Financial markets have short memories. Of late, they've convinced themselves that collateralised loan obligations are much safer instruments than the collateralised debt obligations, or CDOs, on which they're based and which helped precipitate the 2008 crisis. They're wrong - and dangerously so.Current CLOs outstanding globally total around $US700 billion , with annual new issues of over $US100 billion. That's broadly comparable to subprime CDO volumes in 2008.
Nevertheless, many risks remain. How safe or not CLOs are is contingent on several factors: the credit quality of the underlying loans - as judged by the risk of default and the extent of loss if there is a default - as well as the correlation between default and losses within the portfolio. Even buyers of high-quality tranches, who may be insulated from actual losses, face the possibility of mark-to-market writedowns, where the current value of securities declines. Relatively minor losses could impact such investors by reducing the protection for higher tranches and triggering rating downgrades. Similarly, general problems in credit markets, where margins increase, will decrease values.
BloomFin realdavedevere Oil prices and related inflation need to go a bit higher for a repetition of the 2008 shock. It'll come when US shale oil peaks or something happens in the Middle East.
Big depression is coming and thank god for that!