Jul 23

With 1 Week Left Until Argentina’s ‘D’efault-Day, Judge Blasts “Judgments Are Judgments” (ZeroHedge, July 22, 2014):

Day after day, headlines from Argentina implore Judge Griesa to do the “fair, responsible” thing and lift his judgment that holdouts get paid before current bondholders receive their payments… and day after day Argentina’s demands are met with silence or denials. Today, though, with 1 week left until Argentina must put up or shut up, Judge Griesa has come out swinging…

  • *U.S. JUDGE SAYS OF ARGENTINA RULINGS: ‘JUDGMENTS ARE JUDGMENTS
  • *ARGENTINA’S ‘INCENDIARY` RHETORIC `UNFORTUNATE,’ JUDGE SAYS
  • *U.S. JUDGE URGES ‘SENSIBLE STEPS’ TO AVOID ARGENTINA DEFAULT

While CDS spreads have surged once again, bonds trade with default probabilities around only 50% which, according to Jefferies “are expensive on underestimating the risk of default.” Continue reading »

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Jan 28

MY-BANK-Russia-1

- Russian Bank Halts All Cash Withdrawals (ZeroHedge, Jan 28, 2014):

It would appear the fears of a global bank run are spreading. From HSBC’s limiting large cash withdrawals (for your own good) to Lloyds ATMs going down, Bloomberg reports that ‘My Bank’ – one of Russia’s top 200 lenders by assets – has introduced a complete ban on cash withdrawals until next week. While the Ruble has been losing ground rapidly recently, we suspect few have been expecting bank runs in Russia. Russia sovereign CDS had recently weakned to 4-month wides at 192bps.

Via Bloomberg, Continue reading »

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Jan 27

China Halts Bank Cash Transfers - Forbes
The Forbes article has been removed. (Google screenshot)

- No, There Is No Stoppage Of Cash Transfers In China (ZeroHedge, Jan 26, 2014):

Earlier today, Forbes managed to spook readers with a bombastic report that China’s commercial banks had been instructed by the PBOC to halt cash transfers - something which would have dire implications on China’s banking system ahead of its new year holiday, and send the banking system into a tailspin just as China is desperate to avoid all turbulence ahead of a potential shadow banking default.

Leaving aside the fact that one should typically rely on official PBOC advisories, posted quite clearly on its website (where one finds no mention of this notice), one could simply keep track of interbank liquidity indicators such as repo and SHIBOR, both of which dropped, indicating that liquidity actually improved.

Anyway, here is what really happened, as reported by China Compass. “Forbes columnist Gordon Chang claimed in a much-quoted item today that the Peoples Bank of China had instructed commercial banks to halt cash transfers. Chang’s column, entitled “China Halts Bank Transfers,” specifically refers to Citibank’s Chinese branches. The report is entirely misleading.” Our advice – focus on the real “weakest links” in China’s banking system, of which there are many and are backed by facts, not the least of which is the potential upcoming shadow banking default. Ignore groundless rumors and speculation. Continue reading »

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Jan 25

- Bank Of America Caught Frontrunning Clients (ZeroHedge, Jan 25, 2014):

Every time a TBTF bank releases its 10-Q, we head straight for the section, usually well over 100 pages in, that discloses the bank’s total profitable trading days.

This is what the most recent Bank of America 10-Q said on this topic:

The histogram below is a graphic depiction of trading volatility and illustrates the daily level of trading-related revenue for the three months ended September 30, 2013 compared to the three months ended June 30, 2013 and March 31, 2013. During the three months ended September 30, 2013, positive trading-related revenue was recorded for 97 percent, or 62 trading days, of which 69 percent (44 days) were daily trading gains of over $25 million and the largest loss was $21 million. These results can be compared to the three months ended June 30, 2013, where positive trading-related revenue was recorded for 89 percent, or 57 trading days, of which 67 percent (43 days) were daily trading gains of over $25 million and the largest loss was $54 million. During the three months ended March 31, 2013, positive trading-related revenue was recorded for 100 percent, or 60 trading days, of which 97 percent (58 days) were daily trading gains over $25 million. Continue reading »

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Apr 05

- Is It Beginning? Biggest JGB Price Collapse In Over 10 Years Triggers TSE Circuit Breakers (ZeroHedge, April 5, 2013)

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Jan 28

- $600 Billion In Trades In Four Years: How Apple Puts Even The Most Aggressive Hedge Funds To Shame (ZeroHedge, Jan 27, 2013):

