Copied from the comments on Calculated Risk:

blert writes:
It’s astonishing that the bankruptcy procedures for Lehman Brothers are not factored into your analysis.
Once Lehman entered Chapter 11 all over her liabilities are frozen and partitioned into buckets… or tranches… of creditor classes.
The legal spadework to determine just what the priorities are is not quick.
In the meantime, all of Lehman’s remaining paper assets mature or spin off cash. (The physical assets have already been sold, mostly. )
There is only one place the Bankruptcy Court will permit the proceeds to flow: Treasury Bills or their equivalent. As a practical matter, it’s going to be 100% T Bills.
Lehman’s T Bills position surges each and every day as its huge pile of short term paper matures.
No matter how much the Treasury pumps into the system the cash drains right back to Lehman Brothers ending up in their T Bill position.
It is the RELENTLESS purchase of T Bills by the bankruptcy administrator that is skewing the yield curve. Every purchase is a forced buy… interest rate be damned.
How much is involved? Lehman entered Chapter 11 with over 600 Billion dollars of assets… marked to market.
Their face value is much higher.
Since only a minority of mortgage debt has soured, which has already been factored into the asset valuations, one must imagine that by now Lehman Brothers has a staggering cash horde.
Such disbursements that the Court will permit ( legal fees and operating expenses) are trivial by comparison.
Tying up this much cash is staggeringly deflationary. This cash drain operates like a black hole sucking in liquidity system wide.
The Treasury needs to use TARP monies to directly buy out creditors holding the senior positions as soon as possible.
The Treasury can then wait for the court to pay off these claims in as much as their already is enough on account, in T Bills, to cover the senior positions.
This is one way to wrap up the bankruptcy and reduce the legal expenses of the creditors.
Such action would at last neutralize the deflating effect of the Lehman bankruptcy.
blert | 12.09.08 - 3:53 pm | #

I don’t know how accurate that is, but it makes more than a bit of sense.

Yeah, I read that too.  It makes mucho sense.

And, the acceptable collateral for CDSes is US t-bills also, so that may be a few hundred billion or ...

Scary, eh?

What happens when they cut loose with all those?

Interesting way of looking at valuations

“Market bottom by year-end”

Morekaos, how you feel about the bottom?  You still think we are at the bottom?  More uncertanty is building up as we speak…hell we might not even have a president come January.
I don’t know man…I think when my calls expire next week.  I might write at the money calls if we stay where we are at or slightly go higher.  Lately I was thinking to write slightly out of money, but I might even go as much as writing slightly in the money calls.  I think we retest the bottom sometime in Jan-Feb.  We’ll see…

My gosh, everything except t-bills are down overnight.

The auto bailout bill just died in Senate…..CNN reporting.

Trooper - 12 December 2008 05:20 AM

The auto bailout bill just died in Senate…..CNN reporting.

Well GM and Dodge/Chrystler are the ones that are hurting.  Ford has said they have enough money to get thru 2010 to 2011….  It still won’t be fun.  I wonder what the hold up was?

-bix

biscuitninja - 12 December 2008 05:26 AM

Trooper - 12 December 2008 05:20 AM

The auto bailout bill just died in Senate…..CNN reporting.

Well GM and Dodge/Chrystler are the ones that are hurting.  Ford has said they have enough money to get thru 2010 to 2011….  It still won’t be fun.  I wonder what the hold up was?

-bix

Unions, what else.

Wow, the 30-year bond is under 3% at 2.99% while the 10-year is under 2.50% at 2.49%.  We really are heading to a 10-year bond yield below 2%.

blackvault_cm - 12 December 2008 03:46 AM

Morekaos, how you feel about the bottom?  You still think we are at the bottom?  More uncertanty is building up as we speak…hell we might not even have a president come January.
I don’t know man…I think when my calls expire next week.  I might write at the money calls if we stay where we are at or slightly go higher.  Lately I was thinking to write slightly out of money, but I might even go as much as writing slightly in the money calls.  I think we retest the bottom sometime in Jan-Feb.  We’ll see…

Swing, swing, swing…I still think the 7450 will hold

Do ya’ll think the TARP will now go to the auto industry?

http://money.cnn.com/2008/12/11/news/companies/whitehouse_warning/index.htm?postversion=2008121123

Ack… be prepared for brutal day. Asian markets got whacked, and US futures look brutal. Why? Because of news, the news that the auto bailout failed in the senate. Oh… and Harry “The Giant Douche” Reid said that he dreads… just dreads looking at what happens on Wall St. tomorrow. Gee… thanks for the positive outlook there Harry. Here… I have some razorblades for you. Oh, let me help you with that, not across the arm but up and down, let me show you. F’ing moron.

