And just like that last week's junk bond debt fund liquidation and redemption suspension, which first struck at the mutual fund giant Third Avenue and promptly spread to a hedge fund launched by the former heads of distressed and high yield trading from, get this, Bear Stearns, and was supposed to be quietly buried, went front page and nuclear following a WSJ report that the CEO of Third Avenue, David M. Barse, who had been with the company for 23 years, has been fired.
The Biggest Threat To The S&P 500 In The Next Month: "Biggest Buyer Of Stocks In 2015" Enters Blackout PeriodSubmitted by Tyler Durden on 03/24/2015 08:36 -0500
For those curious what the biggest threat to the S&P's making new daily all time highs is, here is the explanation from Goldman: "The majority of companies just entered the buyback blackout period leading into the 1Q earnings season, and high valuations in the absence of corporate demand may weigh on stock prices."
Because after doing the math, we find that the biggest stock market surge in 2014 was over what boils down to be a central bank injection of... $5 billion per month?
Several days ago we were confused why, out of the blue, a €1 billion loan BWIC appeared that was dumping German non-performing loans. After all, the whole point of the European "recovery" fable to date has been to deflect all the attention from the "pristine" German banks, up to an including world-record derivatives juggernaut Deutsche Bank, and to focus on Greece and other insolvent peripheral European nation. Earlier today, German Handelsblatt provided an answer, when it reported that "four German banks are on the brink", i.e., four banks of which three are known, HSH Nordbank, IKB and MunchenerHyp, will likely fail the ECB's stress test whose results are due to be announced next Friday.
The last few days have been hectic for PIMCO executives. As we already noted, expectations of outflows persist and today's open in CDS markets suggested major concerns among market participants that PIMCO redemptions would force selling through an illiquid market. Sure enough, Bloomberg reports that PIMCO's Total Return Fund ETF was behind the auction of more than $170m of Fannie Mae CMBS on Friday (and more BWICs were seen today). As one trader noted, "you're going to sell your most liquid stuff first." Additionally, PIMCO has seen fit to delete all Bill Gross' tweets... so here are the last six months for the record.
"You’re picking up pennies on a train track. You are not getting paid much but you are sure that there will be a very negative surprise at some point. The risk / reward profile is as bad as ’07." - Portfolio manager speaking to Citigroup
Frequent readers will recall that in the past, on several occasions, we expected that MBIA would rise due to two key catalysts: a massive short interest and the expectation that a BAC settlement would provide the company with much needed liquidity. That thesis played out earlier this year resulting in a stock price surge that also happened to be the company's 52 week high. However, now that we have moved away from the technicals and litigation catalysts, and looking purely at the fundamentals, it appears that MBIA has a new problem. One involving Zombies. These freshly-surfacing problems stem from a particular pair of Zombie CLO’s – Zombie-I and Zombie-II (along with Zombie-III, illiquid/black box middle-market CLO’s). While information is difficult to gather, we have heard that MBIA would be lucky to recover much more than $400 million from the underlying insured Zombie assets over the next three years, which would leave them with a nearly $600 million loss on their $1 billion of exposure which would materially and adversely impact the company's liquidity. And as it may take them a while to liquidate assets in a sure-to-be contentious intercreditor fight – their very own World War Z – MBIA may well have to part with the vast majority of the $1 billion in cash, before gathering some of the potential recovery.
In almost every asset class, volatility has made a phoenix-like return in the last few days/weeks and while equity markets tumbled Friday into month-end, the bigger context is still up, up, and away (and down and down for bonds). From disinflationary signals to emerging market outflows and from fixed income market developments to margin, leverage, and valuations, here is the 'you are here' map for the month ahead.
It's no shock that the Spanish housing market is horrible but hope has been, following the government's nationalization of various banks and creation of the 'bad bank' to soak up all the toxic crap those banks had on their books, that a recovery could blossom. It appears not - not at all. Not only are bad loans rising at record rates with house prices remaining down over 40% but now Reyal Urbis has filed for insolvency making it the nation's second largest bankruptcy as dozens of smaller firms have failed. What makes this so important is the fact that the banks were unwilling to refinance the debt - seemingly comfortable with liquidation - summed up perfectly: "Many loans were refinanced one or two years ago, in the hope that things would get better, but it has not been the case and there is now more realism about the situation. Why would you extend a new loan today?" A good question, one that Tepper's Appaloosa will be pondering as its EUR450mm loan looks in trouble.
