Adam Parry – Hello Pop Pickers! No more CDs. What about CDS?

Monday 14th Dec 2020|London

Welcome Pop- Pickers to the IOWARocks rundown of the greatest Christmas tunes. A quite lidderally poptastic collection of some of the best festive songs to light up what could be a fairly miserable Covid Chrimbo.

We’ll start in the best tradition of Fluff, Tony Blackburn and the ubiquitous Smashey and Nicey with a few numbers just bubbling under the top ten.

A new entry at number 18 comes from 60s prog rockers, Barclay James Harvest with Hymn. Three places higher and we find 80’s crooner Harry Connick Jr with Rudoplh the Red Nosed Reindeer. At 12 we have Elton’s 1973 classic Step Into Christmas and just failing to make the top 10 this year is Band Aid and Do They Know Its Christmas from 1984.

So here we go with the definitive – or maybe not – top 10.

10 – Jona Louis with Stop the Cavalry. A festive wonder from the author of You’ll always find me in the kitchen at parties.

9 – Bing Crosby and David Bowie with The Little Drummer Boy. Surely the weirdest pair ever to team up. The song itself always reminds me of a classic Dave Allen sketch that implores the Little Drummer to stick his drum where the sun don’t shine.

8 – The Christmas Song by Nat King Cole. Enough said.

7 – Wham with Last Christmas. George, the luckiest man in pop Andrew and a ski-lodge. All wrapped up and sent.

6 – Low I know, but here are the Pogues and Kirsty McColl with Fairytale of New York. Merry Christmas my arse.

And here were go headlong into the top 5.

5 – Merry Christma , Darling by The Carpenters. Because if you can’t have a bit of The Carpenters at Christmas, when can you.

4 – Wish it could be Christmas Every Day by Wizzard. Come on you lot. Take it away.

3 – Leona Lewis with One More Sleep. A modern classic from the X-Factor winner.

2 – Merry Christmas Everyone by the Welsh Elvis, Shakin Stevens. Snow is falling, all around us. Children playing, having fun.

And the 2020 IOWARocks Christmas number one goes to……

The Boss with the quite brilliant Santa Claus is coming to Town.

What? I hear you all cry. No Mariah and All I want for Christmas? Nope. Overplayed. Same with Noddy and the boys with Merry Christmas Everybody. What about Merry Christmas War is Over by Lennon on the 40th anniversary of his death. Not quite. McCartney’s Wonderful Christmas Time? Just under the top twenty.

And where could the legend that is Cliff be? Surely the existential Misteltoe and Wine or Millenium Prayer must be in. Sorry Cliff. You are an utter legend, but your Christmas offerings have been absolute pony.

Now all these tracks are available to download via your streaming services. But in the spirit of days of yore, I have asked the hierarchy at this noble institution if we could release a festive CD. Needless to say, my imploring was met by must hysteria and guffaws of hilarity by the powers that be, but hopefully next year it will be in the shops.

Much of that hilarity stemmed from the fact that as a cutting edge technology firm, the concept of CDs is dead in the water, although it must be said that people said that about vinyl 20 years ago and vinyl sales are now booming.

Which brings me on to this week’s guff. Not CDs, but CDS.

Now I am the first to admit that the concept of the Credit Default Swap was a good one. It enabled the credit investor to effectively buy insurance on a corporate, and should that corporate go belly-up, the writer of that insurance would have to pay up.

In essence, though, it was just another gravy train for the investment banks since the CDS market came into being in the early part of the 21st century. Basically, they charged the investor a fairly hefty premium for the insurance and normally ended up trousering that premium.

That was until the sub-prime crisis in 2007, when Michael Burry and the others from the film the Big Short decided that buying CDS contracts was an efficient way of shorting a market that could not otherwise be shorted. All of a sudden the banks writing the CDS contracts had a problem.

And so, the premiums on single name CDS –  or the CDS on an individual company – started not to reflect the actual value of a company. That in turn led to arbitrage opportunities for smarter investors by trading the CDS basis. For example, if the level of premium on the CDS basis became too high, an investor could sell the CDS contract and sell the cash bonds and wait for the two to converge.

But the banks did not particularly like that either. And so, as sub-prime morphed into Lehmans which was then followed by the sovereign debt crisis in Europe, the possibility to trade single name CDS became less and less likely as liquidity dried up to less than a trickle.

