I think that title sums it up. Companies are making decent profits and providing a reason to be long equities. However the sovereign debt problem is like the subprime asset backed securities I suspect. That is it is unfolding very slowly, but it's clear there are multi billion losses still being hidden, and they're a ticking time bomb?! So if you can figure out which insurance companies or banks are hiding them and find some out of the money options valid thru 2012, I'd say you're going to make a bundle. Keep me posted eh?! :P
I mean look at the CDS market. Greece's CDS is trading close to 900bps - and Spain at under 300bps. If spain is really as bad as everyone is saying, it should be 500bps. Too bad there are no warrants or options available to me for speculating in that market!! :( Of course I'd buy CDS on the USA. They're at under 40bps. Now that sounds like fantastic risk reward. If the US gets downgraded one day in 2011/2012 that should move to something like the spanisch levels :D I bet you banks aren't allowing retail speculation on that for patriotic/political reasons or afraid that if they need a bailout again, they won't be served equally. Like Lehman didn't get equal treatment to AIG.
Very good read in that context:
It's a great book - apart from the prologue and the last chapter, where he goes into too much detail about who he knew back in the day and how Salomon has to do with everything. But the huge chunk inbetween is really exciting.
Very good accounts of what happened to hedge fund managers/prop traders at investment banks who had done their homework during the 2006-2008 subrime drama.
Edit: Changed first and second paragraph slightly. Missing logic and spelling mistakes. I tend to just have thoughts and write them as they're developing. Doesn't make for good second reading... :S
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