LBO Crystal Ball

TheStreet.com - October 27, 2006
by Matthew Goldstein
Senior Writer

Janet Tavakoli, a Chicago credit derivatives consultant who advises hedge funds and other savvy investors, points out that the banks writing swap contracts devour any information that can move a company's bonds.

For that reason, hedge funds will take note of any trading by a bank that writes a swap. They'll often mimic the bank's trades, assuming the bank knows something.

Even within firms, players are always on the lookout for what they hope might be a giveaway twitch.

Traders may start pushing up the price of a swap if the bankers at their firm start asking questions about the quality of a company's bonds. Tavakoli says those questions often are interpreted by traders as indicating something is up.

"You will have people on the loan desk going down to the trading desk and saying, 'What do you know about this name?" says Tavakoli. "On the CDS trading desk, the traders are on top of every bit of news about bonds."

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Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct professor of derivatives at the University of Chicago's Graduate School of Business. She is the author of: Credit Derivatives & Synthetic Structures (John Wiley & Sons, 1998, 2001), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, 2008).

Janet Tavakoli's book on the global financial meltdown is Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street (Wiley 2009).

Clients of Tavakoli Structured Finance have the benefit of proprietary consultation, which is not available in any other paid or public forum. Clients also commission proprietary research and analysis.

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