Everyone knows that for the better part of the past year Apple, Inc. (“AAPL”, or “The Company”) was the world’s biggest company by market cap, with Exxon finally regaining that title on Friday, following AAPL’s latest price drop in the aftermath of its disappointing earnings. Most know that AAPL aggressively uses all legal tax loopholes to pay as little State and Federal tax as possible, despite being one of the world’s most profitable companies.Many also know, courtesy of our exclusive from September, that Apple also is the holding company for Braeburn Capital: a firm which with a few exceptions (Bridgewater; JPM’s CIO prop trading desk) also happens to be one of the world’s largest hedge funds, whose function is to manage Apple’s massive cash hoard, with virtually zero requirements, and whose obligation is to make sure that AAPL’s cash gets laundered legally and efficiently in a way that complies with prerogative #1: avoid paying taxes.

What few if any know, is that as part of its cash management obligations, Braeburn, and AAPL by extension, has conducted a mindboggling $600 billion worth of gross notional trades in just the past four years, consisting of buying and selling assorted unknown securities, or some $250 billion in 2012 alone: a grand total which represents some $1 billion per working day on average, and which puts the net turnover of some 99% of all hedge funds to shame!

Finally, what nobody knows, except for the recipients of course, is just how much in trade commissions AAPL has paid over the past four years on these hundreds of billions in trades to the brokering banks, many (or maybe all) of which may have found this commission revenue facilitating AAPL having a “Buy” recommendation: a rating shared by 52, or 83% of the raters, despite the company’s wiping out of one year in capital gains in a few short months.

The Perfectly Legal Tax Evasion Scheme

Continue reading »

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Nov 25

- Egyptian Stocks Plunge 9.6% As ‘Islamofascism’ Rises; Clashes Escalate (ZeroHedge, Nov 25, 2012):

Egyptian stocks cliff-dived by their most since the Arab Spring in January 2011 as Morsi’sreach-for-omnipotence sends concerned ripples through the nation that they have replaced ‘military fascism’ with so-called ‘islamofascism’. Tensions are rising once again in Tahrir Square, but as Russia Today notes in this clip, the new regime is somewhat more heavy-handed than the previous one in its control of protesters. Critically, the Musilm Brotherhood’s opposition forces, who have been quite divided recently, are joining to fight the common enemy as clashes between pro-Morsi and anti-Morsi forces are erupting. Perhaps just as worrisome as the social unrest is the fact that Egypt’s Stock Exchange Director Said Hisham Tawfiq fears “Egypt announces bankruptcy within 3 months in the case of the continuation of the current situation,” though we note Egypt CDS are near 16-month lows.

The EGX50 dropped a massive 9.5% today as markets are stunned my Morsi’s move…

and from Russia Today:

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Nov 19

- Global Shadow Banking System Rises To $67 Trillion, Just Shy Of 100% Of Global GDP (ZeroHedge, Nov 18, 2012)

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Sep 15

- US infrastructure on brink of thermodynamic breakdown (PressTV, Sep 14, 2012):

Federal Reserve Chairman Ben Bernanke has warned that the country’s unemployment situation “remains a grave concern” as the hiring process in the job market stays sluggish.

“Fewer than half of the eight million jobs lost in the recession have been restored and at 8.1 percent, the unemployment rate is nearly unchanged since the beginning of the year and is well above normal levels,” Bernanke told reporters on Thursday, AFP reported.

Bernanke also pointed out that the Federal Reserve does not have the means to offset the economic shock from the public spending cuts and tax hikes, scheduled for the end of 2012.

Press TV has conducted an interview with Webster Griffin Tarpley, author and historian from Washington, to further talk over the issue. the following is an approximate transcript of the interview.

Press TV: The Fed has announced that it will resume its policy of pumping more money into the economy. Will that be enough to stave off the unemployment?

Tarpley: No, it cannot. Right now we have an economic depression in the United States and around the world and the real unemployment in this country is much higher than the Federal Reserve seems to want to admit. It is about 30 million people minimum that are out of work which is significantly more than the government estimates.

The problem with the Federal Reserve is that they see their task as saving failed banks; we have to call them ‘zombie banks’ because they are bankrupt entities that sit there; they absorb government and Federal Reserve resources; they do not provide investment; they do not create jobs; there is no plan and equipment or capital goods investment going on.

