Walter Kurtz

Moody's Luck of the Irish Has Run Out

Gentlemen,

The Seeking Alpha editor put the tickers in, and the AIB one is clearly incorrect. Here is the original:
narrowtranche.blogspot...


On Oct 08 04:55 PM csbosox wrote:

> Jimmy46, I am not quite sure if you are saying that I am wrong or
> the author is wrong. I can assure you it is not me. I have been an
> AIB stockholder since Jan of this year. The Finfacts article is talking
> about a different company, Anglo, which "trades" under AGIBY.PK and
> was taken over my the gov't. Anglo is NOT Allied Irish Bank. Mr.
> Kurtz, please correct your article.

CDS intermediation doesn't die, just gets put on ICE

It's actually very simple. Banks just need to make sure they require margin posted on CDS. AIG's book would never have gotten so large if they had to post margin.


On Oct 02 07:53 PM An MBA Still Learning wrote:

> Do you have any thoughts on the best way to regulate / control Credit
> Default Swaps - in order to prevent another AIG-type failure 10 years
> from now?
>
> If you were invited to give advice to Congress on this issue, what
> might you suggest to them?
>
> Thanks,
> Bryan

Fuel Substitution: Power Plants Currently Switching to Natural Gas

www.eia.doe.gov/cneaf/...

A generating unit capable of burning more than one fossil fuel is referred to as a dual-fired unit. Some dual-fired units can only burn one fuel at a time (that is, the fuels are fired sequentially), while others can burn more than one fuel simultaneously (concurrent firing of different fuels). A sequentially fired unit generally uses one fossil fuel as its primary energy source, but can switch to a second fossil fuel as an alternate energy source.

Inventories May Have Dropped, But Crude Oil Prices Still Constrained by Natural Gas Oversupply

thanks everyone for their comments. Fuel switching is actually quite common at power plants: narrowtranche.blogspot...

Commodities Priced in Dollars Continue to Produce Gains Via Local Currencies

Unfortunately this strange title was put there by the editor.

Recycle TARP Repayments to Bolster the FDIC

That's already being done, as the US Treasury has extended a credit line to FDIC.

Time to Take the 'L' Out of LBO

You mean to say if I have a family business, I'd be unable to sell it because the buyer is prohibited from getting bank loan?

If I manage a business that I'd like to own, I can't take out a loan to buy the bisiness from the owner?

Most buyers just don't have the resources to buy a business for cash and need loans to complete their purchase.

Where do you stop before we have a socialist system?

Steepening Forward Curve Increases the Credit Risk for Swap Providers

Thanks for the comment. Just to clarify, the initial mark to market exposure on a swap is indeed zero. However dealers also have to measure and reserve against "potential exposure" (sometimes called "PE"). And that measure is non-zero from the start.


On Aug 19 11:59 AM Heaven, Hell or Hoboken wrote:

> Interesting article but I would like to add that on the day on which
> the swap is transacted, the mark-to-market, or credit exposure, should
> be zero or close to it, with the current steepeness of the yield
> curve already factored into the pricing.
>
> Of course, if the yield curve were to continue to steepen after execution,
> meaning that the value of the "pay fixed" leg of the swap becomes
> greater, credit exposure would increase commensurate with the shift
> in the curve.

The Collapse of the CCX Carbon Emissions Contract

Great comment from Aaron Joseph - much appreciated. I'd like to clarify a couple of items:

1. Waxman Markey timing issue is correct. However long before the bill was proposed, the market participants were well aware that as the financial crisis hit hard, Congress will have no appetite for any bill that would cause the US industry to cough up funds for carbon allowances.

2. With regard to RGGI, it's a mandatory program implemented by some states. From www.rggi.org:

"RGGI is the first mandatory, market-based CO2 emissions reduction program in the United States.

The states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont are signatory states to the RGGI agreement. These ten states have capped CO2 emissions from the power sector, and will require a 10 percent reduction in these emissions by 2018."

If participants are forced into this program by their respective state governments, it will certainly improve the pricing relative to the CCX contract.

Crucifying Inverse Leveraged ETFs: Why Now?

The simulation is performed using a simple Excel macro. If you are interested, attached at the bottom of the post on Sober Look. Here is the link:
narrowtranche.blogspot...



On Aug 14 12:20 PM vjay wrote:

> Walter,
>
> Great article. Could you possibly elaborate on how you simulated
> 1000 different "paths" incorporating the stated volatility? Computer
> program? Random number generator? Thanks.

Asia: The Next Big Bubble

Thanks everyone for their comments. Very interesting stuff. I just want to reiterate that this article is based on a recent research report from HSBC called "Blowing Bubbles". For those who are interested in a copy of the full report from HSBC, I have it embedded at the bottom of the post on Sober Look - here is the link.
narrowtranche.blogspot...

Where Did the TARP Money Go?

Thanks for the comment. The loan balances on banks balance sheets have not really grown recently (vs. deposits and other cash sources such as government assistance). Does that mean banks are not lending at all? They acually are lending some, but mortgage refinancings, reduction in home equity balances, loan sales, and loss provisions offset any new loans, keeping the overall balances stable. Cash balances at banks have grown much faster than the loan assets (for the 3 reasons I mentioned) pointing to the fact that all that liquidity is not making its way into the real economy yet.

Introducing S&P 500 Applied Correlation Index

I assume the title here should be Implied Correlation Index rather than "Applied"?

Pegged Renminbi Will Be Hard to Internationalize

Note that "printing money" doesn't necessarily mean adding new debt. It just means loose monetary policy. "Unsterilized" FX transactions to keep the currency weak (or weaker than the market perceives it to be) forces a nation's central bank to sell their currency for dollars. That increases the foreign reserve and floods the banking system with domestic currency.

Increasing Taxes in the U.S.: Accepting the Inevitable

It is clear that severe tax increases have or will be taking place in the US on both state and federal level. It is also clear that tax increases have a multiplier effect on GDP contraction. There is of course a delay before the tax shock translates into GDP decline. It is entirely possible that with the temporary impact of stimulus, we may be looking at a prolonged "W" type recovery that is far more protracted than many currently estimate.