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About That Boaz Weinstein London Whale Bulls-Eye
Two days ago we made a simple observation: back in September 2011, Weinstein's firm SABA Capital hired one of the key JPMorgan prop traders - Maitland Hudson - who "ran JPMorgan’s proprietary trading of derivatives tied to commercial-mortgage bonds" and whose future job at Saba would "focus on relative value trades" - such as, perhaps, IG9 10 Year versus a basket of tranched trades... Our suggestion was that instead of being a brilliant credit trader as he has been called by Bill Ackman, and his antics while in charge of the DB prop desk certainly put theory in jeopardy, perhaps Weinstein is merely a wonderful headhunter: one who knows just whom to hire and when (kinda like Steve Cohen hiring key Pharmaceutical company R&D personnel in a perfectly legal transaction now that expert networks are done, but that is a topic for another day).
Still, the key angle here, and the one we spent most time on Tuesday, is that it was none other than a former (and perhaps disgruntled) JPM employee that is the ultimate reason for the billions in losses that JPM is currently experiencing- "one wonders, did Boaz hire JPM prop trader Maitland Hudson in what is nothing but a fishing expedition, so well known to the hedge fund industry, where one gets a job and a guarantee in exchange for the firm's entire P&L and positional blotter? Yes, Hudson traded prop CMBS, put with all prop traders sitting next to each other and full updated portfolios instantly available to all, everyone knew what everyone else was doing, something we discussed back in 2009 when we demanded a seating chart of Goldman's prop and flow traders. In which case did Saba know well in advance of everyone what the biggest CIO prop bet was, allowing it to take appropriate bets?" In other words there was one big caveat: "all this assumes that Iksil and the CIO had the IG9 trade on in September." According to a just released report from Bloomberg, the answer is yes.
JPMorgan Chase & Co. (JPM) trader Bruno Iksil, known as the London Whale because his bets this year were so large, has been a leviathan of a risk-taker since at least 2010, a person with knowledge of the matter said.
Investigators are examining how long senior executives knew about Iksil’s swelling bets at the chief investment office before losses approached $2 billion. One focal point is why the formula used to calculate Iksil’s VaR was altered early this year, cutting the reported risk by half. The change followed an internal analysis in late 2011 and was approved by top risk executives, said a person close to the bank. About the same time, half a dozen managers typically involved in such decisions moved to new jobs.
“If it was something that had that large an impact, it would have to be agreed to at the very-most-senior level within risk management,” probably including the bank’s chief risk officer, said Steve Allen, a former head of risk methodology for JPMorgan who retired in 2004. “You’re not going to make a change of that magnitude on the basis of one risk manager.”
Iksil was assigned to devise hedges and make trades to counter the risk that a faltering economy might lead to a surge in losses on corporate loans or bonds. By 2010, the VaR on his trading book was about half of that for JPMorgan’s entire chief investment office, which at the time also oversaw more than $300 billion of securities, according to a person with direct knowledge of the CIO’s operations.
Which in turn means that internally, everyone on the JPM prop desk knew about Iksil's trade: most certainly someone of Hudson's prominence in the trading hierarchy. And following his retention by Weinstein in the summer of 2011 - the Saba founder himself.
It also explains something else previously noted by both us first, and Reuters recently: that while Saba may have made major profits on its anti-Iksil trade, its performance YTD is really not all that great. Why? Because parallel to the JPM IG9 inverse trade, Weinstein was putting on trades that, ironically, were natural hedges to a position which fundamentally is a levered bearish trade (IG9 blowing out), with a JPM unwind catalyst. Below is a good summary from Value Walk showing that the "star trader" is perfectly fallible (on an occasion when he may not have the benefit of an ex-insider wealk thru).
At the Boys & Girls Harbor conference in February where he announced that he was shorting the index, he also recommended another credit idea.
Weinstein stated that 5-year credit default swaps on AAA rated European countries offered better risk adjusted turns than those from PIIG countries. He mentioned that a basket of Danish, Swedish and Norweigen 5-year CDS were up 228% from June 2011. Portugese, Italian and Irish 5-year CDS were only up 61%.
We were curious how this trade had worked out.
...
[F]or the AAA rated countries Denmark, Norway and Sweden the CDS changes were respectively 6%, -11% and 38%. That’s an average return of 11%.
The total return from the PIIGS basket has been better than the AAA basket since February. There are clear reasons why this might be the case, as the situation in Southern Europe has deteriorated far quicker than almost anyone expected.
Weinstein’s projection has been wrong in the months since he offered it as advice. But playing CDS isn’t a quick get in and out game.
Weinstein has been wrong in the short term.
Perhaps there were no sov traders that could be poached at major Fed-backed prop desks that could disclose their CDS positions in this one?
