On Thursday night, after it became clear that JPM has lost at least $2 billion on what is most likely an IG9 Index skew (Index less Intrinsics) trade gone horribly wrong, we first predicted (and promptly were piggybacked on by other various financial blogs) that based on various factors, there is about $3 billion more in the pain trade coming in JPM's general direction, once IG9 blows out to catch up to a fair value not supported by JPM(artingale's) infinitely backstopped prop desk. Sure enough, by closing on Friday, IG9 (and the entire IG curve), had blown out wider, by a whopping 10 basis points: one of the biggest intraday moves in nearly a year. In P&L terms, by close of Friday, all else equal, JPM had lost another $2-3 billion on the same trade it had lost over $2 billion since the beginning of April. We expect to hear confirmation of this shortly. Which however brings another question: has JPM closed out its losing trade, or is the entire move in the index (and to a far less extent in the intrinsics) due to hedge funds who have piggybacked on the "crush JPM" trade? The truth is we don't know, and until we get the latest weekly DTCC data on CDS notional outstanding we won't know. However, our gut feeling is that it would have been virtually impossible for JPM to lift every single offer in unwinding a $100+ billion notional position without sending the entire IG curve multiples wider. Which is why keep a close eye on the IG9 10 Year skew - this is where, as ZH first noted, the action is. If the skew soars, it is likely that the runaway train will keep going and going, until JPM issues a formal announcement that the firm is fully out of the trade, together with a final tally of its losses, which will probably be double the reported loss as of Thursday. At which point IG9/18 will see an epic ripfest as those short risk will scramble to cover.
On the surface, the fact that NYSE short interest was just reported today to have risen to 13.1 billion shares as of April 30 could be troubling for the bears, as this just happens to be the highest short interest number of 2012. Indeed, an increase in short interest into a centrally-planned market is always disturbing, as it opens up stocks to the kinds of baseless short covering melt ups that simply have some HFT algo going on a stop hunt as their source, that we have seen in the past several weeks. Naturally, it would be far easier to be short a market in which Ben Bernanke managed to eradicate all other bears, especially when considering that a year ago the Short Interest as of April 30 was virtually identical.
Blythe Masters On The Blogosphere, Silver Manipulation, Gold-Axed Clients And Doing The "Wrong" ThingSubmitted by Tyler Durden on 04/05/2012 14:53 -0400
For all those who have long been curious what the precious metals "queen" thinks about allegations involving her and her fimr in gold and silver manipulation, how JPMorgan is positioned in the precious metals market, and how she views the fringe elements of media, as well as JPMorgan's ethical limitations to engaging in 'wrong' behavior, the answers are all here.
Greece Issues Statement On PSI, Says €172 Billion Of Bonds Tendered In Swap, Will Enact CACs, ISDA To Meet At 1pm To Find If CDS TriggerSubmitted by Tyler Durden on 03/09/2012 02:04 -0400
The biggest sovereign debt restructuring in history is now, well, history. The headlines are finally come in:
- GREECE ISSUES STATEMENT ON DEBT SWAP
- GREECE COMPLETES DEBT SWAP
- GREECE SAYS EU172 BLN OF BONDS TENDERED IN SWAP
- GREECE GETS TENDERS, CONSENTS FROM HOLDERS OF 85.8%
- GREECE SAYS 69% OF NON-GREEK LAW BONDHOLDERS PARTICIPATED
We learn that €152 of the €177 billion in Greek law bonds have tendered, which is 85.8%. This means that €25 billion in Greek law bonds have not - these are the hedge funds that could not be Steven Rattnered into participating, and will now sue Greece for par recoveries.This is also the number that ISDA will look at today to determine if, in conjunction with the CAC, means a credit event has occurred. And yes, the CACs are coming, as is the Credit Event finding:
- GREECE SAYS WILL AMEND TERMS OF GREEK LAW BONDS FOR ALL HOLDERS
As expected by virtually everyone:
- NO PAYOUT ON GREECE $3.25 BILLION DEFAULT SWAPS, ISDA SAYS
Keep in mind, as criminal as this appears, and as damaging to the CDS market, the real trigger will be what ISDA does determines following the end of the PSI process. If there is no credit event then either, especially when the CACs are triggered as expected - an event which will certifiably be a trigger event under Section 4.7, then ISDA is truly hell bent on blowing up the CDS market as a hedging vehicle in its entirety.
