The Derivative Project

Congress, Here is Memorial Day Required Reading and a Heads Up on Your Role in the Next Block Buster CDS Trade

Congress, Here is Memorial Day Required Reading and a Heads Up on Your Role in the Next Block Buster CDS Trade

A week ago, House Leader Boehner begin his positioning for a renewed fight over deficits pushing the U.S. into a technical default on its debt, a scenario that the International Swaps Dealer Association (ISDA) has said it would pay out on credit default swaps if the U.S. is in technical default, if even for a day.

“Mr. Boehner and the Debt” from May 15, 2012 NY Times.

As you can see, from Bloomberg’s graph, linked to above, U.S. debt credit default spreads peaked last summer, right around the time the Tea Party and Mr. Boehner moved to get S & P to downgrade U.S. debt, which had the ironic result of sending hoards of investors into U.S. Treasuries.  These credit default spreads on U.S. Debt have been inching up, beginning on the day House Speaker Boehner renewed his efforts (late April – early May 2012) on a move to push the U.S. debt into technical default.

Wall Street is ratcheting up Mr. Boehner’s rhetoric so they have something more to speculate on now that J. P. Morgan’s CDX.NA.IG.9 trade has peaked.  Time to move on to the next trade.  Here is the index to watch as House Speaker Boehner speaks:

United States of America


This index should peak just after the 4th of July, once Wall Street returns from the Hamptons’ holiday and have time to focus.  What is the position you want to take?  Write or sell credit default swap positions on CT786896?  Take in your income by selling CDS contracts on CT787896 U.S. debt and once the world realizes the U.S. will not default, unwind your position, without having to payout on that “insurance.”

Just be careful on your timing.  Don’t sell the contracts to soon. Wait for the House Republicans’ peak rhetoric on U.S. deficits to maximize the income you take in when you sell the credit default swaps.  You can then quietly cover your position right before the 2012 election, as late October 2011 was also the best time once everyone realized it was stupid to bet on the demise of U.S. debt default in 2011.  Look at the October 2011 CDS spreads on U.S. debt from Bloomberg’s graph above. Remember, sell high and buy back low and you will not have any issues betting on the demise of U.S. defaulting on its debt.  It is fun and it is easy and it will not cost you anything, like farmers trying to hedge their future crop income.

Remember, Congress has taken steps to ensure no collateral will have to be put up on these trades in over-the-counter markets, so you do not have to worry about using capital for your speculative trades, not like the regulated futures markets, where farmers have to mark to market daily.  You have a special advantage over America’s farmers.  Take advantage of this gift, to speculate without the collateral nonsense, in the event that trade moves against you.

Also, make sure you put on a $7 billion swaps trade, that is below the amount you have to disclose under the new Dodd Frank rules.  Or for that matter, do a $16 billion trade because Dodd Frank probably will not be in force in July or next October, before you unwind your trade, due to Wall Street’s successful lobbying efforts of Congress.

Congress, House Speaker Boehner, now that you know you are a playing a star role in this summer’s block buster trade, here is your Memorial Day reading list. 

Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America  by Charles H. Ferguson

“The Derivative Economy: Can High Finance Get Any Lower” by Thomas Magstadt

Gentlemen, place your bets.