There are probably hundreds or thousands of research notes about possible scenarios in credit derivative markets, now spreading to commercial papers, corporate bonds, agencies, equities. Some people predict crisis and recession, some think that subprime problems can still be contained and the soft-landing is the likely scenario. These analyzes are full of sexy abbreviations, which sound like codewords to poeple who are not part of the recent credit derivatives frenzy: CDS, CDO, CLO, CPDO, SIV, SWF etc.
This is very important, to understand what is going on and predict the dynamics. But much more important is to predict what will happen in the next few years (say in 2015), after the current mess is over. Let me ask few questions, answers are welcome:
- Will credit derivatives market have tripled, grown four times or even more by 2015
- between 2000 and 2007 credit derivatives markets grew from nothing to 35 trillion (ISDA data) after the internet bubble. Will there be some new markets that will do the same trick after the credit derivatives bubble bursts. What instruments, what markets?
- Think outside the box. Will new markets be focused on innovation (most important factor of growth in XXI century). Imagine Innovation Default Swaps (IDS), imagine commoditizing these revenues and bundling them into Constant Proportion Innovation Default Obligation (CPIDO).
- Or maybe the next big wave will be about regions (massive financial developments in Asia and stagnation in US and in Europe)
- Or maybe the next big think will be about intellectual capital (measured for companies, regions, countries). Maybe investors will be short IC for Tuscany, Berlin and Coca Cola and long IC for Singapore and Huawei (names used as examples only).
- Maybe gold will return as a big thing
- Or maybe there will just be a stagnation, wound-licking and no developments.
Let me know what do you think.