Lehman CDS: It Won't Be Over Today
Oct 10 2008 9:45AM EDT
Vipal Monga today mentions something I was unaware of: the Lehman CDS auction today is not the end of the story when it comes to settling those trades. All it does is set the price: settlement doesn't happen until October 21, the week after next. In other words, to the degree that there's nervousness over counterparties being unable to meet their CDS obligations, it's going to remain through not only this weekend but also the weekend afterwards.
In fact, the actual settlement price is one of the few things we already know, more or less: it's going to come in somewhere between 10 cents and 20 cents on the dollar. The huge list of things we don't know, by contrast, is going to remain unknown until after October 21.
http://www.portfolio.com/views/blogs/market-movers/2008/10/10/lehman-cds-it-wont-be-over-today
Looks like today is simply the auction. The forced selling required to liquidate assets for the CDS settlement will not happen until the week after next. What does this mean for the stock market today? I really don't know.
The stock market is very oversold, but if there is forced liquidation or panic selling it could continue to go lower. The credit derivative event will not become most serious until we begin the final approach to the settlement date of October 21 2008. That is when Pac Man strikes.
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