BOHICA

| October 12, 2007

In the Marines we had a saying, terse and to the point as is the Jarhead way: “Bohica!”, it was an acronym that stood for “Bend over, here it comes again”.

I direct your attention to two graphs that I shall explain:

ABXHEBBB072.png

What this chart is showing you is the pricing of something called a CDS, a credit default swap. Think of it as an insurance policy for a risky loan or investment, like perhaps bonds that are backed by mortgages. This one is for what is called “BBB” rated bonds, or fairly risky. Probably mostly subprime with some Alt-A in there as well, maybe even some second mortgages or some Home Equity Lines in there too.

The last time we saw a dip like this was in February, and also in July. Each time there was a publicized blow to the financial markets and the mortgage / housing industry.

One could assume that the market is adverse to the riskier end of things, so what does the same index look like for insurance on “A” rated paper (high grade mortgages)?

ABXHEA072-1.png

Not much help there, no. I refuse to prognosticate what this means, but the last 2 times might predict another patch of turbulence in the next 60 days.

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Category: Economics

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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