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ARMOUR Residential REIT, Inc. Message Board

  • s_klumps s_klumps Aug 17, 2011 11:11 PM Flag

    Hedging Losses & Texas CDS Spreads !

     

    Man o Man, Credit Default Swaps used to hedge for potential interest rate rise, and then we have a meltdown in the stock markets, 2,000 point drop and liquidity issues and selling start and low and behold, GAAP earnings are LOSS OF 7.3 MILLION, EVEN THOUGH THEY HAD 18.8 MIL. in quarter non-GAAP earnings. That is a $25 million swing in the second quarter, ended June 30. The volatility in August is light-years higher than the second quarter and everyone was hedging for higher interest rates on T-bills. GUESS WHAT. T-bill rates dropped to new lows, as prices soar. The Texas CDS spread bites. Hedging losses will soar.

    Some background info. by Fitch rating service checking into the CDS spreads and hedging risks. A MUST READ, with the volatility we are having and everyone was expecting T-bill rates to rise. NOW WHAT, THEY ARE GOING DOWN TO NEW LOWS, LAYOFFS ARE RISING, GAS PRICES ARE COMING DOWN, THE ECONOMY IS SLOWING. Oh know, I mean every financial institution was betting on HIGHER INTEREST RATES, in second half of 2011 and all of 2012. Except a few, who kept their cards close to their vest. Warren Buffet bet huge the rates would go down, he didn't publicize it because all the banks and REIT's were hedging the other way.


    http://www.scribd.com/doc/39206555/Fitch-Special-Report-CDS-Spreads-and-Default-Risk-Interpreting-the-Signals-October-2010

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