All of which left the poor credit investor in a bit of a pickle. How could one hedge one’s position, especially in riskier names? Well you could take out your interest rate risk by using the government bond market. You could mitigate some of your credit risk by hedging with swaps – which is essentially bank credit. Or you could trade the CDS indices.

This proved an extremely popular tool. The first CDS indices were launched in 2001. In 2007, Markit acquired the CDX and iTraxx and 4 years later trading volumes were up to USD70bn a day.

But are these indices still relevant today? Well, as a gauge of how the market feels the credit market is bearing up, you could argue that they are. The only problem is that the market has now just commoditized the indices and that makes them far less relevant when it actually comes to gauging the real state of the credit market.

Let’s take a look at the Crossover index. The name is in the clue when it comes to the Crossover. It is a basket of companies that are crossing over from Investment Grade into High Yield. And that means that a vast majority of the 40-50 constituents of the index are on the verge of being junk.

As we have said a few times now, with the Crossover at current levels, there is a default probability of one of those forms going to the wall in the next 5 years of around 20%, which is quite high, but not when in the UK we are seeing household names going to the wall on an almost weekly basis.

So the reality is that something needs to change in the CDS market. The indices need to reflect the credit worthiness of their constituents and not be an indication of market perceptions. We could try to beg the banks and the bookies to resurrect the single names market, but one suspects that is now as defunct as CDs.

The only real alternative is to create another OTC product to allow the market to punt. In other words, some kind of credit futures contract akin to that seen in government bond markets. Of course, this is tricky. The basket of potentially deliverable bonds would be prohibitively large. The repo market in credit is also difficult. But if there was a person far smarter than me who could come up with a synthetic credit contract, surely that would be far preferable to hedging your positions with the outdated concept of CDS.

Anyway, staying on the Christmas them and after last week’s recipe for a starter, it’s time to tackle the main event of the Chrimbo lunch. Turkey tips next week, but here are some sides for you.

Parsnips. Peel and cut your veg into quarters, removing the woody core. Slip into a roasting bag with a handful of chestnuts, season with salt and pepper and add parsley and a good glug of sherry. Bake in the oven at 160c for an hour.

Carrots. Peel and leave whole. Place in a large saucepan and cover with water. Add a couple of star anise and 125g of butter. Bring to a boil and then simmer until the carrots are tender.

Sprouts. Couple of ways here. Personally, I like to steam them over chicken – or Turkey – stock until tender. Alternatively, shred them and stir fry with some streaky bacon until the bacon is crispy and the sprouts are cooked.

Celeriac. Again here’s a couple of ways with the ugly root. Firstly you can stick it whole into the hot coals of a barbecue and leave it in there until totally black. Then cut in half and scoop out the flesh. Alternatively, make a salt crust by whizzing up a couple of egg whites with 500g of salt until you get stiff peaks. Cover the celeriac totally with the mixture and bake in an over at 190c for an hour. Once cooked, cool and then chip off the salt crust.

Spuds. The key here is to par-boil Maris Pipers for about 10 minutes. Allow to steam dry and then roast in goose fat or beef dripping at 160c for about 90 mins.

Enjoy and have a great pre-Christmas week. POP-A-DOODLE-DO!

On the Agenda this week:

Central Banks:

  • Wednesday: FOMC meeting at 7pm GMT; rates expected unchanged at 0.00%-0.25.
  • Thursday: MPC meeting at noon; rates expected unchanged at 0.10%; APF unchanged at GBP875bn; Corporate bond purchases at GBP20bn.



  • Tuesday: Import/Export Price Index; Industrial Production.
  • Wednesday: Retail Sales; Markit PMIs; Business Inventories; NAHB Housing Market.
  • Thursday: Housing Starts and Building Permits; Philly Fed; Initial Jobless Claims.


  • Monday: Area wide Industrial Production.
  • Tuesday: French and Italian CPI
  • Wednesday: Markit PMIs; Area wide Construction Output.
  • Thursday: French Business Confidence; Area wide CPI.
  • Friday: German PPI, IFO; Italian PPI.


  • Monday: Rightmove House Prices
  • Tuesday: Unemployment
  • Wednesday: CPI, RPI; Markit PMIs.
  • Friday: Retail Sales.

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