It Has Started: Wall Street Is Preparing For A Doomsday Scenario

TBI ^ | 7-21-2011 | ya Wachtel

[blam]

It Has Started: Wall Street Is Preparing For A Doomsday Scenario

Katya Wachtel
Jul. 21, 2011, 9:15 AM

If you're simply looking at their public statements, Wall Streeters seem to be alarmed about the debt crisis, but don't appear to be sliding into panic mode.

In fact, they're just really good actors.

Across the financial sector, many are preparing for a debt doomsday scenario, in which the U.S does in fact default, the New York Times reports.

Firms are "taking steps to reduce the risk of holding Treasury bonds or angling for ways to make profits from any possible upheaval."

It's clear hedge funds have changed gears and many are in heavy de-risking mode, with billion dollar firms like Moore Capital and Soros Fund Management moving their flagships into majority cash.

This was a tactic implemented by a ton of hedge funds when the financial world imploded in 2008 -- so it's a very big statement on how bad they think things may get.

While "hedge funds are stockpiling cash so they can buy up US debt if other investors flee," banks are looking hard at their treasury holdings and mutual funds "are working on presentations to persuade their boards that they can hold the bonds even if the government debt is downgraded," the NYT reported.

And certainly,

One of the worst possibilities that people in the financial industry... have been discussing is that scores of insurance companies, pension funds and mutual funds might be forced to dump their Treasury holdings.

But the problem with trying to prepare for default in a meaningful and specific way is best summed up by the CFO of Wells Fargo (which is stockpiling cash just in the case): "Because nobody knows what is going to happen, nobody knows how to prepare."

[kittymyrib]

On the bright side, the NYT and Goldman Sachs may go broke. Wishful thinking, I know....

[blam]

Fed Preparing For US Default Says Plosser

[ZX12R]

If it’s inevitable, just bring it on and get it over with.

[Pearls Before Swine]

Today, the market is preparing for doom with a pretty good opening hour rally (Dow up 210, S&P up almost 16). Flight to stocks?

[mick]

Women and Minorities hurt most.

[agere_contra]

If treasuries were sold off for pennies on the dollar due to a rating change (which I doubt will happen as the rating agencies are brought-and-paid-for poodles of the Treasury) then the dollar would massively devalue.

And 70% of USD are held as foreign assets.

So it’s not a good idea to ‘de-risk’ by holding fiat of any kind - including the CHF. It’s all colored paper.

Sensible funds would buy hard assets and precious metals.

[BobinIL]

And the dow is getting very close to 13,000??? Go figure.

It must be a suckers market? But then again, that is what I thought back when the dow was at 10,000.

[Thane_Banquo]

Any "default" would likely only be a technical default, namely a delay in the timeliness of payments (a few months at most), but not an actual loss in payments themselves. In a rational market, this would mean Treasuries would only lose at most a few percentage points. But since there is no such thing as a rational market, there would indeed be a huge sell-off. Combined with the over-leveraged Manhattan banking system, it might be unpleasant, but I doubt it would be worse than 2008.

Hedge funds, proprietary trading firms, and other nimble players would swoop in to buy the overly-cheap Treasuries. These players' risk management practices are far better than those of the large banks, which admittedly isn't saying much at all.

Mutual funds would sell off into the down market, destroying client capital and once again showing us what an utter scam the mutual fund industry is.

Upside: US government wouldn't be able to do any bailouts.

[Perdogg]

up 130 points this morning.

[blam]

Here's What "Selective Default" Actually Means

This morning, reports emerged from Europe that "selective default" was on the table for Greece.

A sovereign nation enters "selective default" when it elects to delay repayment of some of its financial obligations while fully honoring others.

[Logical me]

This crap shoot called the market is just that. It is just kids playing roulette and when crap hits the fan the market will crash with America.

[blam]

+136 as I post.

[LyinLibs]

Any default would be a huge “win” for Omoslem.

Communist moslems trying to sink the USA used to be called “traitors.”

[Buckeye McFrog]

We are not going to default. This is just more pimping for their boy Obama. It will continue until or unless he determines there are more votes to be had by throwing them under the bus than by taking their money.

[Red Badger]

DJI 12,728.95 Up +157.04 +1.25% Really?.............

[blam]

Phew! July Philly Fed BEATS Expectations At 3.2

[jpsb]

"Flight to stocks?

Makes sense to me, stocks are a hard asset. A dollar down grade would prompt a dollar devaluation so hard assets would be a good thing to have to ride out the storm. Not seeing much movement in gold, I would expect gold to be up too. Maybe the smart people think 1600 is too much for gold and stocks are a better deal.

[dagogo redux]

“Because nobody knows what is going to happen, nobody knows how to prepare.”

Food, water, ammo, fuel, batteries, TP, bag silver, etc. These boys need to check out prepper sites.

Cash and bonds? Rolled up and dipped into paraffin for use as fire starters, maybe. Weren’t these guys ever in the Scouts?

[blueunicorn6]

They have to keep the Dow up or they’ll lose all their government retiree voters (and eventual government retiree voters).