By Jennifer Bawden
November 5, 2008
The Ultimate Black Swan – Credit Derivatives (The CDO Market). According to the Bank of International Settlements, has grown to $57.9 Trillion. This credit default swap meltdown that has begun to pour hot lava on a fragile market has only just begun to erupt.
Substantial blame in my opinion should fall on the International Swaps and Derivatives Association (ISDA) whose management is as out of touch as FEMA was when Katrina hit. Make no mistake, the casualties of their laissez-faire attitude will be just as broadly felt as the aftermath of Katrina in the years ahead.
After all, the CDO market is the 1000 pound elephant in the room. She wandered in to look at all the other shoes that have already dropped onto the soon-to-be sinking floor of the US Peso.
Wall Street bulls still high on Obama Mania suggest the bottom is in. I suggest the CDO’s deleveraging has just begun. It is a universal law, what goes up must come down. As this ridiculously leveraged market deflates, watch out below!
Add to this the tapped out consumer, the continued collapse of both residential and commercial real estate, shrinking corporate profits, a continued tightening of credit and deflation is inevitable. There is nothing Obama can do to stop the flow of molten magma.
The elevator still has some sharp drops down before we will see the real bottom. So, load up on ETF’s that short the market on any strong rallies and remember, although there is renewed hope with a new president in power, he cannot stop Newton’s apple from falling off the tree and being fossilized by an avalanche of collapsing Credit Derivatives.