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Goldman Correlation Desk Makes Mint On CIT CDS, Sallie Mae Up Next
One of Wall Street's biggest whipping boys since the post-Lehman days, culminating with the insanity in credit markets in early March, have undoubtedly been correlation desks. These trading outfits, which hit their heyday in 2004-2005, when CDS spreads were nice and tight, and negative convexity would at most bring a 20-30bps widening, would repackage securitization tranches whereby usually they kept the senior and equity wrap around a mezzanine piece, which was in turn sold to investors. Buyers of mezz tranches, whose junior and senior layers would become impaired after a 15% and 30% cumulative losses, respecitvely, saw what the definition of a world of pain is first hand recently, and effectively shut down the correlation business at many major banks. But not all.
As Debtwire reports, several correlations desks made a killing over the recent CDS blow up: most notably Natixis and the omnipresent Goldman Sachs. According to Debtwire's Nicoletta Kotsianas:
"Correlation trading desks at a few firms, including Natixis and Goldman Sachs, have been buying up CIT protection on the cheap since January to hedge risk in the instruments they structure and trade...CIT stood out to some traders, both because of its exposure to the credit crunch and its ubiquitous placement in the bespokes, said two correlation traders. Just six months ago, jump to default exposure to the name averaged roughly €50MM for many correlation desks, estimated two of the trader sources... One correlation trader who runs a mid-sized bespoke book said that he bought $85MM in short dated protection at an average price of 12 pts up in January and throughout the spring. Five-year protection on the name was quoted at 34 on 9 July but ballooned to the high 50s by 20 July when it became clear the government would not bail out the asset-based lender. Much of that price movement originated from other correlation desks rushing to hedge their jump risk."
So whose CDS will Goldman's correlated tentacles blow up next? According to Debtwire, it is Sallie Mae's turn:
"Sallie Mae is the next name in correlation traders' crosshairs, said two correlation traders, an analyst at a boutique brokerage and a sellside desk analyst. Five-year protection on Sallie Mae trades at 20 pts upfront, reflecting relatively low risk of default in post-credit crunch terms. Though not as widely held in bespokes as CIT, nor as distressed, Sallie Mae caught attention in recent weeks as correlation desks braced for the company to be downgraded to junk, all the sources said. Standard & Poor's last week placed the ratings on credit watch following a vote by the House Of Representatives Education and Labor Committee to pass a bill that would eliminate the origination of federal student loans by private lenders after July 2010... Offers to sell protection from dealers grew scarce this week and several dealers have faded offers, in a sign that not all desks are covered for Sallie Mae jump risk, aid three traders. Some bids did get picked up this week but the market is now 18/20 upfront on the contracts as opposed to 691 bps on July 19, according to a broker and data from Markit."
And who wants to bet which way Goldman's notoriously non-rumor spreading correlation desk is axed. Look to the student lender for some major fireworks over the next few weeks.
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I apologize - totally off topic. But Zero Hedge displays on my computer screen in incredibly cramped writing. The articles themselves are tiny blocks of writing in the middle of the screen with huge blank spaces on either side that are as big as the block of writing itself - the comments that follow get more and more cramped as they scroll down the screen until soon the comments are only a few words wide. It's like the screen was put in the wash on 'hot' and it shrank. Any suggestions on how to fix this? Thanks. And pardon again for the off topic.
Don´t know what browser you are using but everything is cool with firefox and chrome. I actually like the format. Try another browser.
Which Operating system: Windows, MAC OS, Linux, Solaris?
FireFox is usually your friend when it comes to browsers acorss all the OSes I listed.
If you are already using FF then I dunno...
http://www.mozilla.com/en-US/firefox/personal.html?from=getfirefox
Pete
Pete, thanks very much. I just installed Firefox and it does make a (bit of a) difference - i.e., the articles are much bigger now (though not as big as they were in the old Zero Hedge.) But thanks very much. I appreciate your help.
Also:
Go to View in Firefox. Select "Zoom text only." Then zoom out a few times.
If you run IE 8, hit the "compatibility mode" button on your browser. IE8 sucks - 1/2 time pages fail to load right.
Yes we have been complaining about the new format. Even when I type a response in this box, the whole side of the box is literally cut off on the right so I have to type half blind to what I am actually typing. No chance to see spelling errors because I can't see the right side of this box.