Continue reading »

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Aug 21

- Buffett Joins Team Whitney; Sees Muni Pain Ahead As He Unwinds Half Of His Bullish CDS Exposure Prematurely (ZeroHedge, Aug 20, 2012):

Just under two years ago, Meredith Whitney made a much maligned, if very vocal call, that hundreds of US municipalities will file for bankruptcy. She also put a timestamp on the call, which in retrospect was her downfall, because while she will ultimately proven 100% correct about the actual event, the fact that she was off temporally (making it seem like a trading call instead of a fundamental observation) merely had a dilutive impact of the statement. As a result she was initially taken seriously, causing a big hit to the muni market, only to be largely ignored subsequently even following several prominent California bankruptcies. This is all about to change as none other than Warren Buffett has slashed half of his entire municipal exposure, in what the WSJ has dubbed a “red flag” for the municipal-bond market. Perhaps another way of calling it is the second coming of Meredith Whitney’s muni call, this time however from an institutionalized permabull. Continue reading »

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Aug 02


YouTube Added: 01.08.2012

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Jul 30

- All The Olympic Charts That’s Fit To Print, And More (ZeroHedge; July 27, 2012)

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Jul 20

- The Financial Crisis Was Foreseeable … Thousands of Years Ago (ZeroHedge, July 20, 2012):

We’ve known for 4,000 years that debts need to be periodically written down, or the entire economy will collapse. And see this.

We’ve known for 2,500 years that prolonged war bankrupts an economy.

Continue reading »

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Jul 17

- Criminal Inquiry Shifts To JPMorgan’s Mispricing Of Hundreds Of Billions In CDS: Is Dimon The Next Diamond? (ZeroHedge, July 16, 2012):

On the last day of May, when we first learned via Bloomberg that there was even the scantest likelihood that JPM may have been massaging its CDS marks within the (London-based of course) CIO organization – the backbone of hundreds of billions in notional exposure, and thus a huge counterfeited benefit to trader bonuses and corporate earnings – we wrote, The Second Act Of The JPM CIO Fiasco Has Arrived – Mismarking Hundreds Of Billions In Credit Default Swaps in which we explained precisely how this activity would and did take place, precisely why other traders caught doing the same are on the verge of being thrown in jail, precisely why everyone else does it, and precisely why the biggest CDS self-reporting and client/banker owned-organization (this is where images of Libor should appear), MarkIt, may well be implicated in everything – very much in the same way that the BBA is the heart of Lie-borgate. Because unlike all other allegations of impropriety, most of which rely on Level 2 and Level 3 assets whose valuations are in the eye of the oh so very sophisticated beholder (in this case JPM) who has complex DCFs and speaks confidently when explaining marks to naive, stupid outsiders (in other words baffles with bullshit), when it comes to one of the last places where Mark to Market is still applicable and used: the OTC CDS market, and where daily P&L records are kept, it will take any regulator, enforcer, or criminal investigator precisely 1 minute to find out if there was fraud, or gambling, going on here.

Then lo and behold, none other than JPM admitted minutes before releasing its Q2 earnings that it had been doing precisely what Zero Hedge accused it of doing nearly 2 months earlier (but of course Jamie Dimon had no idea, no idea, what the media accused his firm of doing), and in doing so exposed itself to just as much litigation risk as Barclays in the Lie-borgate scandal, while further throwing a monkey wrench into the CDS market, where all the other banks (who had been doing just the same), will no longer be able to pick off the bid/ask spread in the process crushing CDS trader bonuses, and resulting in billions in foregone imaginary profits.

Most importantly, it opened up the firm to a criminal investigation. Which as Reuters reports, is precisely what has now happened.

From Reuters’ Matt Goldstein and Jennifer Ablan: Continue reading »

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Jul 14

Flashback:

- Blythe Masters: JPMorgan Employee Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade


- Define Irony: “The J.P.Morgan Guide To Credit Derivatives” By Blythe Masters (ZeroHedge, July 13, 2012):

As readers enjoy JPM squirm his way through the JPM conference call (webcast live) explaining how it is that he not only was fooled by the CIO traders to the tune of billions, but more importantly to mismark hundreds of billions in CDS over the years, here is some delightful irony: “The J.P.Morgan Guide To Credit Derivatives” By Blythe Masters. Because it is truly ironic that the firm which created CDS will be the one responsible for destroying them.

Investing in Credit Derivatives – Blythe Master

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Jun 25

- Scramble For Spanish ‘Bail-In’ Trade Sends Spanish Bank CDS Soaring (ZeroHedge, June 25, 2012)

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Jun 19

See also:

- Egan-Jones Ratings Company Downgrades Spain’s Credit Rating To CCC+ (Uganda’s Credit Rating Is B!)


