are the credit markets better? seems like it. could it be that those who have all of those reams of credit defaults, the ones meant to profit from the imminent demise of the financial system, are right now feeling the sting.
gs acts like it's stopped selling most of its inventory in the last month. now turning positive? gs also probably covered much of its mortgage paper short bets. that will also be a huge positive. could this be the time when things that have been horrible go well?
and no hidden shorts. hedge funds bet against the system using credit default swaps, bets that the bonds of institutions would spread in value from treasuries or go belly-up. the hedge funds levered up in this trade; the price of these swaps is plummeting - those who are stuck in these positions are going to go belly-up. and the banks that are technically on the other side will zoom.
the biggest worry two months ago was the $4 trillion credit default market and whether there was counterparty risk. there is, but this time it's on the hedge funds' side. this is something to watch as the big macro funds that made these bets, one by one, try to get out of these stupid pieces of paper that they are rapidly proving so wrong on.
that, in the end, not just inventory and a better housing market, may be why this bank stock rally is so for real.
long gs
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