The Credit Crisis Financial Stocks Short Journal

Yeah. The August FF futures have taken out their highs from Dubai Friday last Thanksgiving. Meanwhile the GE Mar 11 futures and the GE Mar11 99 calls are well below the highs they hit that day.

Its actually even worse than that considering that 2 months have passed. All else being equal, these options should rise in value over time. I would say these options are about 30% below where they should be had LIBOR not blown out. Bummer.
 
Well, lots of Greek paper sitting on banks' balance sheets, but LIBOR/OIS and VIX were both back to pre-crisis levels. Moreover, various questions arising about the new bank regulations. Can't blame people for wanting to buy some protection against a LIBOR blowout. Someone lifted 50 bags of GEH0 99 puts, paid Jun10 FRA/OIS and sold the front contract outright throughout Friday. Similar flows in Euribor...
 
If the Democrat's loss of the Kennedy senate seat is really a big deal to the point it could swing the vote on health care, Bernanke and possibly a new stimulus package it just goes to show how random and unpredictable the world can be, where the health of a single man can change the course of history
 
I thought there's some cross-section between the below and some of the ideas posted in the thread, so here goes a couple of relevant paragraphs from Eclectica Capital's December 2009 report:

In total our CDS positions cost 100bps having made 87bps the
previous month. This breaks down as follows: our exposure to
Japanese steel companies lost 50bps having previously made
55bps, other corporate CDS lost 38bps (vs. +23bps) and sovereign
CDS lost 12bps (vs. +9bps).

Our positions also had to reflect on the market gyrations which
greeted the US November employment report. Much was made of a
government report that showed fewer job losses than had been
anticipated in the keenly contested game of “guess a figure”. We
came off second best with the Fund’s physical holdings of long dated
government bonds, especially the Aussie 10 year, losing 100bps.
There was also a knock on effect in the market for interest rate
expectations; they priced in more immediate central bank hikes. The
lower valuation attributable to our Sterling swaptions cost the Fund
95bps and similar holdings in the Australian and New Zealand dollar
cost a further 75bps. We added to our positions towards the end of
the month.

The Fund is overwhelmingly cautious and is exactly flat for the period
from the first of November to the middle of January (please see latest
NAV valuation). Over this period there has been a further and
extensive rally in risk. For instance, the euro denominated global
MSCI has risen a further 12%.

Consider, however, that we are carrying a substantial short credit
position. The notional value of our CDSs is now 1.9x NAV. Assuming
a “best case” scenario, a 100 mark on our German sovereign, a 500
mark on our Chinese and Hungarian sovereign and a 1000 mark on
our corporate CDS positions, the Fund would return 60% of NAV.
And yet the annual carry cost is just 1%. Furthermore, it is our
contention that our interest rate options are capable of more than
offsetting this deficit should the shape of the yield curve remain
unchanged.
More...
 
As far as Bernanke, there was a pretty amazing shift from Friday afternoon (he's a goner) to Saturday afternoon (he's in). Looks like the WH and the Senate leaders "got their minds right" about Bernanke during that time.

It was an important election on Tuesday, but I think "changed the course of history" is a bit much. Health care is still a gov't induced mess and the big banks still own the WH and Congressional leadership.
 
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