- Spain May Not Be Uganda, But Germany Is Chile (ZeroHedge, June 18, 2012):

While we discussed the definitive new world geography last week, it appears the CDS market has decided to add a new parallel for us, Germany is now Chile (in terms of 10Y restructuring and devaluation risk). As a reminder, Germany’s credit risk has risen by almost 50% in the last 3 months to record highs, and has converged higher towards Europe’s GDP-weighted average sovereign risk in the last 2-3 weeks.

and as a reminder – here is Germany’s 10Y CDS (interestingly we rallied modestly today – perhaps on the back of Merkel’s restatement that there will be no new aid package – or more risk transfer)… Continue reading »

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Jun 18

- Five Days Since The Spanish “Bailout”: You Are Here (ZeroHedge, June 18, 2012):

With few (if any) natural buyers of Spanish debt (especially given the lack of CDS-cash basis now), Spanish bonds continue to crumble lower in price and higher in yield/spread. For the first time ever, 10Y Spanish bond yields have passed 575bps over Bunds – currently trading at 7.15% yield. Since the post-banking-bailout open, Spanish bond spreads have soared a remarkable 114bps and whether this is seen as the fulcrum security or Italian bonds (which are also deteriorating rapidly this morning), it would appear that just as Spiegel reports today from the G-20, via a senior EU official: “If Germany Doesn’t Make A Move, Europe Is Dead”.

European sovereign bond spread movements post Spanish bailout

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Jun 16

- The U.S. Economy By The Numbers: 70 Facts That Barack Obama Does Not Want You To See (Economic Collapse, June 7, 2012):

Why is the economy going to collapse?  Have you ever been asked that question?  If so, what did you say?  Sometimes it is difficult to communicate dozens of complicated economic and financial concepts in a package that the average person on the street can easily digest.  It can be very frustrating to know that something is true but not be able to explain it clearly to someone else.  Hopefully many of you out there will find the list below useful.  It is a list of 70 numbers that show why we are headed for a national economic nightmare.  So why does the title of the article single out Barack Obama?  Well, it is because right now he is the biggest cheerleader for the economy.  He is attempting to convince all of us that everything is just fine and that the economy is heading in a positive direction.  Well, the truth is that everything is not fine and things are about to get a whole lot worse.  Certainly others should share in the blame as well.  Congress has been steering the economy in the wrong direction for decades, the “too big to fail” banks have turned Wall Street into a pyramid of risk, leverage and debt, and the Federal Reserve has more power over the financial system than anyone else does.  Our economy has been in decline for quite a while now, and soon we are going to smash directly into an economic brick wall.  Unfortunately, a lot of Americans are in denial about this.  A lot of people out there doubt that an economic collapse is coming.  Well, if you know someone that believes that the U.S. economy is going to be “just fine”, just show them the list below.

The following are 70 facts that Barack Obama does not want you to see…. Continue reading »

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Jun 16

- When The Derivatives Market Crashes (And It Will) U.S. Taxpayers Will Be On The Hook (Economic Collapse, May 29, 2012):

Warren Buffett once said that derivatives are “financial weapons of mass destruction”, and that statement is more true today than it ever has been before.  Recently, JP Morgan made national headlines when it announced that it was going to take a 2 billion dollar loss from derivatives trades gone bad.  Well, it turns out that JP Morgan did not tell us the whole truth.  As you will see later in this article, most analysts are estimating that the losses will eventually be far larger than 2 billion dollars.  But no matter how bad things get for JP Morgan, it will not be allowed to fail.  JP Morgan is the largest bank in the United States, so it is essentially the “granddaddy” of the too big to fail banks.  If JP Morgan gets to the point where it is about to collapse, the U.S. government and the Federal Reserve will rush in to save it.  Because of this “security blanket”, banks such as JP Morgan feel free to take outrageous risks.  Today, JP Morgan has more exposure to derivatives than anyone else in the world.  If they win, they win big.  If they lose, U.S. taxpayers will be on the hook.  Not only that, but thanks to Dodd-Frank, U.S. taxpayers are on the hook for bailing out the major derivatives clearinghouses if there is ever a major derivatives crisis.  So when the derivatives market crashes (and it will) you and I will be left holding a gigantic bill. Continue reading »

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May 23

More here: An $8bn Loss Or Was JPMorgan ‘Unhedged, Long-And-Wrong’ Post-LTRO2? (ZeroHedge, May 22, 2012):

So, in summary, it appears that the CDS data confirms what we suspected.

