ABX 'AAA' Index Gets Bids
A: A noticeable uptick in the ABX 'AAA' index yesterday, although lower rated indices held at their lows. Also, it seems the financial stocks are starting to react favorably to negative news (HSBC, BAC, & BSC), a good sign. This doesn't mean the total write-downs are over or that the credit crunch is over! It simply means confidence is trickling back into the sector, and that's worth noting. All that is needed to destroy that is another negative surprise or a new phase of the credit crunch cycle unveiling itself.
First, the ABX 'AAA" move yesterday. While its not anything to cause major celebration, it is a good sign to see some bids coming in. You can see on the chart to the right that there was a nice little rebound after the steep selloff over the past week or so. After hearing news of Blackstone & Oaktree rallying up funds to start nibbling on distressed assets, I've been watching the ABX indices for any bids to come. Hopefully we will see a more pronounced rebound in all of these indices which will signal renewed confidence in the distressed secondary mortgage markets.
OakTree Capital Raises $10Bln For Fire Sales (via Reuters)
Investment firm Oaktree Capital Management L.P. is armed with over $10 billion to pick up assets during fire sales as the credit crisis continues to roil financial markets, said chairman Howard Marks on Tuesday. "An enormous part of what lies ahead depends on confidence ... I think it unwise to take actions today on the assumption the worst is over." With three to five years of aggressive investing behind us, it's unrealistic to expect the last four months to have unwound all of that, he said.On a side note, here is the credit news out since yesterday:This year Oaktree has raised two funds that could invest in leveraged buyout debt that has been marked down because of the credit crisis. One is Oaktree's $3.5 billion Opportunities Fund VII which is expected to pick up a chunk of LBO debt and the other the $4 billion Oaktree Loan Fund which is primarily for the purpose of buying bridge loans related to LBOs.
...yet the market shrugged off the negative credit news and focused on the near term future and what Bear Stearns said about the worst being over. Personally, I don't buy it and I worry there will be a new phase of the credit cycle to reveal itself as ratings downgrades continue. But, the market has its own way of interpreting things, and I'm not going to argue a positive reaction. Its a sign of confidence trickling in a bit as these write downs are now embedded in the mindset of investors. I question how many more it will take to change that sentiment? For now, just expect more write downs and losses to be reported, and more ratings downgrades from Fitch & Moodys.
As Howard Marks of Oaktree Capital said, "With three to five years of aggressive investing behind us, it's unrealistic to expect the last four months to have unwound all of that!"
I agree.
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