Lehman Brothers held their auction of credit default swaps Friday and received 8 5/8 cents on the dollar. Even if they had received $.20 on the dollar and you used that as an average value for all c.d.s., that would still leave only 20 % or $12 trillion of the estimated $60 trillion of credit default swaps with value. That leaves $48 trillion worthless. Now it appears that many participants in this market have sold as well as bought c.d.s.., but that doesn't explain what would happen if there were a large scale liquidation of this instrument.
The stock market is continuing it's downward spiral. This is what happens when there is no reason to buy. As far as we can see earnings will continue to ratchet down for the foreseeable future. The wealth effect is in reverse and demand for goods and services is drying up in a multitude of areas.
De-leveraging, redemptions and margin calls are causing liquidations at mutual funds, hedge funds and banks.
Short sellers are active as long as the fear of an extended rally is not imminent.
There is some doubt that the central governments can handle the scope of the problems, so until concrete improvement in the credit markets appears, a downward bias in the stock market will continue.
Quote of the Day
Real diversification: " Putting half of your money under the mattress and the other half in a hole in the ground."