Good and Bad...

Seriously considering BSC puts. They will "announce losses" on their hedge funds on the 16th. In other words, they will show the world how well everything's been swept under the rug. However, if it's really bad, they'll try to get it over with.


So far, it looks like they've hidden most of it, but I'd like to just keep swinging. I know sooner or later I'll knock one out of the park.


KBH options up 76%. Too bad I got the $35's when if I had been early, I would've had the $40 puts worth $4.00+ now.


I'm watching the ABX indices on Markit.com. Here are the top AAA rated bonds:

This is the best performing bond on the index. It's at 99.13 with a coupon of 0.11%. So, it's already lost 8 times the coupon. Ouch.

This is also AAA. It's lost 23 times the coupon. I don't know if the coupon is monthly or above Treasuries or what. I need to figure this out, but this definitely doesn't look like an investment grade product.

I believe these bonds work like the Titanic: the equity tranches fill up with losses first, then the non-investment grade bonds, then the investment grade. The higher rated bonds are no better than the worst; they just have a buffer. Once it's gone, they will sink just as fast as the worst junk.

The ratings agency's are broadcasting which bonds they might downgrade before they do, and delaying downgrades as long as possible. However, lawsuits like the one from Ohio's Attorney General will force downgrades. When the paper is downgraded, insurance co's and pension funds will have to sell the toxic paper. So, why are Moody's and S&P broadcasting the downgrades ahead of time? To allow anyone who can't hold junk bonds to sell, and get better prices than if they are forced to sell. They don't want this to come back and bite them if they can help it.