Jpm
JP MORGAN CHASE & CO (JPM) NYSE – Jun 13, 2013
Thursday, June 13th, 2013
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JP MORGAN CHASE & CO (JPM) NYSE – Jun 13, 2013
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JP MORGAN CHASE & CO (JPM) NYSE – Jun 13, 2013
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Tags: Jp Morgan Chase, Jpm, Sia
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Default Risk Falls for US Banks and Brokers (Bespoke)
Tuesday, August 7th, 2012
Below are charts that show the change in default risk (5-year credit default swaps) over the past two and a half years for six of the most widely followed banks and brokers here in the US. Over the past week or so, these financial firms have seen a pretty big drop in default risk as their stock prices have moved higher.
Morgan Stanley (MS) still has the highest default risk at 322 bps, followed by Goldman Sachs (GS) at 247 bps. Bank of America (BAC) and Citigroup (C) are in the middle of the pack, while JP Morgan (JPM) and Wells Fargo (WFC) have the lowest default risk. Wells Fargo (WFC) is the only company with a 5-year CDS price below 100 bps, clearly establishing it as the “safest” of the big US financial firms.
Tags: Bac, Bank Of America, Banks, Bps, Citigroup, Citigroup C, Credit Default Swaps, Default Risk, Goldman Sachs, Investment Group, Jp Morgan, Jpm, Morgan Stanley, Sachs Gs, Stock Prices, Two And A Half Years, Wells Fargo, Wfc
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LIBOR Liar, Pants on Fire. A Look at Barc, BAC, JPM, and Citi
Thursday, July 19th, 2012
by Peter Tchir, TF Market Advisors
July 2007 to January 2008
Stocks
These are the stock prices, “normalized” to 100 in July 2007. In the August swoon, JPM and C did the worst. Barclay’s eventually caught up in later August, while BAC did well. We briefly rallied on a Fed Rate cut in October, but then the swoon returned with C underperforming by far. It was down over 40% in that period. Barclay’s was in the middle, and JPM was actually the best performer, down only 11% by year end.
CDS
These are “normalized” CDS spreads. You can see that at first they moved in line, then Barclay’s underperformed, but returned to the fold by the time of the Fed rate cut, and then ultimately we saw a separation as JPM did the best (just like in stocks) and Citi did the worst (just like in stocks). But this overstates the divergence a bit. Looking at the outright spreads shows that Barclay’s actually started the period trading tight, and JPM was the widest, but by the end CDS markets viewed JPM, Barclays, and BAC as similar, but Citi was noticeably wider.
LIBOR Submissions
These are “normalized” LIBOR. All banks were submitting very similar rates. Then the stock market decline started and bank LIBOR increased. This was a function of credit spreads. Then as Fed programs kicked in (discount window) and then rate cuts were implemented, LIBOR moved down.
The outlier to me, is Citibank. Citi was the worst on CDS, the worst on stock, but actually did the best on LIBOR? Really? Was Citi really able to borrow from other banks at rates equal to or lower than BAC and JPM? Shouldn’t it have been closer to Barclays? There is the fact that Barclay’s was reliant on BoE rather than the Fed. That is one reason for Citi to more closely track JPM and BAC, but that close? CDS was relatively tame, so maybe the differential in 5 year CDS overstates the issue, but just doesn’t seem right.
August 2008 to January 2009
Stocks
All the banks moved more or less in line at first. Then Citi, Barclays, and BAC underperformed. For one brief moment, Citi actually bounced and got back to JPM levels, then a long slow decline started. Barclays was for awhile the worst performer, but Citi took over, being down 80% at one stage and finishing down 65%. Those are big numbers. Citi, BAC, and Barclays all saw their stock price decline by 55% to 65%. JP was “only” down 23%.
CDS
On a “normalized” basis, it’s surprising to see Barclay’s CDS do better than anyone else’s at any time during the period. What is clear, is that on a “normalized” basis, Citi consistently was the worst name. One spike up with JPM, one with Barclay’s, and one big spike all by itself. But maybe like in 2007, the levels were low enough that the differences might be immaterial?