In a move that will surely shock, shock, the monetary purists out there, the Bank of Japan has just gone and done what we predicted back in May 2011, with the first of our "Hyprintspeed" series articles: "A Look At The BOJ's Current, And Future, Quantitative Easing" (the second one which discussed the imminent advent of the ¥1 quadrillion in total debt threshold was also fulfilled three weeks ago). So just what did the BOJ do? Why nothing short of join the ECB, the BOE, and the Fed (and don't get us started on those crack FX traders at the SNB) in electronically printing even more 1 and 0-based monetary equivalents (full statement here). From WSJ: "The Bank of Japan surprised markets Tuesday by implementing new easing policies and moving closer to an explicit price target, the latest sign of growing worries around the world about the ripple effects of the European debt crisis on the global economy. With interest rates already close to zero, the BOJ has relied in recent months on asset purchases to stimulate the economy. In Tuesday's meeting, the central bank expanded that plan by ¥10 trillion, or about $130 billion. The facility, which includes low-cost loans, is now worth about ¥65 trillion, or $844 billion." The rub however lies in the total Japanese GDP, which at last check was $6 trillion (give or take), and declining. Which means this announcement was the functional equivalent to a surprise $325 billion QE announced by the Fed. What is ironic is the market reaction: the BOJ expands its LSAP by 18% and the USDJPY moves by 30 pips. As for gold, not a peep: as if the market has now priced in that the world's central banks will dilute themselves to death. Unfortunately, it is only at death, and the failure of all status quo fiat paper, that the real value of the yellow metal, whose metallic nature continues to be suppressed via paper pathways, will truly shine.
Much has been said about the secretive vault situated 80 feet below ground level at 33 Liberty street, which contains over 20% of the world's gold (allegedly*), currently estimated at over $350 billion. Some have even robbed it: with the barrier between fantasy and reality a blur, courtesy of the total farce we live in which has rendered the IPO of TheOnion impossible, there is nothing wrong with actually believing Die Hard With A Vengeance did in fact happen. But if your knowledge of the vault is limited to the perspective of one John McClane, you are missing our on a lot. Which is why the new York Fed, in those rare occasions when it is not monetizing debt, and/or telling Citadel which securities to buy, has been courteous enough to put together "The Key To The Gold Vault" - the official brochure of the warehouse where more gold is stored than at any other place in the world.
Citadel Is Pleased To Announce It Is Now Officially An Executive Headhunter, And A Travel Agency To BootSubmitted by Tyler Durden on 01/23/2012 17:44 -0400
You know, just in case that whole investment banking, equity research, high frquency trading, hedge fund thing does not work out, Citadel always has a plan B - to become an executive headunter. From Ken Griffen's annual letter: "We actively follow the careers of countless individuals across the competitive landscape in the interest of finding people who will strengthen our team and enhance our performance. Our talent database contains over 150,000 resumes, of which approximately 25,000 were added in the past twelve months. When recruiting for a given position, we often construct our short list from a pool of more than 100 highly qualified candidates. The decision making process for new hires often extends beyond the traditional interviews."And in case that fails, the company will become a certified travel agent: "Consider these statistics: in 2011, the Global Equities team traveled more than 3,500 days, on more than 1,600 trips, conducting 9,000 meetings with 2,000 different companies." Impressive stuff, and just shows you what one has to do when "expert networks" are no longer part of the picture. Then again the "whole hedge fund thing" may work for just a little bit longer: "We are pleased to report that Citadel Wellington LLC (“Wellington”) and Citadel Kensington Global Strategies Fund Ltd. (“Kensington”) have generated net returns in excess of 20 percent for 2011." Which means that Citadel has passed its high water mark for the first time since after 2007 and can actually collect performance fees and pay bonuses for a terrific job well done: victory!
For an update on the sad state of the hedge fund industry, we go to the FT which confirms what we had been reporting every week in 2011 courtesy of the periodic HSBC hedge fund industry report, namely that less than one third of all hedge funds in 2011 paid material bonuses to their employees (or if they did, they better have done it without the knowledge of their LPs), because "more than two-thirds of hedge funds are below their high water mark., the point at which they are able to charge investors performance fees." And since performance fees, or the 20 in the "2 and 20 part", is where the discretionary component of analyst, trader and PM compensation comes from, it is safe to say that the bulk of hedgies did not have a good year in 2011. And, in fact, for many the anger goes far back: "It can be a long way back. Credit Suisse calculates that 13 per cent of hedge funds have not earned any incentive fees since at least 2007. Most of these are small funds with assets of less than $100m, which struggle to retain staff without the income available from performance fees." One such fund was of course Citadel which after its abysmal performance in 2008 only managed to climb above its high water mark in the past week for the first time since 2007. And while this is not really news, what is far more curious is that according to Credit Suisse hedge funds have resumed levering once again.