  • A large (~$120bn) tail-risk tranche credit hedge was placed.
  • The hedging of that hedge became very onerous but surprisingly profitable as markets rallied day after day with no give-back.
  • This led to a greedy trader lifting some of the original tranche (and the HY short side) and leaving himself much more naked long to the market into LTRO2 – which marked the top. Losses escalated through April (~$2.5bn or so).
  • Dimon went public (with some of the details).
  • Last week, the rest of the tranche was dumped (we suspect) at a large cost (perhaps ~$5.5bn) leaving, we suspect…
  • A potential ~$8bn loss and a heavy IG9 long credit position hedged (with major basis risk – difference in dynamics between the legs of the trade and the hedge) by various other liquid positions including shorts in HYG, JNK, IG18, and HY18 (and we would suspect equity/financials too).

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May 19

- “The Truth Gets Out Eventually” (ZeroHedge, May 18, 2012):

Some look at today’s FaceBook IPO flop, the ongoing market rout, and the situation in Europe with disenchantment and disappointment. We, on the other hand, view it with hope: because more than anything, the events of the past few days show that the truth is getting out – the truth that capital markets simply can not exist under the authoritarian rule of central planners, the truth that the stock market is a casino in which the best one can hope for a quick flip, and finally the truth that our entire socio-economic regime, whose existence has been predicated by borrowing from the uncreated wealth of the future, and where accumulated debt could be wiped out at the flip of a switch if things go wrong in the process obliterating the welfare of billions (of less than 1%ers), is one big lie. Continue reading »

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May 12

- How Did JPMorgan Lose Billions In One Trade? London ‘Whale’ Explained (International Business Times, May 11, 2012):

The now-notorious JP Morgan Chase and Company trading activity the bank says will cost it upwards of $3 billion has yet to be detailed, but analyzing earlier reports of unusual activity by a JP Morgan unit the past few weeks helps bring the sequence of events that led to the huge loss into focus.

It all seemed to start in early April. Hedge fund players in the opaque market for synthetic credit-default swap instruments (CDS) complained to the Wall Street Journal and Bloomberg News that a trader at JP Morgan’s U.K. office was distorting the market with his massive bets.

Continue reading »

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Apr 17

- Spain Goes Irish On Regions (ZeroHedge, April 16, 2012):

Slowly but surely, the Spanish authorities are gradually socializing the rest of the world to the dismal truth that we have been so vociferously arguing – that their debt levels (or more specifically their debt/GDP ratios) are significantly higher (explicitly) than their current official data suggest. Today’s news, via the WSJ, that the Spanish government may take over some regions’ finances, in an attempt to shore up investor confidence (just as Ireland did with its banks and we know how well that worked out?) is yet another step closer to the ‘realization’  that all that is “contingent” is actually “explicitly guaranteed.” As we noted here, this leaves Spain’s Debt/GDP nearer 135% than its ‘official’ 68.5%. The WSJ notes comments from a top government official that “there will soon be new tools to control regional spending” and that they may take over at least one of the country’s cash-strapped regions this year. As we broke down extensively here, this is no surprise as yet another group of political elite find the truth harder to deal with than the blinkered optimism they face the media with every day and yet as PM Rajoy notes “Nobody can expect that deep-seated problems be solved in just a few weeks”, the irony of the euphoria felt around the world at the optical rally in Spanish spreads for the first few months of the year is not lost as Spain heads back into the abyss ahead of pending auctions and what appears to be more ponzified guarantees of regional finances (as long as they promise to pay it back and have ‘a plan’). The simple truth is, as acknowledged by Rajoy, Spain has lost the trust of financial markets.

It seems that CDS markets have been ahead of the reality in Spain’s true credit situation as it is perhaps a little easier to manipulate a few bonds than an entire sovereign CDS market. The velocity of the most recent move suggests some short-term action by the politicians/ECB soon enough though their failed attempt today suggests the wholesale exit of real money is a hole too big for even the ECB to comfortably fill – and furthermore, as we have noted, every bond the ECB buys via SMP increases the default risk (or more clearly reduces recoveries) on existing bondholders and thus making a situation worse…

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Apr 14

- Spain CDS Surges Just Shy Of Record As Spanish Bank ECB Borrowings Go Parabolic (ZeroHedge, April 13, 2012):

