As an FYI to market watchers, tomorrow might be an important day because of the Lehman CDS settlement. I expect it to be a catalyst for direction, though I’m not sure which direction that might be.

Basically, CDS (credit default swaps) are insurance against a company’s debt (bonds) in the event that the company goes bankrupt. Since Lehman officially went bankrupt, the insurance companies (pronounced: banks) are going to have to pay the CDS holders to offset their losses in the underlying bonds.

The rumors are that the CDS settlement will likely cause $360 billion in payment. Notice that MER, BX, and MS were all down about 25% today, potentially in anticipation of tomorrow’s settlement. AIG, JPM, BAC, and GS are probably also involved somehow… you may have noticed the headlines about AIG needing an additional $37 billion loan from the Fed… think the timing is coincidence?

Isn’t de-leveraging fun?

Source: Reuters