New York City nuclear CDS

There's a lot of confusion about what CDS is.

CDS = credit default swap which is a fancy way of saying you pay a premium and in the event of a default, you get a big check. and that is fancy way of saying you're basically buying a life insurance policy so, in the event of death you get paid.

people bought lots of CDS on Lehman Brothers. when Lehman failed, the owners of the CDS got huge checks, written by the writers of that CDS (in many cases AIG).

you can buy CDS on anything these days. one popular thing to buy is CDS on sovereign nations.

typically, CDS agreements have an annual payment schedule and are good for 5 years. In the case of the United States, the CDS trades at 100 bps, roughly meaning you would have to pay 1.00% of the insured amount each year for 5 years. if at any point during those 5 years, the US defaults on its loan obligations (ie, goes bankrupt), you would get paid the insured amount. so if you wanted $100 insurance on the US government, you would pay $1 each year for 5 years. If the US defaults during that time, you would be paid $100. approximately, this suggests that there is a 5% chance that the US defaults in the next 5 years.

in the case of Icelandic CDS, the rate is 1000 bps so you have to pay $10 each year for 5 years and if Iceland defaults, you would get $100. so the market suggests that there is a 50% chance of Iceland defaulting.

if you can buy insurance for anything and for any duration, why not buy insurance against a catastrophic event? now this is super grim, but, what do you think the CDS would trade at for protection against an atomic event happening in manhattan? ie, in the next 50 years, what is the chance that some sort of atomic detonation occurs in new york?

makes me want to move to a city that is already a wasteland, like LA.

Russia helps Iran

by most accounts, russia budgeted their government spending by pricing oil at somewhere around $80 / barrel. with oil trading at $40, the government is in severe trouble of facing default, runaway inflation or some other similarly disastrous scenario.

the market vectors russia etf (RSX) is down from a high of nearly $60 to $10.

many of these disasters that Russia faces are cured by higher oil prices. assuming that russia is not concerned with the pain and suffering and death of other humans (outside of russia in particular) then it's in russia's best interest to see some sort of conflagration in the middle east which would bolster hard asset prices, in particular oil prices.

when Obama suggests that the russians should help the US keep Iran from attaining nuclear weapons, i think he fails to understand that (a) it's inevitable that Iran will attain nuclear capability and (b) that it's Russia's best interest for increased tensions if not all out war in the middle east.

with regard to (a), human history has shown that technology cannot be kept in the bottle forever. one need only look at the palestinians who had crude rocks during the first intifada of 1987 and now have rockets that can nearly reach Tel Aviv from Gaza. with determination and funding, everything is within reach.

regarding (b), not only is it in Russia's best interest, but also Venezuela and all other oil producing countries that would not see a supply disruption from a conflict. so far from preventing Iran, Russia is likely to help Iran.