No, these moves in LIBOR are real. Citi started the crisis as the highest spread name, and maintained that “distinction” throughout the entire period. Barclay’s never traded as wide in CDS as Citi. JPM was probably the best, but BAC wasn’t too far behind (though it widened as noise about hidden ML losses came out). Barclay’s was surprisingly not as bad as I would have guessed. Citi though is just clearly the worst.
LIBOR Submissions
This is “normalized” and Barclay’s is a clear underperformer. You can tell when they were allegedly “told to catch up”, but throughout, they remained the high submitter. They underperformed through the entire crisis. Not quite consistent with stocks or CDS and may explain why they complained that others weren’t submitting “true” rates. Citi was somehow consistently able to submit LIBOR that was lower than BAC but was even lower than JPM on some days. By the end of the year, once Barclay’s was presumably fully in liar mode, they were similar to BAC and C. Maybe it’s the normalization process screwing up the data?
I’ve added the 3 month yield so you can get a sense of the Ted Spread, but it is clear that Citi felt they funded in line with BAC and at times with JPM. It is only at the end when we see Citi, BAC, and Barclay’s submit similar rates.
If Barclay’s said others were lying, who could it be? There were days the separation between the U.S. banks and Barclay’s was as high as 100 bps. 50 bps difference wasn’t uncommon. I can justify JPM trading that much better. The stock market performance and CDS of JPM would all be good explanations of why JPM was better than Barclay’s at funding. That much lower, is a guess, but it actually doesn’t seem unreasonable.
Citi in particular looks bad. Especially since BAC’s spikes in LIBOR coincide at least somewhat to times when their stock and CDS underperformed.
Conclusions
This is only one point in one curve. I have focused so far on 3 month USD Libor. That is the most important one in my opinion in terms of number of contracts that reference it. The 1 month has such short duration that I didn’t focus on it yet. The 6 month is interesting because it would have more credit risk and should reflect more differentiation. The same analysis would have to be done for every bank, every currency, and every spot on the curve to get a true estimation of how much LIBOR LYING was done. Determining, or guessing how much each bank lied would be critical to any lawsuit. Lawsuits will ultimately have to be tied to how much a bank lied, and how much of that lie impacted the LIBOR setting. The complex mechanism by which LIBOR is calculated means that not all (or possibly any) of a lie would impact LIBOR’s setting. In spite of Barclay’s rush to catch up, they were still being excluded from the LIBOR calculation on most days for being too high.
From this data, there is no way to prove anyone lied, or to prove by how much if they did.
Gut Feel
I have spent more time focused on Barclay’s and their US issues. So far, it looks to me like they were submitting LIBOR more accurately than other and their claims that others were too low seem right. I have more work to do, but am getting to the point where the damage to Barclay’s stock price is worse than the risk.
Concerns over JPM’s exposure seem overdone as well. Yes, they were at the low end of submissions, but I think it would be hard to prove that is a lie without some real evidence. They had low submissions, but their CDS and stock performed the best. I do not think that they can be sued just because they have a large book of business if they didn’t have material amounts of “lying”. Again, I’m not concluding anything yet, but fears related to them seem overdone from all the work I’ve done.
For some reason I want to say something bad about BAC, and my gut tells me I’m right, but as of now, they seem reasonable. Their LIBOR moved with their stock and CDS. Maybe they were slow occasionally, but if anything they come out better so far than I would have guessed.
Citi. It is impossible to say they did anything wrong from the data I’ve looked at, but their submissions don’t pass an initial smell test. If Barclay’s is saying banks were submitting LIBOR that was too low, they strike me as a candidate for much deeper scrutiny. Their stock and CDS did the worst, yet consistently during those peak times, they submitted LIBOR closer to the better performers. Again, it could be a function that it is so short dated, and a function that Barclay’s was so high they were being excluded, but I would want to take a closer look at Citi’s submissions and would be nervous that their stock does not fully reflect the risk.
We are not lawyers, and have no access to actual interbank trades from the time, and this is not a recommendation to buy or to sell, but if the market is going to throw around lawsuit numbers in the $20 billion to $50 billion range and move prices based on that, figuring out how real those numbers are and who would bear the brunt of the burden is key. From all of our work so far, any “manipulation” prior to August 2007 would have had minimal impact as all the submitters were so close together and there really wasn’t a “credit” problem so the fluctuations of LIBOR seem reasonable, at least within a bp or two.
