Reality Check wrote:Based on that quote it would appear he did predict the period between 2005 and the end of 2007 accurately.
Granted he might have made more money if his investors had not forced him to liquidate some positions in early 2007 rather than late 2007, but the stress was from people who second guessed his rather conservative bets, not because his predictions related to the financial crisis were wrong as to scope or timing.
In 2005, betting against sub-prime, adjustable rate mortgages ( then valued as AAA investments ) where the borrower had no chance of making the monthly payments once the teaser period expires, is no risk at all, unless Sol goes nova or some similar unrelated disaster occurs during that two to three year period.
Clearly, he lost 100% of the funds he put toward CDS exposure in 2005 and the first part of 2006, which was unnecessary. Those are quarterly payments, though the contract periods can be longer. Not to say I didn't make the same timing mistake, as I also thought the bubble would top in 2005 and sold out early, losing a lot of potential profits. Point being, in 2005 I would have also thought he was doing the right thing, but the fact is he pissed away a lot of money on quarterly CDS payments when he didn't need to. But based on reading this account and one other one, it would have been necessary to take at least some losses, as the big banks were not willing to sell CDS when it became clear the unravelling was close at hand. When the latest time was to buy CDS I don't know, probably mid 2006 as home prices were turning down then. The fact that he warned investors about the potential time frame was good, but it doesn't seem like he understood the psychology of losing trades because he'd never really had any before this one. Lucky for him that a few more investors didn't withdraw or he'd have hit the wall and we never would have heard of him. But I'd say to figure out as much as he did at his age and with his limited real estate background was a big accomplishment. Let's see if he gets his gold and farmland bets right eventually.
After re-reading this account I'm more inclined to agree with Greenspan than I was.
Terms of a typical CDS contract
The premium payments are generally quarterly, with maturity dates (and likewise premium payment dates) falling on March 20, June 20, September 20, and December 20. Due to the proximity to the IMM dates, which fall on the third Wednesday of these months, these CDS maturity dates are also referred to as "IMM dates".
http://en.wikipedia.org/wiki/Credit_def ... S_contract