Last night Jim Cramer, reverting to his traditional inverse bank psychic, whose track record needs just one word of reminder, and that is Bear Stearns, told everyone that Morgan Stanley is fine. It may well be. However, we doubt it, as does the market, which just sent out the firm’s CDS up another 32bps to 528bps, the widest since 10/13/08 having only traded wider than this level from 9/16/08 to 10/13/08.
Critically for those looking at CDS not being as bad as during the peak of the crisis and gaining comfort from that – CDS did not trade gently to those extremes – it gapped unmercifully wider with incredible day-to-day volatility.
Furthermore, for those talking about how illiquid CDS are and easily manipulated, we remind them that it is bonds that cracked first (a much more broadly owned and traded set of instruments) and only very recently has CDS started to catch up to the wide/risky levels at which bonds trade.