More banks to look at, more points on the curve, and more historical bond prices to dig up.
Tags: Barclay, Barclays, Boe, Citibank, Differential, Divergence, Fed Programs, Fed Rate, Jpm, Liar, Libor, Nbsp, Outlier, Pants On Fire, Stock Market Decline, Stock Prices, Stocks, Swoon, Tf, Year End
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Gold Wins As Financials And USD Deteriorate
Monday, June 4th, 2012
With Europe’s credit traders on vacation, volumes overall were muted today in Europe but average in the US. The lack of discipline that normally occurs when the credit boys leave the room helped lift sovereign credit in Europe and implicitly US equity futures (ES) into the open today, which marked the top for the day (back in the green after an ugly Sunday night) as dismal macro data dragged debt and and equity markets back down to overnight lows. Credit and equity moved in sync in general but across broad risk-assets, correlations were loose at best as Gold was very stable holding gains from Friday while Silver exhibited its high beta ebullience and Copper and Oil followed stock’s path down and back up. Treasuries leaked higher in yield with a steepening in the curve (though 10Y and 30Y outperformed 7Y as the Twist pivot maturity seemed most active). EUR strength was sustained from early morning in Europe with JPY weakness providing some support for stocks but it seemed both VWAP and the 200DMA were the key levels today and despite two stop-runs in the afternoon, we flushed down at the last minute (off near day’s highs – thanks to Egan-Jones’ UK downgrade news) to close red for ES (2nd day in a row below 200DMA). Financials (which are close to red for the year and about to cross below Healthcare and Staples) did not participate in the swings as much with JPM and MS worst today -3% (with the latter now 25% lower than the March 2009 market trough levels) and the other TBTFs around -1.9%. VIX oscillated rather like ES today – as usual but popped back above 26% to close marginally lower on the day. While correlations did drift today, stocks remain a little too full of hope still against overall risk markets but with UK closed again tomorrow, we may have to wait for Wednesday to see how Europe (and implicitly the rest of the world) feels.
S&P 500 e-mini futures had quite a day. Limping higher from a horrible overnight dip into the US open where heavy volume and large average trade size dominated and pushed the market lower as macro data disappointed. The leak lower progressed until Europe closed and then again we pushed higher on low volume stop-runs each time halted by heavy and large average trade size hitting the tape… the close brought the UK news and snapped ES back below VWAP.
YTD S&P 500 Sector performance… financials converging down to Unch, Staples, and Healthcare
and from the March 2009 market lows, financials’ performance is very dispersed… (MS -25% and WFC +206%)
Gold outperformed as the USD leaked back ‘down’ to resync from Friday’s moves. Treasuries are selling off a little but so are stocks as it would appear for now that Euro repatriaton from liquidating US assets is occurring and Gold is benefitting from more safety bod…
HYG remains an underperformer – holding below its intrinsic value – and we worry that this kind of weakness will leak back into real bonds and drive down an already illiquid market as today saw dealer net buying (buy-side net selling) for the first time in a while…
and the hump-shaped move in the Treasury curve was clear as 7Y underperformed 5s, 10s, and 30s…
as 5s7s10s butterfly bounces off record lows…
Charts: Bloomberg
Tags: 30y, Correlations, Drift, Ebullience, Egan Jones, Futures, Gold, Jpm, Macro Data, Maturity, Overnight Lows, Pivot, Rest Of The World, Risk Markets, Staples, Treasuries, Trough Levels, Ugly Sunday, Vix, Vwap
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Where Have All The Cheerleaders Gone? (Tchir)
Tuesday, May 29th, 2012
by Peter Tchir, TF Market Advisors
Stocks are rising in spite of a lack of cheerleading. Europe did very little last week at the summit and this time it seems most pundits took the time to notice that. The Bankia “rescue” is highlighting how bad the Spanish banking system is how much the country is going to need to spend on that. The crisis at the regional level in Spain has hit a point where all the debts will get passed up to the country level and the myth that guarantees don’t matter has been shattered. No one is claiming this is a good thing, yet futures are up.
Greece, I am told, is likely to leave the Euro, yet the consequences to Greece and the EU will be devastating. I cannot remember another case where the outcome is universally held as disastrous for all parties, yet the outcome is deemed a foregone conclusion. Our own analysis projects that the risk to the EU from a Grexit is very high, but we believe that the risks are so obvious and real, that some agreement will be reached to buy enough time to untangle the mess a little before the actual exit.