And for fun, here is the Clapper version of the guberment.

awgee - 09 December 2008 09:37 PM

Maybe the word “bubble” is over used.

Maybe the best word(s) for this is “OH, S__T!”

Treasuries

I dunno, maybe the word “bubble” is being used appropriately here.

Treasury Bubble Talk Grows as U.S. Gets Free Money

Dec. 11 (Bloomberg)—The rally in Treasuries that pushed yields on bills below zero percent this week is adding to concerns that the $5.3 trillion market for government debt is a bubble waiting to burst.

Experts says oil to $10 a barrel.

Bottom’s here kids.

graphrix - 12 December 2008 10:13 AM

Ack… be prepared for brutal day. Asian markets got whacked, and US futures look brutal. Why? Because of news, the news that the auto bailout failed in the senate. Oh… and Harry “The Giant Douche” Reid said that he dreads… just dreads looking at what happens on Wall St. tomorrow. Gee… thanks for the positive outlook there Harry. Here… I have some razorblades for you. Oh, let me help you with that, not across the arm but up and down, let me show you. F’ing moron.

And for fun, here is the Clapper version of the guberment.

Not as bad as the futures predicted…No?

morekaos - 12 December 2008 09:47 PM

graphrix - 12 December 2008 10:13 AM

Ack… be prepared for brutal day. Asian markets got whacked, and US futures look brutal. Why? Because of news, the news that the auto bailout failed in the senate. Oh… and Harry “The Giant Douche” Reid said that he dreads… just dreads looking at what happens on Wall St. tomorrow. Gee… thanks for the positive outlook there Harry. Here… I have some razorblades for you. Oh, let me help you with that, not across the arm but up and down, let me show you. F’ing moron.

And for fun, here is the Clapper version of the guberment.

Not as bad as the futures predicted…No?

Depends when you open and closed your position, especially at the open they were right. But if you still had an open short position, then at the end of the day you would be mad at the futures. I usually don’t think futures mean much at that early of an hour, it was before Europe even opened, but with all the other markets getting whacked I thought they might have some substance. Mind you, this isn’t the first time I have posted what the futures were doing at that hour and then at the end of the day they have been totally wrong, it probably won’t be the last time I post the futures and have them be wrong. But, that is part of the fun of it

just funnin with ya

upperlowerclass - 04 December 2008 05:29 PM

morekaos - 04 December 2008 05:06 PM

There, I am putting it out there with a GENERAL market call.  Fire away!!!

DOW at time of call(11:06 ET): 8608

DOW 6min later:              8560

Looks like you already lost… sry

Dow 8629,,,,so far Upper I am even

Call me crazy but I am thinking of going short the gov bonds. PST and TBT.

morekaos - 17 December 2008 07:05 PM

Call me crazy but I am thinking of going short the gov bonds. PST and TBT.

You’re crazy.

.

blackvault_cm - 17 December 2008 07:12 PM

morekaos - 17 December 2008 07:05 PM

Call me crazy but I am thinking of going short the gov bonds. PST and TBT.

You’re crazy.

I like the idea of shorting treasuries.  I do not like ultrashort ETFs.
I think bv and I think in different time frames.

awgee - 17 December 2008 07:47 PM

blackvault_cm - 17 December 2008 07:12 PM

morekaos - 17 December 2008 07:05 PM

Call me crazy but I am thinking of going short the gov bonds. PST and TBT.

You’re crazy.

I like the idea of shorting treasuries.  I do not like ultrashort ETFs.
I think bv and I think in different time frames.