Meet "Ben Pu" - The Aleynikov Sequel: Quant Powerhouse Citadel Arrests Former Employee For Stealing "Alpha" CodeSubmitted by Tyler Durden on 10/13/2011 12:18 -0400
Chicago hedge fund Citadel may not have the best of luck when it comes to running traditional financial businesses (it's recent disastrous foray into advisory and capital markets - nuf said), but when it comes to picking up nickels and dimes ahead of slower traders (yes there is a name for it, but for lack of immediate legal retaliation by an uber-sensitive Ken Griffin we will leave it to our readers' imagination) by virtue of faster computers and a massive collocated infrastructure, Citadel is second to none (well, except maybe now infamous Latour Trading). Which explains why it is so sensitive to any former employees "borrowing" its special sauce, aka the computer code that is the only thing that gives the hedge fund its fro... er, superior trading execution. It was only last year that the fund went all Friend-O on Misha Malyshev, whose Teza technologies was implicated as the future employee of one now legendary Sergey Aleynikov. Well, it is time for a redux. As Dow Jones reports, "a former technology employee of hedge fund manager Ken Griffin's Citadel LLC was arrested for allegedly stealing sensitive computer trade secrets from the company for his own personal use, the Department of Justice said. According to the complaint affidavit, 24-year-old Yihao Pu, also known as "Ben Pu," was found by Citadel's information technology department to have "downloaded several unauthorized programs," which allegedly allowed him to bypass Citadel's security protocols and transfer files or data from his Citadel computer to an external storage device."
No, it is not that redemption gates are coming up again, or that the firm has lost half (or all) of any given team to some other firm that actually doesn't think it is an investment bank-HFT-options-distressed debt conglomerate (ironically Citadel is one of the last investment banks that is not a bank holding company.... when everyone else is a bank holding company...that's ok - Kenny has the balance sheet... until he doesn't), or that it may actually be above its high water mark for the first time in over 2 years... Instead, Ken Griffin recounts the wise words of his first investor and Citadel founding inspiration - grandma Gratz: "While Citadel is remarkably different from what it was 20 years ago, my core vision remains the same, defined by the attributes that my grandmother exemplified - strong character, courageous action, and honor in all her business dealings. These enduring values have underpinned our success and will carry us into the decades to come." Well, when you can't boast with P&L, which is what you actually are paid for, you can at least regale them with stories of your great grandfather's mustache.
Putting a cheery on top of one of the best days in capital markets history, FOX Business Network’s Charlie Gasparino is reporting that Citadel Investment Group, the giant hedge fund run by Ken Griffin, has received a subpoena from the Department of Justice. It is unclear if the Chicago's fund long-rumored 'dark pool' dealings with Brian Sack's Open Market Group will be exposed as a result. From Charlie: “They got a subpoena. It’s the same subpoena that sources tell FOX Business Network that Steve Cohen over at SAC Capital got. It’s a wide ranging subpoena and it dates back to 2008 asking for information on certain stocks. From what I understand, it’s not just healthcare stocks, which has been a primary focus. FOX Business Network has learned two other hedge funds have received subpoenas. We have put calls into Millennium Capital Management and Maverick Capital Management and we are waiting to hear back to them.”
Citadel is no stranger to headlines: in late 2008, the firm was a prominent fixture in the news, typically mentioned in the same paragraph as some (now long former) LP who had attempted to redeem capital from Ken Griffin's firm only to hear redemptions were indefinitely, and without warning, halted, followed up by an expletive laden tirade. After all it is only called a hedge fund: in reality it is merely a levered bet that Moody's assumption that nothing can ever go lower, is correct. Well it wasn't, and as a result in 2008 Citadel lost more than half of its assets. The net result is that with profits of 62% in 2009 and 4% YTD, the firm (and, incidentally most other funds) has no chance of hitting its high water mark for a second year in a row. Which brings us to today's surprising news that Ken Griffin (allegedly perceived in the industry as arrogant beyond comparison, so this must hurt overtime) has finally decided to eat humble pie and to lower its management fee. As hedge fund veterans know too well, this is often the first step of the beginning of the end, as it may indicate either a i) liquidity shortage, ii) a surge in redemptions, iii) a performance that is far worse than officially represented, iv) a megalomaniacal dictator at the head of it all, or v) all of the above. Most of all, it indicates that very soon every LP in Citadel will demand the same terms, making profitability for the hedge fund turned market market turned investment bank turned FRBNY collaborator into a living hell of razor thin margins. As for the title, it is rhetorical.
April 19 (Bloomberg) -- Lehman Brothers Holdings Inc., which has been investigating whether any companies may have contributed to its bankruptcy, issued at least five subpoenas to investment firms and hedge funds including Goldman Sachs Group Inc., SAC Capital Advisors LP, Greenlight Capital Inc. and Citadel Investment Group LLC, according to court filings. Bankrupt Lehman is conducting its own probes separately from the 2,200-page report by examiner Anton Valukas that was published on March 11.
From the rumor bag: Todd Kaplan, who joined Citadel less than a year ago from Merrill to build the firm's investment banking business, has quit. Wonder if that means the hedge fund's attempt to become a direct competitor to Goldman in the underwriting/advisory business has been scrapped? Perhaps an analysis of how many deals Citadel underwrote in the past year should be sufficient to answer this question.