Countrywide shares gained
more than 32% today: that must mean the market thinks the subprime crisis
is over, right? Not at all. For one thing, today’s close of $17.30 a share puts
the company’s share price at pretty much exactly where it was all the way back
on the 17th of October, just over a week ago. The six-month
chart still looks really, really ugly.
And while there was lots of attention on Countrywide’s stock price, blogger
Calculated Risk was still paying attention to the subprime loan market –
you remember subprime loans, they’re what triggered this whole mess to begin
with. And it turns out that those notorious ABX subprime indices have
never looked worse, with AAA-rated paper being particularly hard-hit.
Both Countrywide’s stock and the price of credit protection on AAA-rated mortgage-backed
securities are forward-looking securities, of course. But the stock market is
naturally a far more volatile place, where intraday movements often don’t mean
very much. The bond and CDS markets, by contrast, are generally much less volatile
– indeed, that’s the reason why so many investors felt so comfortable
playing in those markets with a lot of leverage. So large moves on the fixed-income
side of things are likely to be more meaningful than a one-day jump from a very
low level in just one stock.
Or, to put it another way, we might have passed the "chaos" part
of the credit crisis, when no one had a clue what was going on and very short-term
interest rates, especially, started behaving crazily. But some very big bond-market
losses might yet still await us – and those, as we’ve seen, can have nasty