The February crash happened because of subprime MBS panic.

The July-August crash happened because of subprime MBS panic and LBO secondary debt market panic.

Subprime mortgage market is gone. LBO market is gone. So the market is recovering. Next, there are several problems in the pipeline that will prompt the next sell-off, whenever it happens:

  • Commercial papers market
  • General, non subprime mortgage papers market including jumbo loans and neg-arm loans made to the people with good credit
  • Commercial real estate debt market
  • Hedge fund redemptions

I don’t know which one will hit us the most, here I want to give more details about the commercial paper market.

Here is a page tracking commercial paper market that was very boring for several years and now finally came into move. This is discount rate spread:

a2p2 spread

As you can see the market is charging a lot more for a very slight risk increase. No wonder that the outstanding paper is in decline:

outstanding commercial paper

The pipeline of the commercial papers that are expiring is in hundreds of billions, so the capital-intensive businesses will take a hit on bottom line very soon