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Ahhh, The Smell Of Credit Cross-Defaults In The Morning…

Monday, July 14, 2014 12:11

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(Before It's News)

TND Guest Contributor: Dave Kranzler |

…it smells like, derivatives napalm bombs (with apologies to Robert Duvall and Francis Ford Coppola).

Banco Espirito Santo is in some deep kimchi. And so our the investors in the bonds issued by the banks. And so are the investors who are unwittingly exposed to these bonds and the derivatives tied to these bonds. Let’s not forget there’s also OTC credit default swap contracts tied to the bank’s senior secured credit: Nomura Threatens Cross-Defaults.

We probably won’t find out who is left standing naked when this particular tide flows out because I am betting that the ECB/IMF/US comes to the rescue for the specific purpose of preventing a financial napalm bomb daisy-chain from starting. But at some point smart investors will catch on (we hope for their sake) and unload anything with any possible hint of derivatives exposure…

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About Dave Kranzler

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics. Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.