[DcifrThs]

Another note i've seen confirmed in the past day to keep a lookout for, is that it seems there are massive inefficiencies in the (relatively very new) markets for insurance against default (CDS) markets.

one main reason is likely because banks are basically the sellers of this product. whenever a bid comes in to purchase insurance, they up the offer price more than one would think reasonable.

during this 24 hr period of excrutiatingly high volatility in this market, b-a spreads were as wide as 5 times normal trading periods (15bps vs. 2-3bps).

to paraphrase the FT:

did corporate defaults really go up by a third in the past month? did they fall back down again in a day? i'd have to guess not, but according to the CDS markets, it appears that they have.

of course, markets can stray wildly from fundamental values, especially during times of strain or emotional trading. and especially for new products that haven't been through even 1 full cycle yet at the level of market participation we have now.

i'd really look to these markets right now for extremely profitable trading for the reasons above. it will certainly be risky as a years worth of volatility in 24hrs is quite a spasm, but those inefficiencies clearly offer highly valuable expected returns.

just some additional thoughts on this situation.

Barron