On Easter Friday we presented the parabolic egg that Italy laid in March in the form of Italian bank borrowings from the ECB, which had surged by a record €75 billion to €270 billion from €195 in one month. Of course, since the US market was closed and everyone was preoccupied with the ugly NFP report, nobody paid much attention. Today, however, everyone is paying attention as Italy’s counterpart in the unsalvageable periphery – Spain, just posted its monthly consolidated Eurosystem borrowings update for March. And if last week’s Italian data was the Easter egg, today’s parabola is the Friday the 13th funny, because Spain bank borrowings from the ECB in March soared by… €75 billion, or precisely the same amount as Italy, to €227.6 billion, the highest ever, and a 50% increase over the €152 billion in February. The result: Spain CDS touching 491 bps according to CMA, just 2 bps shy of the November all time wides. Other securities impacted: 10 Year Spanish yield + 10 bps to 5.92%, and a spread over bunds now well into the 400 bps, or 418 bps to be precise. Italy is also catching the contagious bug, with its own 10 year starting to grind wider yet again, now at 5.47%. We have the feeling as more wake up this morning, that this latest glaring confirmation that the PIIGS banks now exist solely courtesy of the ECB, will not be liked by many.

Spain bank borrowings from ECB:

And Spain and Italy bank borrowings from ECB:

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Apr 09

- Spain: The Ultimate Doomsday Presentation (ZeroHedge, April 7, 2012):

Since we have grown tired of variations on the theme of “The Pain in ….” (having been guilty of encouraging it ourselves), we will spare readers this triteness, and instead summarize the attached must read slidedeck from Carmel Asset Management as the ultimate Spanish doomsday presentation. Naive and/or idealistic Spanish readers are advised to resume sticking their heads in the sand, and to stay as far away as possible from the attached 54 pages, which prove without any doubt why not only was Greece the appetizer (have your UK law:non-UK Law divergence trade on yet?) but why things in Europe are about to get far, far worse, as the Hurricane shifts to its next preferred location, somewhere above and just south of the Pyrenees.

In summary, here are Carmel’s five reasons why Spain’s problems are worse than the market anticipates: Continue reading »

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Apr 08

See also:

- JPMorgan’s Blythe Masters On The Blogosphere, Silver Manipulation, Gold-Axed Clients And Doing The ‘Wrong’ Thing (VIDEO)

- JPMorgan Illegally Let Lehman Brothers Count Customers’ Funds As Its Own

- TBTF Get TBTFer: Top 5 Banks Hold 95.7%, Or $221 Trillion, Of Outstanding Derivatives


- JPMorgan Trader Accused Of “Breaking” CDS Index Market With Massive Prop Position (ZeroHedge, April 5, 2012):

Earlier today we listened with bemused fascination as Blythe Masters explained to CNBC how JPMorgan’s trading business is “about assisting clients in executing, managing, their risks and ensuring access to capital so they can make the kind of large long-term investments that are needed in the long run to expand the supply of commodities.” You know – provide liquidity. Like the High Freaks. We were even ready to believe it, especially when Blythe conveniently added that JPM has a “matched book” meaning no net prop exposure, since the opposite would indicate breach of the Volcker Rule. …And then we read this: “A JPMorgan Chase & Co. trader of derivatives linked to the financial health of corporations has amassed positions so large that he’s driving price moves in the multi-trillion dollar market, according to traders outside the firm.” Say what? A JPMorgan trader has a prop (not flow, not client, not non-discretionary) position so big it is moving the entire market? And we are talking hundreds of billions of CDS notional. But… that would mean everything Blythe said is one big lie… It would also mean that JPMorgan is blatantly and without any regard for legislation, ignoring the Volcker rule, which arrived in the aftermath of Merrill Lynch doing precisely this with various CDO and credit indexes, and “moving the market” only to blow itself up and cost taxpayers billions when the bets all LTCMed. But wait, it gets better: “In some cases, [the trader] is believed to have “broken” the index — Wall Street lingo for the market dysfunction that occurs when a price gap opens up between the index and its underlying constituents.” So JPMorgan is now privately accused of “breaking” the CDS Index market, courtesy of its second to none economy of scale and fear no reprisal for any and all actions, and in the process causing untold losses to, you guessed it, its clients, but when it comes to allegations of massive manipulation in the precious metals market, why Blythe will tell you it is all about “assisting clients in executing, managing, their risks.” Which client would that be – Lehman, or MFGlobal? Perhaps it is time for a follow up interview, Ms Masters to clarify some of these outstanding points?

From Bloomberg:

The trader is London-based Bruno Iksil, according to five counterparts at hedge funds and rival banks who requested anonymity because they’re not authorized to discuss the transactions. He specializes in credit-derivative indexes, an off-exchange market that during the past decade has overtaken corporate bonds to become the biggest forum for investors betting on the likelihood of company defaults.

