STOCK TAKE:GREEK EXPOSURE: An eventual Greek default may have terrible consequences, but it will not be because of credit default swaps (CDS) written against the country.
CDS, which provide investors with a form of insurance against default, tend to be mythologised as weapons of mass destruction. A report last week suggested US banks were facing losses of $32.7 billion on Greek CDS, with global exposure of $79 billion.
Gross exposure is indeed $79 billion; net, it’s just $5 billion. That’s a 28 per cent drop on last year. The value of outstanding Greek CDS is only the 21st biggest in the world, behind Italy, France, Spain and a host of US banks.
The Lehman Brothers collapse in 2008 catalysed breathless speculation of a $400 billion CDS unwind. It turned out to be a non-event.
Greece is no different. A CDS payout would simply ensure (relatively minor) losses for some institutions and gains for others.
***
APPLE GROWTH:While the SP 500 has enjoyed a textbook bounce off its 200-day moving average (DMA), Apple fell hard after closing below its 200-DMA for the first time in 551 days. Might this indicate if its decade-long bull market may be ending? No.
In 2006, after a 769-day run above its long-term average, Apple succumbed to selling pressure only to resume its upward climb shortly after. The stock collapsed in late 2008 but record highs again followed.
However, investors now believe that the law of large numbers will ensure lower future growth.
The second most valuable company in the world – its market capitalisation equals Microsoft and Intel combined – Apple now trades at a forward price-earnings valuation of just 11. That’s a large discount to the SP 500 and over 40 per cent below its own five-year average. A massive market cap, low valuation multiple and potential for large dividend payments means Apple, long the quintessential growth stock, may become the preserve of cautious value investors.
***
DEPRESSED STOCKS:Japan's central bank is reportedly propping up stocks by buying the Topix if the index ends a morning session 1 per cent lower than the previous day's close. Nikkei.com reports that the Bank of Japan has been doing so since December, and analysts suggest that this is providing psychological support to stocks. According to Nikkei, the aforementioned declines were followed by afternoon rebounds on 44 per cent of days when the BOJ jumped in, compared to 38 per cent when it didn't buy.
Since April, when the 1 per cent rule became well known, those figures jumped to 67 per cent and 41 per cent.
The programme expires in June 2012 and one-third of its 900 billion yen fund is spent. Eventually, Japanese stocks will have to stand on their own feet.
