Royal Bank chief credit strategist Bob Janjuah wrote in a note that Level 3 loses reporting is just the beginning.
`This credit crisis, when all is out, will see $250 billion to $500 billion of losses,''
That's right, upto $500 billion of Level 3. Then there are Level 2 assets. Level 2 assets are just as bad.
Level 3 assets are based on "unobservable" inputs reflecting companies "own assumptions". Yes, just make up a price. Seems like we have many Enrons on our hand. Level 2 is mark-to- model, an estimate based on observable inputs and used when there aren't any quoted prices available.
How bad are those numbers?
Here Are Level 3 Numbers relative to Equity. (Thanks Bernard from rgemonitor blog for the numbers).
Here are Level 2 + Level 3 Numbers.
2 comments:
OK, so if we want to profit from this -- short Morgan Stanley, Goldman Sachs, Citigroup? Stick with gold?
The best time to do this was just about a week ago. Gold is already very high but probably will keep going higher.
It should get worse for the Financials in January. There is going to be a FASB rule change and it's going to make it tougher for them to hide the Level 3 assets.
I like SRS and SDD. SRS Is a double bet against Real Estate and SDD is a double bet against Russell 600. But these stocks are very volatile so do your home work.
The only thing you have to be careful about shorting the financials is a government bailout.
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