Man I wish that Tyler would just use the old format.
This is like a hack job website now.
I tune in for the message and cringe at the lack of functionality.
There is a place for these suggestions. This is not it.
Try the site suggestions forum topic. We've been very proactive about responding there.
We're not going back to the old format.
What a gigantic fuckfest...Horrible......
Goldman seems to know everything. Do they have advance knowledge? Spies everywehere? Is my Mom working for them?
No silly. They are just "smart people". LOL !
Well of course GS is the smartest guys in the room.
They bought the US government and the legislature.
Must have been a buy one get one free deal.
They got a chicago thug in the deal. Or make that errand boy.
i REALLY suggest to all here to read this ... to someone this may be a new information, and to someone a well known fact, but it is definitely a thing you all have to know and understand http://irwinschiff.homestead.com/TRAFICANT.html
I went and read it, even though I saw Traficant's name in the link.
What comes from a traveling freak-show like Jim Traficant that you think we all need to know and understand?
He's funny as hell (in an embarrassing "God, I'm glad he's not my dad" sort of way), or was before he went to jail (he gets out next month), but he could tell me the sky was blue, and I'd look outside to check.
Below, a sample Traficantism:
Before heading to jail, Traficant said, “When I get out I will grab a sword like Maximus Meridius Demidius and as a gladiator I will stab people in the crotch.”
Amazing hair-do, epic corruption, but really, what else does he have to commend his views for consideration by polite society?
Epic corruption??? No sir, he is just one of the very few caught and prosecuted. I actually enjoyed a few moments of the Congressional blow-hardery when it had an official court jester versus the humourless cesspool of crooks now at the helm.
Whichever counterparty ends up owing GS money over this will be guaranteed by the usa gubbermint. GS. Does. Not. Lose.
The Jan 2010 $10's and $5's puts were bought on the offer (90% of each strike). When I saw the activity a little while ago I checked to see what was up. I was able to confirm who made the trade, they stategy they used, and that they were bought.
Could you elaborate? Your statement is pretty vague. I see very little recent trading activity in GQMA and GQMB.
these people are fucking leeches. Jesus fucking Christ, they think they can push the button of public tolerance for ever, without getting hit .... i don't fucking care what they provide, what they may contribute to charities, i want to see them jailed and fucked in the ass by an angry man named Bubba at least 6 times a day ...
playing coorelations with high leverage is an extremely dangerous game. the nobel laureates at LTCM found that out. by the time they realized they had a problem, they were already circling the drain.
the tbtf's can get away with it though. heads they win, tails we lose. and either way, they get their bonus. what a country.
The difference between LTCM (when genius failed) and GS...GS is the new FED....
The SEC should focus on Leverage and asset correlation...but no, they have been banned from all investigations regarding GS...
Big texas bank on verge of failure
http://money.cnn.com/2009/07/31/news/companies/guaranty.headache.fortune...
rofl according to the chart attached to the article if FDIC bail out Guaranty FDIC goes bust ...
SLM was an obvious short candidate. Does anyone remember those +15% upmoves or so for SLM? there were several. I knew it was too good to be true. Now the question is do I want Nov or Dec puts on it :)
The baby blue column on the right under "search" takes away 1/3 of the page.
Then the baby blue column on the left with the user name and options takes away more.
Also very unfriendly to even slightly increased text size.
Odd. It's the standard width for ads all over the net (300 pixels, plus a bit of margin). For that reason, we aren't likely to shrink it.
Goldman keeps killing the game. You know it is only a matter of time before they are the only bank standing. And by standing I mean propped up and betting with all our tax money yet keeping all the bonuses in house. Must be nice when EVERYONE you know can bail you out at a moments notice.
Tyler, howsa bout something on the McCellan oscillator...
thanks in advance
Marla, how about instead of a math captcha, a spelling captcha?
then you'd have a problem. it's the McClellan Oscillator.
Let's just go straight to olympic level sudoku. you can use a computer but you must complete the puzzle in 44 milliseconds.
my workstation at GS can handle it
The entire purpose of the Math CAPTCHA is to filter out liberal arts majors.
LOL
ROTFLMOA.
BTW, just register and you lose the CAPTCHA hassle. Then again, maybe a liberal arts major or just Dennis Kneale....
well, i'm a history major undergrad...
