They're Done!

Last time I had that thought, it was February 15th, one week before subprime completely imploded. Crap. I thought it was about a month. I don't have much time.

The hedge funds are done.

Here's how I know: I got confirmation that my earlier (today) speculation that banks could make a run on the funds is both likely and imminent.

The first bit of info came courtesy of theroxylandr. Here are his charts:

In this chart, we see the 20% jump in corporate bond spreads over Treasury bonds. This explains announcements of $3 billion in corporate bond issues that have been postponed or canceled. Why? Because very much of the debt that's being issued makes no sense anymore. Any more? Obviously, credit has gotten much more expensive. Deflation is coming.

This chart is of the residential mortgage index. As theroxylandr points out, "We are well below February panic levels." (Should've bought NFI Jan '09 2.50 puts for 0.20 three days ago. Now they're 0.55.)

This chart is for commercial real estate backed mortgages.

This first bit of info clearly shows that the banks will have to raise margin whether there's anything for them to gain or not. We have four fund implosions and counting so far. These charts make it manifestly obvious that subprime defaults are not contained.

Here's the second bit of info, courtesy of this comment by PEAK DEBT on Russ's Winterwatch.

PEAK DEBT wrote:
CDO^2 “Super Senior” AAA ColorHedge Fund attempted to buy protection on 5 different deals @ 10am today. Hearing best offer for protection from the entire dealer community was 90-95 points upfront and 5.0% running premium. This would mean that the dealer community that created these CDO^2 structures and sold them at 100 cents on the Dollar w/in the last 6 months actually beleives that these deals are worth less than 5 cents on the Dollar. Another Hedge Fund is trying to buy protection on 24 different CDO^2 line items totaling 280mm at 3pm today. Look out below!
Posted on 28-Jun-07 at 11:29 am

Panic! The rats are fleeing the ship! When protection costs more than what you're protecting, then if it breaks, it's worthless. Losses will be terrifying! Time to set up a tollbooth on the ratlines.