Even good old JPMorgan can’t seem to do anything right. After weeks of being pounded on about the whale trade they are now being chastised about the unwind. A Reuters article seems to suggest that it is bad that it is selling the available for sale bonds held by the CIO office to offset the losses. Did they not read the transcript of the conference call? That AFS book is part of the CIO’s office, and was part of the reason JPM initially entered into “hedge” trades. Expect JPM to unwind that book as they unwind the whale trade because the last thing they want is to have no “hedges” and a $200 billion book in the CIO office. Some of the abuse JPM has been taking has been deserved, but much has been over the top and suggesting that somehow it is almost nefarious that JPM is booking big profits as it unwinds this leg of the CIO’s position shows just how far the pendulum has swung against the big banks.
Is there a lot to be excited about? No. Will we have a U.S. come in fade? Probably. Should you be short this market? Not just yet. The complete lack of cheerleading is a cause for concern for being short. Stocks were up last week, yet the commentary was bearish across the board and from the tone of most of what I hear and read, you would have thought it was another down week.
Economic data remains soft, but away from Europe not horrible, and even in Europe it is becoming a bit unclear just how much is priced in. Talks of stimulus in Asia helped that market. The ECB has done nothing so far this week, but I wouldn’t rule them out, and the Fed has plenty of opportunity to try and talk up the market here with weak economic data, no signs of inflation (at least in the data the Fed focuses on) and with real pressure on bank credit spreads.
So I remain bullish here. Again, the May 11th prices are my target as I feel that everyone got too bearish after the JPM announcement on the 10th. Mere calm may be enough to get us there, but I can see easing and JPM as catalysts higher. Europe is a mess, but it has been for awhile, and if they can keep Bankia out of the headlines, that too might help enough. Also, being overlooked in the past two weeks is limited evidence that retail is pulling out of risky fixed income markets. Pro’s may be selling high yield bonds, but at this stage, retail does not seem to be joining the flight, very different than 2011.
Copyright © TF Market Advisors
Tags: Analysis Projects, Banking System, Bonds, Cheerleaders, Cheerleading, Conference Call, Debts, Foregone Conclusion, Futures, Hedges, Jpm, Jpmorgan, Myth, Nbsp, Pundits, Regional Level, Reuters Article, Spite, Tf, Whale Trade
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Bill Black: JPM’s “Wild, Crazy Insane Gamble” Puts Economy at Risk [Video]
Thursday, May 24th, 2012
Tags: Bill Black, Economy, Insane, Jpm, risk
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Planning, Carry, and Intervention (Tchir)
Thursday, May 24th, 2012
by Peter Tchir, TF Market Advisors
The market continues to trade with extreme volatility. Yesterday’s decline was deep and painful, only to be followed by an equally vicious rally on rumors of a rumor. This morning has already seen Europe rally, fade, then rally again. The overall theme remains the same, with concerns about Europe being counterbalanced by hopes of central bank action and government policy. Maybe as a bank bull down here, I am reading too much into it, but the whale trade fiasco seems to finally be getting put into perspective. That is good for JPM and the financials and the market.
The fear that the EU is preparing a plan for Greece to exit seemed like the worst excuse to sell off that the market has used. There is a real chance Greece will exit. Without significant concessions from the ECB and Troika, it will be there only option. I would much rather that Greece planned for it rather than just gave it a shot. Any hope of a Grexit not being incredibly disruptive to itself and to the rest of Europe will depend on planning. Real planning, not the typical EU style that assumes the market will do what it would like, but one that puts some stresses on the potential outcomes and works hard to deal with them. Given how much money the ECB and Troika are on the hook for, the concerns of deposit flight in other countries if redenomination risk rises, the EU will have to be very careful what it does. I think that as the EU actually works on some plans (shocking that it hasn’t yet) their concern for their own safety and their ability to really manage the worst case scenario will come into doubt, and they will make some concessions with Greece to give everyone time.
