Far out!

Interesting news from the murky world of subprime. Evidently, with great danger comes great opportunity:

NEW YORK -(Dow Jones)- Accredited Home Lenders Inc. (LEND) said Tuesday that it obtained a $200 million loan from hedge fund Farallon Capital Management LLC, bolstering hopes that the subprime mortgage lender would survive a funding crisis that has been pinching the entire sector.
The San Diego lender said the proceeds can be used to fund mortgage loans, enhance its liquidity and for other corporate needs. The loan has a five-year term and an interest rate of 13% a year. Farallon, in San Francisco, will also get 3.3 million warrants - or options to buy shares - from Accredited, with an exercise price of $10 a share.

The warrants are actually 10 year options (no disclosure whether European or American) ...and are already in the money. This deal is pretty reminiscent of the deal that Warren Buffet struck with Salomon 15 years ago, and a pretty good indication that risk taking is far from dead.
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March 20, 2007 at 6:49 PM ×

MM

You're 'risk aversion event' is quickly turning into one better described as a 'complacency test', at least from this chair. Last week's s&p double bottom on the verge of being in the books, metals glory-bound, and on...

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Macro Man
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March 20, 2007 at 7:15 PM ×

Yes, it is rather confusing isn't it. Wave C has made a new low, satisfying the bare minimum weakness required, so one could argue that a fresh high would confirm a breakout onwards and upwards.

I do believe that caution remains warranted, however. We obviously have the Fed tomorrow, and the higher stocks are at 2.14 local time, the more potential there is for a decline in the event of an utterly unchanged (i.e., continued bias towards higher inflation) outcome.

That the rally has come on progressively lower volume is also a warning sign. That being said, even if Wave C is over, the pattern of the last few years would suggest another downdraft that fails to breach previous lows.

Of course, as you note, some other 'risky' assets are doing quite well, as my alpha portfolio drawdown will unfortunately attest.

I suspect long gamma is probably not a bad position to have at the moment, as we could see 1400 breached a number of times over the next few days...

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OldVet
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March 20, 2007 at 8:12 PM ×

Close at 1411, oh my goodness. BTW tax year in India ends 3/31. Given creepy moaning heard from Wall Street lately, I'd bet Bernanke throws them a bone on top of all that cash he's been splashing out lately. Too bad, I was going to get rich, but now. . .

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Anonymous
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March 21, 2007 at 7:59 AM ×

Bloomberg ran a story on 16 March - Newcastle Investment Corp bought 7,300 subprime mortgages worth $1.7bio. If you look hard enough you will see that Newcastle Investments Corp is infact a sub of Fortress..

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