One thing to note: we are not suggesting there is anything wrong with what Weinstein did: he merely gamed the system's weakest link to his best advantage - something a prominent card player is known to. And by hiring a JPM trader, who most likely spent his month-long garden leave in some warm tropical island, Weinstein merely had a full glimpse of JPM's entire trade blotter. Being smart, and having been in precisely this place before (when he ran DB prop), he knew too well there is no way that Iksil could unwind his monster IG9 position, and as a result started betting against it. And bet. And bet.
And then nothing happened.
So finally, in April, he and his closest hedge fund buddies leaked the news to the press, and the rest is history: like a pack of rabid dogs everyone jumped on the other side of Iksil, resulting in the prop trader finally folding, especially once the global economy tumbled over European concerns. Not even JPM could defy the entire market.
Which brings up three conclusions:
- From this point on, any bank which abuses its Too Big To Fail privilege, by putting on monster market-moving and market-defining prop trades, assuming its balance sheet is the Fed's balance sheet, will be henceforth fair game for any hedge fund consortium which sniffs out an Iksil-type mega block that with the assistance of the media, would be like taking candy from a baby with bottomless pockets.
- Banks are reevaluating their entire employee separation process: from the signing of NDAs, to the duration of "Garden Leave", to what information any employee anywhere in the firm is privy to. In fact, we would not be surprised if, in the vein of the CIA, soon every banker had a given clearance level, when it comes to what P&L they can access.
- Banks will be very, very concerned about what departing traders at the heart of massive trades may take with them to the buyside. Which brings the question: how much information about JPM's prop positions has Maitland, or other recent and future potential departures, leaked to "potential future employers" in the hope of abandoning what some now see as the next sinking ship?
And the other point of course, is that one doesn't have to be a great trader or investor, when just being a gifted headhunter of prop trading "talent" is sufficient to make one millions in profits.
Being lucky also helps.
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RiskMetrics #FTW!
Since the US regulators and courts are corrupt and weak, we have to rely on predators to give JPM a kick in the balls.
... Who in turn give us (American Taxpayers) an even more painful kick to the balls ...
All I know is that Mr. Hudson should avoid the area near the Hudson River, small aircraft, hot tubs, as well as busy streets.
Let the zombies eat each other.
Which is exactly how it should be, rather than the insanity of letting criminals police their own activities under the guise of regulation and enforcement.
If you don't have an interest in the game, then you don't have an interest in the game.
+1
Weinstein is -essentially- making a run at trying to be the de facto regulator of Jamie Dimon...potentially a naive, reactionary boss who may have given -cheaply- to his competitors the ammunition to kill himself.
Good luck, SABA. It all depends on how well you interviewwed the candidate, before you leveraged up, and whether she truly is in the know about what she claims to know about their actual positions and strategy.
If yes, Dimon can -potentially- take a career bath.
If no, SABA may make a little but waste a lot of energy and enthusiasm trying, and I would have SO expected more from a so-called chess master.
BTW, Tyler, you were ON YOUR GAME with all the news and data today.
Impressive...MOST IMPRESSIVE!
oui!
this is an instance of the market regulating itself when the 'authorities' won't/can't/are far too stupid to realize what the fuck is going on.
this scene is remarkably relavant to the SABA/JPM dialectic...enjoy:
http://www.youtube.com/watch?v=dQbpx5Be5rI&feature=related
"oh but it is a game, you said so yourself"
...nothing is fucked; they're a bunch of ametures,
janus
Are we really expected to believe this "Boaz Weinstein" is a real person? It reeks of Freemasonry. I suspect his accomlice was named "Jachim Winkleberg"
When the elite and bankers are eating their own, things are alot worse than they appear to be.
I don't for one minute believe it's a big happy family of oligarchs. It's war. Piracy. Theft. Coersion. Persuasion. Bribery. Victory and defeat. Success and failure.
It's human nature. Even among the "elite".
Capitalism.
Just add "crony" and it the beautiful chaos unravels. The cronyism is introduced through laws, regulations and gubbmint.
All is fair in Love and War.
One doody-saturated hand washes the other doody-saturated hand
Net result: Coprophagia.
Jamie Dimon -- you've been played like a cheap violin.
As my 11 year old nephew would say (with his finger and thumb in the shape of an "L" pressed to his forehead):
LOOOOOOOOOOOOOSSSEEEERRRRRRRRRRR
and all these nice folks go to their clubs and slap eachothers backs and yell:
ACTING
JP Morgan is having its Barings-Lehman-AIG-SocGen moment
when these traders are cock-of-the-walk the Executive Board love it, the firm basking in reflected glory being the smartest traders out there and of course the Executive bonuses. When their gambling junkies lose Big-Time the Executive Board allegedly know jack-shit and throw him under the bus
amazing how the Police come straight in for traders under the Big Banks orders but do sweet fuck all when the Banks Board loses $bilions ain't it?
cough Corzine cough
Thanks ZH for one of the best days of great articles.
i 2nd that !
absolutely fantasic - like reading a suspense novel in real time -- just can't say how i feel at this moment, but really, really good digging
Bravo ZeroHedge!!!