I think shorting treasuries is a great thing and I hate Ultrashort ETFs or ETFs in general along with mutual funds etc. 
When to short treasuries is the real question.  If you can’t answer that you shouldn’t do it.  Most looked at oil of $100 a barrel and said this is overpriced and shorted.  Guess what…most of their investments vanished through margin calls or stop losses as oil shot to $140+.  Very few shorted at $100 and lived to tell a great story.  I knew this one guy who shorted yahoo when it was several hundred dollars a share.  He was certain that the market will crash, and it did.  But after spending over 70K on margin calls, he couldn’t keep up anymore and had to fold as Yahoo kept shooting up.  Not long after, Yahoo was trading at $50 bucks or so…today around $10.  He would have been a millionare…easy.  But his timing was off. 

Then not sure how you short treasuries, so it could be a different investment vehicle with different capital requirements for shorting.  Not my ball game, but it makes sense. 

So just throwing caution to the wind.  When shorting, timing has to be pretty perfect unless the percentage you are shorting is very small to your overall capital.

blackvault_cm - 17 December 2008 08:00 PM

awgee - 17 December 2008 07:47 PM

blackvault_cm - 17 December 2008 07:12 PM

morekaos - 17 December 2008 07:05 PM

Call me crazy but I am thinking of going short the gov bonds. PST and TBT.

You’re crazy.

I like the idea of shorting treasuries.  I do not like ultrashort ETFs.
I think bv and I think in different time frames.

I think shorting treasuries is a great thing and I hate Ultrashort ETFs or ETFs in general along with mutual funds etc. 
When to short treasuries is the real question.  If you can’t answer that you shouldn’t do it.  Most looked at oil of $100 a barrel and said this is overpriced and shorted.  Guess what…most of their investments vanished through margin calls or stop losses as oil shot to $140+.  Very few shorted at $100 and lived to tell a great story.  I knew this one guy who shorted yahoo when it was several hundred dollars a share.  He was certain that the market will crash, and it did.  But after spending over 70K on margin calls, he couldn’t keep up anymore and had to fold as Yahoo kept shooting up.  Not long after, Yahoo was trading at $50 bucks or so…today around $10.  He would have been a millionare…easy.  But his timing was off. 

Then not sure how you short treasuries, so it could be a different investment vehicle with different capital requirements for shorting.  Not my ball game, but it makes sense. 

So just throwing caution to the wind.  When shorting, timing has to be pretty perfect unless the percentage you are shorting is very small to your overall capital.

I would divide my total short position into four parts.  I would short now ... wait ... see if the price goes up smore ... if it does, short smore ... repeat until position is on.  If price goes down, be happy with whatever position entered, even if only the first entry, and have fun.  Same with oil.  Who needs to enter at the bottom?  Who can?
We did not sell our home at the very top.  And we will not wait until the absolute bottom before pulling the trig on a home.  Who can know the bottom until it has passed?
Have to know when reasons for entering trade have changed in case you need to exit, and have to know reasons for entering trade so that if the price goes against you, you are not chased out just by price.

skek - 17 December 2008 07:33 PM

So I wanted to kick around a few half-baked ideas:

Continuing on morekaos’ point, the yield on the 10 year is 2.13% and the 30 year is 2.65%.  Those are absurd yields over the long term.  Doesn’t it seem like shorting Treasuries is a viable play, at least looking out 18 months or longer?  The question is, how to do it in a manner that can ride out any near term declines or stagnation.  I am mindful of acpme’s point about the inefficiencies of ultra short ETFs.  I suspect PST and TBT suffer from the same risk.

...

When’s the last time there has been so much uncertainty on so many fronts?

I’m not nearly as sophisticated an investor as some/most on this thread.  How do you folks analyze these issues?

I have the same questions and even fewer answers. blackvault recommended stocks in another thread, and awgee recommended gold, as places to invest. My problem with corporate bonds is that it is almost a certainty that major corps are going to enter Ch. 11 but at this point it’s not possible to tell which ones. And as you and others have pointed out, Treasuries are just waiting to be sold off in massive quantities. It’s nice to know I’m not the only one feeling confused.