Well it is official for anyone who ever had any doubt – the biggest distressed cycle in history is underway.
Remember the ABX charts I first posted in June? Take a look at them now. From high to low, these are BBB, A, AA and AAA (yes, TRIPLE A) Asset-backed security indices.
This is really insane and so much worse than the worst part of the summer it is scary:
What these mean in English is that even previously A rated securities are almost worthless. This surely has to be a technical factor – there is no “bid” for the massive glut of CDO-related junk that is being unloaded, and the SIV-fake bid apparatus is apparently too little too late.
Next steps – increasing defaults in completely “unrelated” asset classes like credit-card receivables, auto-loan receivables, corporate bonds and others. Things will unfortunately get much uglier before this is over.
My biggest hope is that it can be spread over a few years rather than a snowball at once. I can’t believe it but I am actually a bit supportive of the interventionist tendencies at this point.
Unfortunately, I am not sure even a fake bid will convince anyone that the house of cards is still standing.