Eyes on the prize boys.Interest rate swaps let out of the gate 1999.Very Dark OTC's, ICE covering all tracks of sweetest game in town..
Meaningless comment without any facts.
having a record year at work (contrary to my short mkt position which has actually gave me a mild case of depression, not joking)...but having a great business year this year is the worst time to do it
i have zero leverage for a raise or decent bonus, they will shaft everyone.
there are just too many on the street that can fill anyone's spot....
so what will i do when i get no raise, and a paltry or deferred bonus...well...for starters i will keep showing up day after day, and keep doing my work, oh that will show them!!!
no leverage
salary stagnation...will lead to deflation
oh well.....
on the bright side, all the misery does eventually end and you cant take your toys with you
I wish I could bitch-slap you.
it's very funny reading somebody whine about having a job.
+1 A. Fuck you, D.
Be nice.
So Goldman writes the paper and then shorts it.
CIT and Goldman
Don't worry fellas, it's all legal!
This jibes with comments I read on another site. The gist of it was that the job market sucks for recent grads (no surprise there) and the 6 month grace period for paying student loans is fast approaching. Thus, default #s will probably start to rise pretty dramatically as jobless new grads can't pay the bills.
I am sure the goverment will do a courtesy extention and then send out draft notices for either the armed forces or Rohm Emmanuel's domestic squads.
I agree with the prognostication, but the spelling of Obama's Chief of Shaft's name is the formerly Honorable Rahm Emanuel, or for math majors it is 666.
could you please elaborate on the Rahm/666 matter? Not a math major, used to be good at it, but am now old and stick only to basic arithmetic. thanks!
After the likes of Goldman Sachs obtains all the money everyone has then what? Is there an Endgame that the government has in store for GS?
Yea Kids getting out of school are going to have a hard time paying a monthly balance of $400+ when 80% of that is interest only payments. Is that a obscure figure? No because thats what i was paying on a 20k student loan offered at 12% interest, but somehow escalated towards 18% during mid 2007. I was fortunate to be able to pay off the remaining debt in one go, but its unfortunate because these student loans mimic exactly how the housing bubble started.
Schools offer gimic degrees such as massage therapy criminal justice and network technician (aka help desk) when there wasn't room in the economy for this type of shit. It one thing ripping off adults its another ripping off kids out of high school. I asked salie mae to remove the late payments from my credit report and they wouldn't budge even tho i handed them many thousands in interest payments over a short period of 1 1/2 years.
two anecdotes...1. My son's payment is $250/month...just lost his job and naturally dad had to cover this month's payment. 2. friends of ours have a daughter that got her MBA at a private NY school after 4 yrs at another private NY school. Her monthly student loan payment is just shy of 700 bucks...wow! Oh, she is working at a condo showing people rental units for about 20k/year. ouch.
Look, I get the part about teaching your kid responsiblity and blah blah blah but man why doesn't he just skip the bill? Is he going to need credit soon?
Perhaps I am getting too jaded but taxpayers are going to own Sallie Mae in short order.
Classic:
College Grad Can't Find Job, Wants $$$ Backhttp://www.nbcnewyork.com/news/local-beat/College-Grad-Cant-Find-Job-Wan...
Next up, suing to void the SLM loan. Nevermind, taxpayers would be more than happy to pay her loans until she can find a job - under the newest Gov't acronym: SLAP.
this new website sucks.. i can see big breast add, not really serious for finance.
Use firefox with adblock plus. No more boobie ads. Which might actually be a bad thing.
Quiet you!
We could remove the ads entirely if you wanted to pitch for this year's server costs.
sounds like someone might have SMALL breasts
Marla,
If you brought back the old look of the site I would donate.
To me this is almost a non functioning site.
I cannot read half the comments because they take on strange shapes, I cannot see the right side of my comment box so I am typing blind and I cannot figure out how to navigate the site when all your articles used to be a direct link on the right hand side of the page. Why can I only find 'popular' content now? I used to read every article in order down the right side of the page whether deemed popular or not.
Please put suggestions in the site suggestions topic in the forums. Thanks!
This site has been overrun by morons. It's really sad. And, incidentally, anyone who writes, "LOL" needs a smack in the face. Seriously. You're smoking balls.