• It's Coming...

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

The early open of trading in Crude oil futures coincides with an extraordinary net-trading session for ISDA jurisdiction OTC derivative contracts to allow major banks to trade out of their Lehman Brothers exposures amongst themselves conditional on a bankruptcy. This could be a simple coincidence driven by the simultaneous less-severe-than-feared impact of hurricane Ike on coastal refineries and offshore drilling platforms. It could, however, also be intended to allow listed market participants the liquidity to adjust their holdings in the wake of major banks selling into the OTC oil and gas markets as they scramble to cut exposures across the board.

On one hand this second scenario makes some sense: people don’t sell what they SHOULD during a crisis – they SELL WHAT THEY CAN. Unwinding exposures in the oil market could potentially allow banks that are long commodities to raise quick cash to offset other exposures.

At this point it remains nothing but idle speculation on my part. There appears to be unusual volume in the early trading session.

PS -the title of this post comes from the second sentence of the ISDA Lehman Effectiveness Protocol
http://www.isda.org/whatsnew/pdf/Conditional-Effectiveness-Agreement.pdf

Keith has obviously been negative on Lehman and Merrill for months now. Note that he remains short Goldman (GS) in the Hedgeye Portfolio. He thinks that if the stock breaks down to his immediate target price of $147.43, the $100/share line comes into play. We are fully aware that few agree with our positioning here – that’s why the short interest in GS remains shockingly low at 3.5% of the float. Complacency is not an investment process, however.

Andrew Barber
Director

(chart courtesy of StockCharts.com)