FT Alphaville says: Credit from equity. It’s not a new concept but haven’t yet seen it represented as neatly as in this graph.
True, new totally idiotic concept, comparing a credit spread to the price level of an equity index from Bank of America no less…
Whoever wrote this report should be fired on the spot.
Unfortunately, there will be a brief delay in service while I dry off my undergarments and descend into the plateaued euphoria of the newly minted Icahn Report.
It’s a cliché that people adapt. This new paper shed interesting light upon this. It finds that people do indeed fully adapt to both marriage and the birth of a child. They get happier as these events draw nearer, but...
A noted manager of financial sector funds finds little to like out there. (WSJ.com) Goldman Sachs (GS) raises $10 billion to invest in loans backing LBOs. (FT Alphaville also Deal Journal) The Mexican Peso is at a ...
freeze a Yankee.” That’s what bumper stickers said in the 1970s. But now, the upper hand is on the other foot. No Tags
Just in time to avoid the aftermath of the dreadful Merrill results, I'm off on holiday. (Although it's worth noting that the shares "sinking" 9% in after-hours trade only brings them back to where they closed yesterday.) There won't be ...
Ainsi donc la loi sur les nouveaux devoirs des chômeurs a été adoptée. Désormais, les allocations chômage seront dégressives en cas de refus de deux offres "raisonnables". Mais à quoi cela peut-il bien servir?
This CDS report was written by Markit's Gavan Nolan Investment grade European credit was resilient today in the face of declining stock markets. The strong performance in financials continued, with yet another bank providing a positive surprise. Credit Suisse posted ...
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April 2nd, 2008 at 8:10 am
Would you agree it would have been valid to compare equity vol to credit spread?
April 2nd, 2008 at 9:06 am
Noel:
Ideally, I would compare the credit spread to the equity risk premium.
It used to be one of my pet theories that credit spreads and equity volatilty were closely linked, but this has clearly been falsified over the past year or so. Look at Lehman.
April 2nd, 2008 at 9:35 am
Personally, I’ve always thought the graph comparing the ABX index to Al Gore’s waistline was particularly illuminating.
I wonder how many other such gems are lurking in the 48-page BofA report.
April 2nd, 2008 at 9:41 am
Can we change the title to “dumbest post by Alea of the day”? You think the number one ranked credit strategist on Wall Street should be fired over a graph. Even if you think the premise doesn’t fly, you think he should be FIRED over a graph? Really?
I suppose you think folks think more highly of your own opinions? Which is why you run a blog on the market, rather than raking in millions of dollars a year putting your money where your mouth is.
April 2nd, 2008 at 1:07 pm
Either your comment feature is busted or its set to only accept comments that agree with you
April 2nd, 2008 at 2:51 pm
yi:
My comment feature is not busted, but it is set to minimize spam and obnoxious behavior. If you have something clever to say, try a better address than “buggeroff@nocom.”
If you don’t like the blog, get lost.
April 2nd, 2008 at 8:07 pm
JCK
I think the equity/credit link was busted by the FED. Bond holders now have two sources of protection. They can claim the assets of the equity holders and they can also put their assets to the FED.
April 3rd, 2008 at 1:30 am
barry:
could be, we also had a big move towards lower real rates.
April 28th, 2008 at 11:12 am
In the Black-Scholes-Merton contingent claims analysis equity and credit spreads bonds are treated as long/short put options on the assets of the firm. Plotting a proxy for asset value (equity index levels) vs spreads (option values)? Yeah, what a ridiculous idea.
April 28th, 2008 at 12:14 pm
bh:
indeed plotting an asset value against a derivative is pretty ridiculous, it yields no information unless you find it surprising that “put” options go up when prices go down.