And timing is everything. Lots of people are asking what changed from Friday, or from yesterday afternoon. The answer is very little. But what actually has occurred from 2 weeks ago when the S&P was 1,357. The answer there is also very little. Fears of an imminent Grexit have been overblown. That has been our message. Neither side will have the guts (nor stupidity) to rush this decision. It will take time. Time is key because it does give hope that enough can be done that the exit doesn’t turn into a full blown crisis in Europe and that risk of currency flight in Spain and Italy can be contained. Timing is key, because without imminent catalysts, the oversold conditions and “carry” can come into play. RSI, as simple as it is, remains one of my favorite indicators. So much bearishness has been stuffed into the market, that the ability to rally on next to nothing remains high. We even ignored some okay housing data, which only 2 months ago everyone agreed was the key to a successful recovery.
Shorting credit is expensive. Everyone seems to forget about that. Seeing IG18 blow out from 93 to 123 reminds everyone how cool it is when credit blows out. HYG down from 91 to 87.5 is another great example of how quickly credit moves. Spanish CDS at 540 and still near the record highs posted last week is another example where it blew out from a low of 355 in March, to 555 last week. The problem here with being short is how expensive it is. HYG is paying 7% per annum and the price is rising. The cost to sit short is high, and if you take away the noise around Greece (overdone) and JPM (overdone) the arguments for it to be higher than this are all still in place. Even with Spain, you pay 100 bps running and have a pull to par effect, so you slowly bleed money being short. Add to that, the fear that one of these mash it all together and throw government money (that the government doesn’t have) solutions is enough to get the markets excited and you have the making of a short squeeze. The true “trading float” of Spanish bonds in particular is very small. Most bonds are held in buy and hold accounts at banks and insurance companies. Neither of these groups, overexposed as it is, are buying, but they aren’t selling either, so any improvement in the situation can result in a move disproportionate to the improvement. This is also true, to a lesser extent, in the Italian bond market.
I remain constructive here under the assumption that
- Central banks continue to be extremely dovish and may even take some actions
- Grexit, while likely isn’t imminent and the EU will start trying to sound less arrogant and belligerent towards Greece
- The sell-off in financials, part in Greece, but at least in part due to the whale trade, is over and is reversing as people are able to understand that even at JPM the CIO’s entire book is okay, and that this was not a systematic trade affecting all banks
- Data will continue to be mediocre, but with enough bright spots that the bulls can latch on to something and try and push high
- Sell in May and go away may be a good investment strategy, but selling ahead of a long weekend typically isn’t
Copyright © TF Market Advisors
Tags: Amp, Concessions, Decline, ECB, Excuse, Extreme Volatility, Fears, Fiasco, Government Policy, Greece, Hook, Jpm, Nbsp, Rally, Stresses, Tf, Troika, Whale Trade, Worst Case Scenario, Yesterday Afternoon
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Corporate Bond Chaos, ETF’s, and JPM’s “additional losses”
Friday, May 18th, 2012
by Peter Tchir, TF Market Advisors
Corporate bonds in the U.S. took a beating in the past 48 hours. The high yield market, which had been spared much of the carnage seen in the HY CDS markets, finally succumbed.
This chart is key for a couple of reasons. First it shows that the 3 point drop this week and the 2 point drop in the past two days for HYG is largely a catch up to moves that had already occurred in the CDS market. We still think of HYG as a “retail” product, but volumes have spiked in recent days as it has become a valued source of liquidity. Hedge Funds have been looking at the ETF versus the HY CDS index. A trade we have liked, that as recent as 4 months ago was generally met by polite grins from some of the HF’s we talk to. Now it is a strategy people like. More investors and market makers are looking at the ETF’s as a better way to hedge themselves than using the CDS index. The HY ETF’s have their own sets of problems, but there is a growing realization, particularly in the high yield market, that at least they move with their bonds more than the CDS indices.
We are starting to see spikes to the downside late in the day. It could be for any number of reasons, but the reality is that I think it is market makers more than anyone who are causing that. To the extent you get hit on bonds in the morning (you didn’t fade your bid fast enough, or the client was too important) you spent the whole day trying to move those bonds. With everything going on in Europe you don’t want (or aren’t allowed) to be long overnight. Your choices are hitting a down bid on the bonds – probably a loss of at least 1%, shorting HY18, which is already very cheap and the index guys get annoyed at anything less than $25 million, or, shorting some HYG. It might cost you a ¼ point, but that is better than selling the bond and it seems closer to the market than the CDS index which feels ripe for a squeeze. That flow is occurring.
