photos they made it appear that his skin color was darker than he actually was, making him appear as though he was black, a Black muslim. Creating the impression that these Iranians, Iraqis, Indians, and middleeasterner were "black". Once this occurred the hatred these people grew two-fold. Everybody in America jumped on the hate muslim ban wagon.

I have lived here for 26 yrs, and even I am able to see the huge amount of lies, misconceptions and propaganda that America engages in to make a person or a group of persons look bad. The problem with you Dominicans is that its not hard to be convinced about something that is a lie, when you are already predosposed to be prejudice toward others.

Individuals who know absolutely nothing about economics or the American economy and how it is actually driven, are nowadays whining and blaming all their problems on the government and its bailout of several failing financial institutions. I asked myself, what would have occurred if the government had not bailed out these institutions? Bear Stearns, Morgan Stanley, and other practitioners of ultra leverage, including perhaps Merrill Lynch, would have folded. When you borrow to carry $30 of investments for each $1 of company capital, it only takes a 3.4% drop in the prices of your assets to put you under water. And when you’re getting that 30-to-1 leverage through overnight borrowing, even a whiff of doubt can make it impossible to roll over your financing from one day to the next. Either way, these banks would have been out of business.

From there, the trouble would have certainly fanned out. The firms just pronounced dead were counterparties to trillions of dollars in derivatives. The investors on the other side of all those deals (largely banks, insurance companies, and other brokers) would have been left holding the bag. Thousands of them would have failed, and all that survived would have been left weakened and living in fear.

Growing mortgage losses would have forced Fannie and Freddie (and also Countrywide Financial) into bankruptcy, which would have turned their trillions in outstanding bonds into junk debt, which would have a devastating effect on thousands of other banks, insurance companies, and other investors that held them. Citibank and Wachovia would have gone under. And with Fannie, Freddie, and Countrywide gone, the biggest sources of mortgage money would have been completely unavailable, which would have turned the housing market from a sick baby into a mutilated corpse. AIG, which had turned itself into a sink of follies by insuring other companies against losses on junk debt, would also have joined the departed – and the thousands of companies and small businesses that had been depending on AIG credit insurance would have gotten sorted out between the failed and the merely damaged.

Bank of America, having been spared the irresistible invitations to acquire Countrywide and Merrill Lynch, might be in much better shape than it is today. With a hundred-car pile-up in the financial sector, lending to businesses and consumers would have shriveled, and the rest of the economy would have slipped into a depression. No more General Motors. No more Chrysler. Ford maybe.

And those are just the big names. Tens of thousands of other companies and small businesses would have gone out of business. Most others would have laid off workers or completely fired their workers.. The unemployment rate would have moved deep into double digits. With so many companies cutting inventories to raise cash for survival, the wholesale price index would have gone off a cliff, and the consumer price index also would have slumped. Unrest would have occurred in many areas in the United States, we would be looking at something more, I think we would have been looking at a civil war. I supported the government’s actions 100% and without it I think we would have slumped into a depression.

I only wish that some of the whiners today had a real American education and, perhaps a few years of college as well. Then they would understand what is occurring, not bad policies by a good President, but a wholesale conspiracy to undermine the will of the people and turn a stream of racism and prejudice and "blame gaming" toward the nation’s first Black President.