Following our most recent discussion of David Tepper's apparently 'now' bearish bias to financials (based on his $400mm BWIC), it appears that his latest "balls to the wall" thesis is not playing out so well. The S&P 500 just touched the key 1491.50 'Tepper Balls'-Day highs... meanwhile VIX has jumped by the most this year from Friday's lows...
While we already presented, courtesy of Nanex, the modus operandi of the Knight berserker algo, there was one outstanding question. What was the bottom line. And no, not how much the loss on Knight's Income Statement would be as a result of this glimpse into what really happens in the market: we already knew that would be $440 million. The question is what is the notional amount of stock that this algo bought in the 45 minutes in which it was operational. We now know: $7 billion. Or $155 million per minute. Or $2.6 million per second. Or, assuming the algo impacted just 150 stocks as previously reported, it was buying on average $17,333 in each name every second. Or, assuming an average stock price of the universe of 150 stocks of $30/share, the Knight algo lifted the offer roughly 600 times each second. For 45 minutes straight! That's right - the market making algorithm of a designated market maker which is responsible for 10% of the order flow in the US stock market, entered a pre-programmed mode (because the computer was told to do whatever it did by someone, and not without reason) that saw it buy up $2.6 million worth of stock every second.
The last time the Fed tried to dump Maiden Lane 2 assets via a public auction in a BWIC manner, it nearly crashed the credit market. This time, the FRBNY, headed by one ex-Goldman Sachs alum Bill Dudley, has decided to go back to its shady, opaque ways, and transact in private, with no clear indication of the actual bidding process or transaction terms, and sell $6.2 billion in Maiden Lane 2 "assets" to, wait for it, Goldman Sachs, the same firm that would benefit in the first place if AIG's assets imploded (remember all those CDS it held on AIG which supposedly prevented it from losing money if AIG went bankrupt?). One wonders: does Goldman have a put option on the ML2 portfolio if the market experiences a sudden and totally impossible downtick some day? But all is well - we have assurance from the Fed that the sale happened in a "competitive process." Luckily, that takes care of any appearance of impropriety.
Fed Back To Its Secretive Ways, Sells $7 Billion In Maiden Lane Assets Directly To Credit Suisse Without Public AuctionSubmitted by Tyler Durden on 01/19/2012 13:03 -0500
Instead of opting for a publicly transparent BWIC in the disposition of its Maiden Lane II assets, the Fed has once again gone opaque - long a critique of the Fed's practices which have required repeated FOIAs in the past to get some clarity on its secret bailouts and transactions - and proceeded with a private sale, without any clarity on the deal terms, in which it sold $7 billion in face amount of Maiden Lane II assets direct to Credit Suisse. The alternative of course would be the same snarling of the MBS and broadly fixed income market that we saw in June of last year. In other words, the Fed looked at the options: transparency and risk of grinding credit demand to a halt, or doing what it does best, which is to transact in the shadows, and avoid capital markets risk. It opted for the latter. As to why the Fed decided to go ahead with a deal shrouded in secrecy? "The New York Fed decided to move forward with the transaction only after determining that the winning bid represented good value for the public." "I am pleased with the strength of the bids and the level of market interest in these assets," said William C. Dudley, President of the New York Fed. Because if there is one thing Bill Dudley and the Fed knows is gauging what is in the best interest of the public... and the callorie content of the iPad of course.
Funds Offloading Duration In $50 Million Bond BWIC; Are Inflation Concerns Affecting Liquidity In Long-Maturity IG Bond Market?Submitted by Tyler Durden on 07/19/2010 13:22 -0500
In an odd development, today bond traders have been fielding calls to express an interest in a $50 million bond BWIC. Two observations: traditionally any recent BWICs percolating have usually involved loans, and typically in the form of much larger baskets. This one, however, is all bonds, consists of 17 names, the largest of which are UPS, DIAG, TGT, HARVRD and PEP, and even more interesting is that this is for the most part 2030 and longer-maturing paper. It appears some fund has decided to unwind a big portion of its duration exposure. Granted, the bonds are mostly IG, with the biggest coupon at 7.9%, but nonetheless, the fact that $50 million in HY can not be placed in the traditional bond pipeline speaks volumes about the lack of liquidity in the bond market, especially for longer-dated, and thus inflation sensitive paper. As for stocks, it is very obvious that any liquidity in equities has long gone, as stocks undergo 0.5% rallies in the span of seconds, on no news, just momentum-driven HFT block order frontrunning.