Investors complain that Iksil’s trades may be distorting prices, affecting bondholders who use the instruments to hedge hundreds of billions of dollars of fixed-income holdings. Analysts and economists also use the indexes to help gauge interest rates that companies must pay for new credit.

Though Iksil reveals little to other traders about his own positions, they say they’ve taken the opposite side of transactions and that his orders are the biggest they’ve encountered. Two hedge-fund traders said they have seen unusually large price swings when they were told by dealers that Iksil was in the market.

Continue reading »

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Mar 10

- The Eight Hundred Pound Greek Gorilla Enters The Room (ZeroHedge, Mar 10, 2012):

“After an increase of only 3% in the second half of 2010, total notional amounts outstanding of over-the-counter (OTC) derivatives rose by 18% in the first half of 2011, reaching $708 trillion by the end of June 2011. Notional amounts outstanding of credit default swaps (CDS) grew by 8%, while outstanding equity-linked contracts went up by 21%.”

-The Bank for International Settlements, Nov. 2011

The Rub

We all have been staring at the Greek sovereign debt and then the Greek CDS contracts. It was 1/13/10 when I first predicted that Greece would default and what a long and winding road it has been; similar to some hallucinogenic experience manufactured by Timothy Leary. Sometime soon, given what has taken place, I expect the ratings agencies to place Greece in “Default” and with their banks following. The markets are “Ho-Humming” and the conversations revolves around “Net” CDS exposure and the write-downs that have already taken place at the European banks. Please recall AIG and what happened with Lehman and what do we find this morning; KA Finanz, the Austrian bad bank, faces $1.32 billion in losses due to their exposure to the Greek CDS contracts according to a Bloomberg article. So now we will wait and see who else is on the hook, who may be seriously impaired, because the Gross number of about $79 billion for Greek CDS is about to enter center stage.

It Gets Far Worse

I hold up my hand, “One moment please” as I introduce you to the 800 pound Greek Gorilla that is about to enter the room. Allow me to now present to you the “OTHER” Greek debt that is outstanding and will have to be accounted for as the country defaults. Detailed below are some of the “OTHER” sovereign obligations of the Greek government which have now been submitted to the ISDA and I list some of them below. You will note that there are bank bonds, Hellenic Railway bonds, Urban Transportation bonds et al that are guaranteed by Greece. You will also note that there are bonds tied to Inflation, Floating Rate Notes, Asset-Backed securities and a whole mélange of other structured products with a Greek sovereign guarantee. What we all thought was fact is now clearly fiction and default will now bring “Acceleration” one could reasonably bet in all kinds of these securitizations and in all kinds of currencies.  This could come from the ratings agencies placing Greece in “Default” or it could come from the CDS contracts being triggered depending upon each indenture and you will also note that a great many of these off balance sheet securitizations are governed by English Law and not Greek Law. You may also wish to consider the fallout to the banking system as the lead managers of all of these deals could find themselves behind the eight ball as various clauses trigger and as the holders of these securitizations line up at the judicial bench [ZH note: there is a reason why Allen & Overy is getting paid $1500 an hour to indemnify ISDA with a plethora of exculpation clauses – they know what is coming] The ISDN numbers are on all of these securities and the lead managers may be found on Bloomberg or other sources as well as the holders of the debt.  The curtain just lifted and the show is about to get way too interesting!

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Mar 10

- Moody’s: Greek sovereign credit rating remains at C (Reuters, Mar 9, 2012):

March 9 – Moody’s Investors Service says that it considers Greece to have defaulted per Moody’s default definitions further to the conclusion of an exchange of EUR177 billion of Greece’s debt that is governed by Greek law for bonds issued by the Greek government, GDP-linked securities, European Financial Stability Facility (EFSF) notes. Foreign-law bonds are eligible for the same offer, and Moody’s expects a similar debt exchange to proceed with these bondholders, as well as the holders of state-owned enterprise debt that has been guaranteed by the state, in the coming weeks. The respective securities will enter our default statistics at the tender expiration date, which is was Thursday 8 March for the Greek law bonds and is currently expected to be 23 March for foreign law bonds. Greece’s government bond rating remains unchanged at C, the lowest rating on Moody’s rating scale.

