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Friday, November 18, 2011

Danger Danger - Warning Will Robinson

So I liked Lost In Space as a kid (so did JFK, Jr.)

It is time again for me to raise some points about what is happening in the financial community. I often am asked, so what are you doing?  What should I do?  Where should I put my money?

I am not a financial expert,but instead rely on a number of people to advise me and I read as much as I can before I make an investment decision.  One of the sources that I have found to be the best these days (when nothing makes sense any more) is

Zero Hedge is funny, irreverent and doesn't put an "establishment" spin on world financial news.  I suggest to everyone they should read Zero Hedge as often as possible.

For example, today they have an excellent article about the risk in the banking sector.  Be forewarned there is danger ahead Will Robinson.

From Zero Hedge: S&P Pre-Announces The Bank Christmas Massacre

Sovereign credit issues have been front-and-center in terms of recent headlines as cost of funds and the balance between growth and austerity becomes unhinged among the once-upon-a-time risk-free entities. What has had less play very recently is the crisis that is going in the banking systems of the world as investors are as loathed to take any exposure to an opaque and clearly insolvent group of organizations. Credit (and to a lesser degree - equity) markets have shown their disapproval as spreads are as bad (if not worse) than at any time before, and yet the ratings agencies have yet to act - especially in the US. All that is about to change as Reuters gently reminds us that S&P is about to update it bank credit ratings framework. The model is complex by nature but as we have seen time and time again, the agencies tend to lag prices (spreads) and in that case, we can expect downgrades as an early Christmas present.
The impact of a downgrade can be very significant - aside from simply reducing investor appetite for risk (in its simplest form), it can trigger collateral calls and in a world where liquidity is hard to come by, and with the magnitude of funding (and rolling maturing debt) due over the next few quarters, we suspect this will be the catalyst for another leg down in equity prices as they snap back to credit's reality.

Merry Christmas.  S&P may do what OWS has yet to achieve.


  1. I love Zero Hedge too. Is that brad Pitt from fight club on their twitter profile page?

  2. or as they are experiencing technical difficulties. I agree it is a great source for financial reference! Thom