dead-cat bounce

What does George Soros see in Lehman Brothers?

Jim Kim — Wed, 20 Aug 2008 13:49:18 -0400

Last year was a sweet comeback year for George Soros. His fund was on fire. And he seemed to really understand the credit markets and the effect the temblors would have on Wall Street firms. This made his recently accumulated 10 million share stake in Lehman Brothers all the more puzzling. So what does he see? Well, as the Motley Fool notes, this could be a short term bet. The battered shares, at less than half of book value, may be due for a dead-cat like bounce (we may have seen it already, in fact). Or he may be betting that embattled CEO Dick Fuld can manage his way out this mess. Then again, he may discern something that we mortals can't. Of course, he's not guaranteed a win with this bet. Value buying hasn't been a winning strategy when it comes to financials.

For more:
- here's the article

CDS market: still wary of top banks

Jim Kim — Wed, 30 Jul 2008 13:40:25 -0400

A lot has been made of the mini-rally in bank stocks, but it's looking more and more like a dead-cat bounce rather than anything meaningful. For another look at how market participants view top financial firms, check out Credit Derivatives Research's Counterparty Risk Index, which averages CDS spreads of 15 major credit derivatives dealers--basically the top banks. As of Tuesday, reports the Financial Times, the index stood at 155.75 basis points. That's 2.3 points more than its previous close. This is weakest sentiment since at least March, when Bear Stearns imploded. Merrill Lynch was the worst performer; its CDS spreads soared 46 basis points. Interestingly, U.S. banks are judged to be three times as risky as their European counterparts.

For more:
- here's the FT item

Bad bank news is all relative

Jim Kim — Wed, 23 Jul 2008 07:09:00 -0400

When is bad news really good news? When the bad news is not nearly as bad as expected, notes the New York Times. You could almost feel the relief wash over the markets as many top banks (except Washington Mutual and Wachovia) released earnings that were bad--even horrific--but still better than expected. Now, one could argue that the armies of investor relations people out there are working the Street's fear to their advantage; expectations were certainly set low. Another view is that we are finally at the bottom, that the worst is over. Of course, we've heard that before from the top execs at the top banks, so it would be wise to view the ferocious rally we've seen in bank stocks with some skepticism. It may yet prove to be a dead-cat bounce. The mortgage market doesn't seem to be getting much better, with Fannie and Freddie's woes.

For more:
- here's the New York Times article

Ready for 'write-ups' in the second quarter?

Thu, 15 May 2008 06:59:56 -0400

Breakingviews notes another reason to think that the worst of the credit crisis may have passed. Credit default swaps on collateralized debt obligations and leveraged loans have staged impressive rebounds. Prices have really rebounded. That raises the prospect of "write-ups" for the second quarter, which would certainly help offset expected weakness in other areas. Who'd have thought that just a few quarters ago. Still, there's no point getting too excited now. The article notes that the rebound has affected all securities; there are plenty of stinkers in plenty of portfolios. As well, the rebound may have been a bit of a dead-cat bounce, if you know what I mean. Still, there seem to plenty of distressed securities buyers out there. We'll see where this mini-rally leads.

For more:
- here's the Breakingviews article