Moody’s understands that 85.8% of debtholders holding Greek-law bonds issued by the sovereign have agreed to the exchange, with the vast majority of remaining bondholders likely to be drawn in following the exercise of Collective Action Clauses that will be inserted pursuant to a recent Act by the Greek parliament. The terms of the exchange entail a discount – a loss to creditors – of at least 70% on the net present value of existing debt. According to Moody’s definitions, this exchange represents a `distressed exchange’, and therefore a debt default. This is because (i) the exchange amounts to a diminished financial obligation relative to the original obligation, and (ii) the exchange has the effect of allowing Greece to avoid payment default in the future.

- Greece averts immediate default, markets sceptical (Reuters, Mar 9, 2012):

Greece averted the immediate threat of an uncontrolled default on Friday, winning strong acceptance from its private creditors for a bond swap deal which will eat into its mountainous public debt and clear the way for a new bailout.

With euro zone ministers set to approve the 130 billion euro (109 billion pounds) rescue, French President Nicolas Sarkozy declared the Greek problem had been settled – just as Germany said that any impression the crisis was over “would be a big mistake.”

Markets sharply marked down the value of new Greek bonds to be issued to the creditors, reflecting the risk of paralysis after elections expected this spring and doubts about whether Athens can bring its debt to a more manageable level by 2020.

Sarkozy, who is trailing his socialist challenger for the presidency before France’s own elections in April and May, pronounced the Greek deal a major success.

“Today the problem is solved,” he said in the southern French city of Nice. “A page in the financial crisis is turning.”

Euro zone finance ministers held a teleconference call and were expected to declare Athens had met the tough terms of the bailout, its second since 2010, and to authorise the release of funds which the country needs to meet heavy debt repayments later this month and avoid bankruptcy.

On the streets of Athens, some Greeks denounced the deal as a sham that would impose more crippling austerity on a people already enduring pay and pension cuts and soaring unemployment.

German Finance Minister Wolfgang Schaeuble was also in a more sombre mood than Sarkozy, issuing a warning to Athens which has a record of failing to meet its promises of reform and austerity made to international lenders.

“Greece has today got a clear opportunity to recover. But the precondition is that Greece uses this opportunity,” he told a news conference. “It would be a big mistake to give the impression that the crisis has been resolved. They have an opportunity to solve it and they must use it.”

Under the biggest sovereign debt restructuring in history, Greece’s private creditors will swap their old bonds for new ones with a much lower face value, lower interest rates and longer maturities, meaning they will lose about 74 percent on the value of their investments.

“A VERY GOOD DAY”

Data published on Friday underlined the depth of Greece’s problems. It showed the economy shrank 7.5 percent in 2011, marking the fourth successive year of recession.

That was worse even than 1974, when Greece’s military dictatorship collapsed following a confrontation with Turkey over Cyprus and as a leap in oil prices hit economies around the world. That year the Greek economy shrank 6.4 percent.

Nevertheless, Greek Finance Minister Evangelos Venizelos hailed the bond swap, which the European Union and IMF had demanded in return for the new bailout, as marking a long-awaited success for all Greeks enduring a painful recession.

“I hope everyone will realise, sooner or later, that this is the only way to keep the country on its feet and give it the second historic chance that it needs,” Venizelos, who led often ill-tempered negotiations with the EU and IMF, told parliament.

He said the bond deal had cut its debt by 105 billion euros.

- Greece Has Defaulted: Here Is Where We Stand (ZeroHedge, Mar 9, 2012):

After reading this, everyone should have a fairly good grasp of what happened not only today, but ever since the great (and quite endless) European financial crisis took center stage, and what to look forward to next…

From Chindit13

In a nutshell—okay, a coconut shell—this seems to be where we are:

1)  Greece was able to write off 100 billion euros worth of debt in exchange for a 130 billion rescue package of new debt, of which Greece itself will receive 19%, or about 25 billion, so that it can continue to operate as an ongoing concern.  Somehow Greece is in a better position than before, with more debt and less sovereignty and still—by virtue of sharing a common currency—trying to compete toe-to-toe with the likes of Germany and the Netherlands, kind of like being the Yemeni National Basketball team in an Olympic bracket that includes the US, Spain and Germany.  At least a “within the euro” default prevented bank runs in Portugal, Spain, Italy et al.

2)  As a result of the bond haircuts, Greece has many pension plans that can no longer even pretend to be viable, at least according to the original contracted scheme, but pensionholders still working can take heart in the fact that their current wages will be cut, too.

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Mar 08

- Did Greek Bond And CDS Traders Just Ring The Bell? (ZeroHedge, Mar 8, 2012)

- Greek Reports Peg PSI Participation At “Over 75%”(ZeroHedge, Mar 8, 2012)

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