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The CDS Silver Lining or Contracting Spreads Coming To A Junk Bond Near You Soon

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October 09, 2008 – Comments (0) | RELATED TICKERS: DDM , DBE , RJA

Yeah, you know I'm not going to be too wordy or very explainy here, and I'm going out on a limb so I'll brief to maintain plausible deniability.  So here goes the quick and scary leap into nowhere land. 

The CDS crisis isn't as bad as the world is making it out to be!

There are a few good articles around including one here on fool regarding Credit Default Swaps destroying the corporate bond market right now, read a few.  Then drink.  Then breath.  Then drink again, it'll help you think clearer. 

All of these banks not lending has as much to do with irrational fear as it does with capital and actual counter party risk.  Bankers are covering their collective asses all at the same time.  We as a population are being made to pay for that CYAfest.  The simple fact is that the offset in the CDS market isn't anywhere near bad enough to be causing these problems in reality.  However, they are bad enough to cause these problems in psychologyland- the place between the ears that seeks to keep one's job in times of uncertainty. 

Pretty soon the govts will get a handle on all this.  They might not pay the right place or get the right terms, but they will unstick the credit markets all the same and over a few quarters bond prices will fix themselves and the spread to LIBOR will contract.  (The 'fix" will almost cause inflation by the end of next year to reheat btw.)

Mr. Buffett is starting to bet on what I'm saying and so should you between now and the end of the year.

I added some closed end funds to my fool caps portfolio as a way of dipping a toe in.  Soon I'll be adding some equities and covering my shorts.  Get your wish list in order.  It'll be time to start averaging back in very, very soon.

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