The HY ETF’s are both trading at a discount. That is encouraging the arb which means arb clients will be selling bonds, buying shares, and then using share redemptions to monetize the trade. Again, it seems like a “market neutral” strategy, but for some reason, the selling of bonds seems to weigh more on the market than the purchase of the ETF’s. That adds to the downside pressure, and there is currently a big game going on of “which bond will the ETF’s sell”. That is adding to the volatility in the cash market.
I’m struggling to figure out what is affecting U.S. high yield so much. Hedge funds don’t seem too leveraged. Banks don’t have much inventory. Retail doesn’t seem spooked (the redemptions seem to have as much to do with arb activity as retail outflows). I think this is the opportunity we have been waiting for to increase our allocation in HY in our Fixed Income Allocation.
I have to say something about JPM here. The positions at some level were long assets in an available for sale account (which had over $7 billion of untapped profits on a portfolio of $200 billion, according to the transcript). From everything else I have pieced together they were short HY market via CDS and long IG via CDA – JPM details. You notice how HY CDS got tighter every day from the 21st until the 30th. That would likely have produced a loss in the whale trade. According to the WSJ, there was a meeting on the 30th. Between then and the 10th when the call occurred, HY moved in their direction every day. That move has accelerated. How much of this hedge did they keep? Did the funky nature of their hedge perform the same as the on the run index? There is no way to know what happened, but on the HY CDS leg, the market has done nothing but move in their direction since that first emergency meeting. Their cash positions in the AFS, which should be marked at the lower of cost and market value, had an average gain of 3.5%. That portfolio, using that form of accounting won’t have had a loss (it probably has less untapped gains, but no accounting loss). Again, impossible to know what happened there, but certainly food for thought.
Investment grade also was in real trouble yesterday, though the CDS market has been indicating that for days. LQD was down almost a point, and that is on a day where TLH was up over a point, amplifying the spread widening. While cash was that weak, IG18 only weakened into the close at it, somewhat surprisingly spent most of the day near unchanged. While the selling pressure in the cash market was real, and somewhat scary, the relative strength in CDS was encouraging as it has been the leading indicator in this entire sell-off that really started after the JPM announcement.
This graph shows the IG9 10 year index and the IG17 5yr since the start of the year. You can clearly see how fast the widening has been, which started in early May and accelerated after the JPM conference call. There are a couple of things worth thinking about here. For everyone just looking at the performance of IG9 10 year and “guessing” what the additional JPM loss is, it makes almost no sense. If it was that simple, JPM would have had huge gains on this trade in the first quarter. Even in April the change wasn’t much. If it was all the “basis” and the difference between the indices that caused the problem, you have the same issue, that it was fairly stable though out the year. It has widened, which is likely bad, but again, doesn’t really explain the P&L. If IG9 was actually tightening coming into April 30th, why was JPM having losses? First, IG9 did seem to move slightly less than IG17 in those last few days of April. But if JPM was long the index, they should have some gains. The problem, I believe, and am trying to confirm, is the tranches didn’t move with the overall index. A quick look at MBIA, which would be a driver to the tranche price (the ones JPM had on, have a higher “delta” on the weakest names) supports that. MBIA CDS actually widened from April 17th when it was 884, to 970 by April 30th. Radian had an even larger move wider, which again would have hit pricing on “mezz” and “equity” IG tranches. Doing more work, but it will have been a widening in high beta names, driving the tranches they owned wider that would explain the loss. The underperformance of IG9 vs IG18 in that period is largely because of the high beta names, the ones JPM had the most exposure too. The big question here, is did they just go very short IG17 or IG18 against the tranches in that first part of May when it was freely for sale, still trading rich, and priced as low as 93 for IG18 which is currently at 120? Again, impossible to know, but the simplistic IG9 10 year explanation that is out there has no real basis in fact.
Maybe the G8 will threaten Germany with becoming the Growth 7 and she will cozy up and change her tough stance? It is scary that the ECB and Germany seem oblivious to the risk of a Grexit, and I’m frankly scared at some of the simple solutions the ECB seems to have for their losses – put them into the EFSF. But more people are coming out and pointing out the dangers, and Europe if anything, has demonstrated great fear of decision and kicking the can with a skill that even Messi envies.
