An updated chart from Bespoke Invest should provide us a better perspective of the actual state of the supposed concerns of "debt default risk" as the cause of the market's current turmoil.
According to Bespoke Invest, ``Portugal has seen the biggest spike in default risk this year with a gain of 145.5%. France ranks second at 87.7%, followed by Iceland, Germany, and Australia. Surprisingly, CDS for US debt has spiked 49.4%, which is more than both Dubai and Greece. (Why they even have CDS for the US and other large developed nations is a different story, and we're just highlighting where things stand.) While France, Germany, Australia, and the US have all seen pretty big spikes in default risk this year, they still have the lowest default risk of all the countries highlighted. Egypt, Lebanon, and Venezuela are the only countries that have seen default risk decline so far in 2010."
One thing to keep in mind is that reading market indicators, as the table above, can be reference-point sensitive.
As pointed out by Bespoke, even as Germany, US, France and Australia have topped the lists in terms of credit concerns (based on a year-to-date basis), as developed economies, their nominal CDS prices remain way below those of emerging markets.
So a spike in developed economy CDS could be interpreted as a nonevent.
Yet like Iceland and Greece, which used to have a low risk developed economy rating (see 2008 as reference), soaring CDS have placed them above many (high risk) emerging markets. So it would be a mistake to read past performances as indicative of future outcomes.
In short, the picture changes depending on the reference points used to justify a scenario.
Here is another example: Based on 2008 as the benchmark, Venezuela, this year's top performer, despite the incredibly high priced CDS, appears to be one of the least affected by present credit concerns behind Lebanon, Indonesia, Kazakhstan, Columbia, Philippines, Turkey and Brazil.
I haven't had time to check, but my assumption is that most of the stock market indices mentioned above suffered as much losses as those whose credit risks have surged.
In other words, dissonant signals from this week's market meltdown do not suggest that this is mostly about "debt default" concerns. The contagion doesn't justify the same impact on least affected countries.
And it would similarly be too simplistic to suggest the following causal impact: higher debt default risk=deleveraging=commodity meltdown=emerging stocks freefall. This redounds to available bias and to the post hoc ergo propter hoc fallacy or as per wikipedia.org-"after this, therefore because (on account) of this".
Beyond the surface, we read that it is likely the squall that hit financial markets could instead be signs of affliction from a liquidity addiction based "withdrawal syndrome".
According to Bespoke Invest, ``Portugal has seen the biggest spike in default risk this year with a gain of 145.5%. France ranks second at 87.7%, followed by Iceland, Germany, and Australia. Surprisingly, CDS for US debt has spiked 49.4%, which is more than both Dubai and Greece. (Why they even have CDS for the US and other large developed nations is a different story, and we're just highlighting where things stand.) While France, Germany, Australia, and the US have all seen pretty big spikes in default risk this year, they still have the lowest default risk of all the countries highlighted. Egypt, Lebanon, and Venezuela are the only countries that have seen default risk decline so far in 2010."One thing to keep in mind is that reading market indicators, as the table above, can be reference-point sensitive.
As pointed out by Bespoke, even as Germany, US, France and Australia have topped the lists in terms of credit concerns (based on a year-to-date basis), as developed economies, their nominal CDS prices remain way below those of emerging markets.
So a spike in developed economy CDS could be interpreted as a nonevent.
Yet like Iceland and Greece, which used to have a low risk developed economy rating (see 2008 as reference), soaring CDS have placed them above many (high risk) emerging markets. So it would be a mistake to read past performances as indicative of future outcomes.
In short, the picture changes depending on the reference points used to justify a scenario.
Here is another example: Based on 2008 as the benchmark, Venezuela, this year's top performer, despite the incredibly high priced CDS, appears to be one of the least affected by present credit concerns behind Lebanon, Indonesia, Kazakhstan, Columbia, Philippines, Turkey and Brazil.
I haven't had time to check, but my assumption is that most of the stock market indices mentioned above suffered as much losses as those whose credit risks have surged.
In other words, dissonant signals from this week's market meltdown do not suggest that this is mostly about "debt default" concerns. The contagion doesn't justify the same impact on least affected countries.
And it would similarly be too simplistic to suggest the following causal impact: higher debt default risk=deleveraging=commodity meltdown=emerging stocks freefall. This redounds to available bias and to the post hoc ergo propter hoc fallacy or as per wikipedia.org-"after this, therefore because (on account) of this".
Beyond the surface, we read that it is likely the squall that hit financial markets could instead be signs of affliction from a liquidity addiction based "withdrawal syndrome".
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