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Citi Reiterates "Keep Calm, And Lever Up" Call
When do you know that Wall Street has officially succeeded in turning back the clock 5 years? When the market’s collective mind state has been reconditioned to the point where analysts feel comfortable creating research notes with titles like this one: “Keep Calm and Lever Up.” That was the title of Citi’s 2015 outlook piece and it served as a precursor to several missives the bank has released over the past two months wherein Citi strategists pound the table (hard) on why now is the time to wade into synthetic tranches.
Well, just two weeks after the bank introduced the concept of “trickle down QE” and explained how it could theoretically be used to convince (read: dupe) investors into selling protection on Crossover mezz tranches, the good folks at Citi are out today with yet another reminder that ECB asset purchases (which, as we’ve explained repeatedly, simply can’t be executed in the amount promised) will be the catalyst that makes synthetic exposure to euro HY a good idea:
What do we need for the synthetic structured credit market (tranches) to really take off? Two things:
Tight spreads – ECB QE is taking us there and we expect this to continue.
Low volatility – This is key: for investors to add synthetic leverage (to an already long risk portfolio) they need to feel confident about MtM vol. Adding leverage is adding potential MtM vol, so when vol is high investors are reluctant to lever up even if spreads are tight. This is, we believe, what has happened so far: ECB QE pushing spreads tighter but limited interest in tranches due to high implied and realised volatility (mostly as a result of the events around Greece).
So breaking that down, look for CB asset purchases to compress spreads making long credit positions attractive, but only if nothing happens that might introduce a significant amount of volatility because, if you’ve taken on synthetic leverage you don’t want the market to move violently against you because someone sneezes in Greece or because Russia decides to make another land grab in Eastern Europe.
The problem: absolutely nothing that has happened on the geopolitical stage over the past 60 or so days should give anyone any confidence that the various and sundry “fluid” situations unfolding from Ukraine to the Middle East will be any semblance of predictable.
So when Citi notes that you’ll likely be ok outside of the equity tranches because “investors looking to lever up will [want to] minimise the impact on the tranche performance of idiosyncratic surprises – not that investors may believe the likelihood of idiosyncratic surprises is high but they probably don’t want to take a large exposure to something they probably are not experts on,” we would ask if most investors really believe they have a better read on the future path of European and/or Middle Eastern politics than they do on the risk of single-name (idiosyncratic) defaults. Our guess is no.
In closing, Citi takes the rhetoric up another notch and flat out predicts a synthetic structured product renaissance:
If volatility (both implied and realised) continues falling and the market gets more comfortable with the probability of a Greek default and/or the potential impact of one in the general credit market, we expect the demand for synthetic structured credit products to increase aggressively across all investors, not only hedge funds.
Here’s a pretty picture followed by Citi’s description of what it shows us:
The red square is where we were in 2006 – when investors couldn’t get enough levered synthetic tranches. We’re getting there.
And we can’t wait.
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Meantime, PMs getting smashed in Asia for a change. New lows on the way this summer; triple digit gold and single digit silver.
What is the appropriate eco-term for 'I am going to puke"?
or maybe I am suicidal but given the choice and a few seconds I am going to hang the lot of you BASTARDS and maybe make a Downtown Abbey series of your downfall.
Good lord. 2+2 is 4. WTF?
Oh well we all have opinions. Myself? think you may be right.
DEATH of the dollar. Dollar will sky-high, PM's will (go below 1100) and the shit will hit the fan. But the PM at 1100 will not be anywhere near the price after. So yeah take it down boys, Take it down,
Like Another, Foa, FOFOA etc. have surmised. God knows they saw collapse years before. Never saw this stretchhhhhhh.
But read the theory. Gold oz. will likely collapse. Then ?
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This has been the right call for years
Citi Sep 2015: "Keep calm and bail me out as shit hits the fan again"
I've had enough of the "Keep Calm and [fill in the blank]" bullshit.
In a world of productive people, prosperity is limitless. Our world is watching productivity dying and financial markets intent on scouring the planet for wealth, luring it, manipulating it into surrendering to them. This is a war of redistribution. Financial entities, including our governments, are hungry and .they.will.eat.
PMs are the bad boys...not invited to this party for some reason....but in time they will crash the party and take all the hot chicks...
I think you are right. And why? Because people slowly come to some item that preserves their labour and allows them to benefit their children.
Could be seashells. Could be many things. But the" useless frigging eaters" called the 1 % know it is gold. Silver yeah, Silver will fly.
I am aware I turned the "useless eaters" back to where it belongs. I mean what mind would worship monarchy? What the frig is this nonsense? Brainwashed population that allows legislation that still allows "CROWN LAND?" wHO THE FRIG ARE YOU? What purpose do you serve?
City of London? Vatican? Monarchy? Central Banking. BIS?
Come on. You guys got my back do you?
Yep, gonna have to get me some of those Tranches. Never have enough of those. I allways did like those tranche thingys, especially the synthetic ones, and 100x lever too boot. Whats not to love?
tranches applied reduce wrinkles.
If you can't explain it to a 5 year old, .. It's too complicated.
and no self respecting 5 year old would part with his ice cream money over that crap..
I agree. Every single eco crap gets more derivative, disguised, casino, Nobody can decipher this garbage, Nobody but I gaurantee the interest payments on his mounting debt are the end game.
I never gave any real credence to this Protocols of Zion but I skimmed them last week. Sometimes 2+2 GOES TO places I never thought.
Anyway there is dispute about this document. I skimmed it. FUCK.
I went through that document anf ticked the boxes.
Bitcoin is headed to the moon bitchez. Don't know what is causing it yet. Could be inflation in various nations.
Will CITI finally achieve its goal of catastrophic failure?
No, that will probably be AIG again.
Here it is: found the reason for Bitcoin's and of course my main source of income's rise:
BIT Poised to Become Publicly Traded Bitcoin Fund Fund has been racing against rival offering from Cameron and Tyler WinklevossSounds like the beginning of a Hollywood script.
More cow blooey and horse chip investing strategy to milk the muppets of their hard earned booty. They're really getting desperate...the low hanging fruit is gone.
But but but the Rating Agency's!!
In for a penny, in for a tranche.
Jam up and jelly tight.
My, my, my baby.
Now you're outta sight.
Synthetic WTFs? And Tranches. Lehman time. When the ECB finds enuff (maybe not) NIRP bonds to buy, they have to run up price to enduce dellers. So it becomes even worse NIRP. And then? Effers. Gross & Seth Larman are right. OTW Eff You Citi.
Did they mean "Lube Up" instead of "Lever Up"?
I'm sold!