While You Were Working - January 29

The default that is rattling the CDS market

For the fun of it, I am going to leave the names of the firms out of this story, just to see if that changes the way you view the events unfolding in a case that stands to send a shiver down the spine of CDS investors everywhere.

Company A is in debt up to its eyeballs and struggling to stay afloat. Along comes Company B offering to make an investment in Company A. A key condition of the investment is that Company A must default on some of the debt in which it is drowning. Not all the debt, but just one small sliver.

If you are in charge of Company A, do you do the deal? While any default brings reputational risk for your company, you need the cash from Company B to stay in business. You might even have a fiduciary duty to do the deal. As a bonus, your workers get to keep their jobs and you get to keep your job.

Do you do the deal?

Company A did the deal. And today a judge refused to grant an injunction to stop it.

CDS investors aren’t quite sure what this might mean for the future of the market. Are any of the companies involved gaming the system? Maybe, but isn’t a big chunk of the CDS market based on game theory?

US regulators ding European banks … again

The CFTC is set to announce fines for Deutsche Bank, UBS and HSBC for spoofing. So I guess this mean Navinder Sarao and Michael Corsia aren’t the only people who have ever spoofed.

It also seems like the continuation of a trend whereby US regulators nail foreign banks with a rather disproportionate amount or number of fines. I mean, is the CFTC really contending that no one at any US firm has spoofed? Or maybe this is the CFTC’s way of announcing that US banks are simply better at covering their tracks.

Apple bites the market

The market dipped today on news that Apple is experiencing less than fruitful demand for its iPhone X. There isn't anything wrong with the iPhone X. It is just that Apple seems to be losing sight of the principles of planned obsolescence. When you make an expensive product that consumers love, it is hard to convince them to buy another one a year or so later ... especially when their old one if working just fine.

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