Behind the Scenes

There seems to be alot going on behind the scenes even as the market cranks out new highs acting like Goldilocks is sipping a margarita in the Caribbean not worried about a thing.

The first is the SIV liquidity problem that has had banks in negotiations for several weeks at the possibility of having a "super fund" to prevent the SIV's from suffering huge sell offs if something was to go majorly wrong in an individual's bank SIV forcing a massive liquidation. http://www.nytimes.com/2007/10/14/business/14bank.html?_r=1&oref=slogin This is one article talking about it. It has got the big boys involved. The CEO's of the major banks and government officials. As this article points out this has all kinds of similarities to LTCM in 98. Despite the market's continual push higher things are not as they seem under the surface. These banks are still having major problems with liquidity rolling over the obligations of these SIVs. I really have no idea how to handicap how this plays out and any potential impact it has on the stock market.

The other thing going on which has not gotten much press coverage and what I think is related to this SIV push and has the banks sweating is the ABX is starting to plunge again. The first plunge of course was in February. It has been moving down ever since with another plunge in July and looks like another one now. This is on the fringe of finance as the ABX track credit default swaps on subprime mortgage facilities. My former firm made tons of money shorting this stuff betting it would be more expensive to buy insurance. In Jan the ABX tracking BBB subprime was above 90. This is confusing also for me but if I am looking at everything right it is now below 35. This is the first free website that I have seen that tracks this stuff http://www.markit.com/information/products/abx.html

This has to be fairly concerning for many people involved especially if the underlying securities start moving down again.

The market can act like Goldilocks is sitting on a beach but she may be running for her life from three very ravenous bears. The continued hope has been that she will find shelter and safety in the international house which currently many people believe to be bear proof.