E-mail: tchir@tfmarketadvisors.com
Twitter: @TFMkts
Tags: 4 Months, Carnage, Chaos, Corporate Bond, Corporate Bonds, Downside, Extent, Hedge Funds, Hf, high yield, Hy, Hyg, Jpm, liquidity, Losses, Realization, Retail Product, Spikes, Squeeze, Tf
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So How Are JPM’s Prop “Counterparties” Faring?
Friday, May 18th, 2012
We already know that JPM has lost billions on its prop trade, and as suggested earlier (and as the FT picked up subsequently), JPM’s prop desk (not to mention its actual standalone hedge fund, $29 billion Highbridge, which nobody has oddly enough discussed in the mainstream press yet) is so large that unwinding the full trade, as well as all other positions held by the CIO, would be unwieldy, allowing us to mock “the fun of negative convexity - especially when you ARE the market and there is no-one to unwind the actual tranches to.” The FT then phrased it as follows: “I can’t see how they could unwind these positions because no one can replace them in terms of size. It’s a bit of the same problem they face with the derivatives trade,” said a credit trader at a rival bank. “They pretty much are the market.” Which actually is funny, because if the media were to actually read a paper or two on how the market works, and puts two and two together, it just may figure out that the biggest beneficial counterparty for JPM is none other than the Fed, using the conduits of the Tri-Party repo system. But that is for Long-Term Capital MorganTM and its new CIO head Matt “LTCM” Zames to worry about. In the meantime, a question nobody has asked is how have the purported JPM counterparties, the most public of which are BlueMountain and BlueCrest who leaked the trade to the press in the first place, and are allegedly on the other side of the IG9 blow up doing. Well, according to the latest HSBC hedge fund update looking at the week ended May 11, not that hot.
Now one thing we know is that when it comes to reporting one’s results to an aggregator: when you have a profit you never under-represent it. And in this special case, since the funds are likely eager to recruit more like-minded hedge funds to their side of the trade, the best way to do it is by showing profits.
Which, for the early part of May, when the bulk of the JPM losses took place, are oddly missing for the two biggest players across from JPM…
So: where are the profits really going?
And is there much more here than the “access journalism” press has been let on to know?
Tags: Aggregator, Billions, Blow Up, Bluecrest, Bluemountain, Conduits, Counterparty, Derivatives, Desk, Hedge Fund, Hedge Funds, Hsbc, Jpm, Long Term Capital, Losses, Ltcm, Mainstream Press, Negative Convexity, Profits, Tranches
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Flight From Risk: Treasury Plummets To Record Low Yield As Gold Surges
Thursday, May 17th, 2012
Now its getting interesting. 30Y yields fell the most in 5 months today back to 5 month lows, 10Y yields crashed to all-time closing lows, and Gold surged by its most in 4 months (and 2nd most in 7 months) as stocks started to accelerate lower. Gold is unch on the week now as 30Y is -21bps and 10Y -14bps – incredible. Between the Philly Fed’s confirmation of deceleration in US macro data and Europe’s increasingly crescendo-like implosion, is it any wonder that the decoupling thesis has given way to reality. S&P 500 e-mini futures repeated the early rally late fade pattern of the last 8 days but this time it was more aggressive as ES pushed towards 1300. CAT was a dog today accounting for 25% of the Dow’s losses and AAPL tumbled further – heading towards a 20% retracement off its highs. Financials tumbled further with Citi inching very close to red YTD (and JPM falling rapidly). Credit markets, which led the selloff, continue to slide but this time with equities in sync. Equities went out at their very lows of the day – at 3.5 month lows as VIX soared over 24% to close at its highest in 5 months.
Is BTFD DOA?
30Y Treasuries plunged but 10Y fell to record closing low yields!!!
and Gold is back near unch of ther week as the PMs soared today…
Financials are rapidly losing ground with Citi and JPM about to go red YTD…
Tags: 4 Months, 5 Months, 7 Months, Aapl, Confirmation, Credit Markets, Crescendo, Deceleration, Dow, Futures, Jpm, Losing Ground, Lows, Macro Data, Pms, Retracement, Selloff, Treasuries, Unch, Ytd
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