When will we see the ZH consortium?
Enjoy it while it lasts. This kind of honesty has a half life of months.
Hillary Clinton; "We're losing the information war !'
Internet freedom's days are numbered. All in the interest of protecting you from yourselves of course.
How much longer will we have information like this? This beats the hell out of wikileaks.
Tyler, Zero Hedge et al:
Am very interested in a word cloud encompassing words like: Fed, ECB, China, Greece, Spain, QE, policy, policy makers, earnings, EPS, growth, profits, etc. as examples. I suspect that that word cloud would be dominated by policy and central planning and less with fundamentals, i.e., earnings and growth, etc. If I'm correct, as I suspect, it'll show that current market dynamics are more concerned and at whim to central planning rhetoric and less about earnings and profit growth.
I don't know where else to post this request, but if anyone knows, please pass word to ZH and TY.
Rah!
Monoki
i don't think you need a word-cloud, soldier; just open any copy of NYT, WashPost, turn on any MSM market broadcast...in short, the matrix is doing the work for ya!
in the mean time:
terrorist, bomb, iran, syria, building, airplane, incendiary device, dirty bomb, thermo nuclear explosion, tall building.
that should give the boys over at Enigma a hard on.
Kloud Kulture!
awesome.
How's that JPM trade going with the moves Today, is it getting better for them or not?
IG9 (10Y): 171 bps, +4.5 bps, means another ~$800MM loss for Bruno. Has blown out nearly 50 bps since Dimon conference day when it was 124 bps.
Now at the widest since October 4.
MAX MAX MAX PAIN PAIN PAIN.
That's a shame. If only there was an exit...
Kweku's fault.
Bruno is my new Hero. That MF'r should get some kind of award.
paper
scape
goat
So does that mean this trade is costing him $177,777,777 a point (more or less)? Does that mean he's lost a cool $8.9bil since Jamie announced they had lost $2bil? So are they down about $11bil?
Yes, just about right on all accounts. I think in previous ZH articles the DV01 was estimated at $200 million; and a notional of ~$100 billion was thrown out too if I'm remembering correctly.
But total losses could be much worse than $11 billion.
So we're starting to talk real money. How come the MSM are still wittering on about a $2bil loss? I would have expected better from Bloomberg.
http://www.bloomberg.com/news/2012-06-01/jpmorgan-names-bacon-deputy-risk-chief-after-2-billion-loss.html
They will be naturally using their profits from other trades to compensate these losses. So the ultimate loss in the end for JPM will not be that much. But it'll be nice to see bonuses running out of the bankers windows :)
probably accounts for the 4% jump in both Gold and Silver yesterday... JPM had to divert all efforts to shoring up their helpless flapping whale tail and the screws came off the PM's
Like the evil Eye of Sauron. http://lotr.wikia.com/wiki/Eye_of_Sauron
Didn't think I'd ever say this but they are worse than lawyers.
Oh yes, and somewhere right now a joke is likely being written by some creative soul (e.g., "a lawyer, a banker and a 5th grade science teacher are at the gates of Hell, and St. Peter says to Satan . . . "
Wonder how much Bruno earned for them before things went south.
... wonder how much Bruno earned FOR HIMSELF with his 'favorable' marking stategy before things went south ....
Jamie Dimon is kind of like that guy getting his face eaten off by the "bath salts" cannibal... it will continue until the "authorities" intervene
Mr. Dimon, we're going to have to ask you to spit out that eyeball and put up your hands.
the best way to rob a bank is to
control the proprietary trading and
take bad positions that your partners
can capture for a price or cut in the
take.
enter the fbi for a share of the take for
their bosses?
plying with the "folks" money, it doesn't
get any better than this.
@blindman
Thanks for your post as it gives someone to ask an unanswered question from another thread last night:
"I'm still curious to know if it is not easier to rob your bank from the inside by getting caught on the 'wrong side' and losing to the 'right side' of the trade of which you are a partner.
If I were connected, had a few billion and sat on a couple of boards and was as larcenous as these 'banker' dudes-----I think it might be fun to game the public, the fed, and anyone that wanted to hedge these derivative trades.
Look at what you could do playing with the fed's 'money', drifting a little bit to those poor 'gov't' employees from time to time, without regulations, ethics, personal risk, marking however it suited me, with spreads wide enough to drive a truck through, on paper that few understand, etc., etc.
I used to make an 'honest living' in munis with a two point spread giving the cliet 25% of it, and splitting the rest with the partners-----this derivatives game looks like a pot of gold next to that.
Maybe, these people are just too principaled to scam each other, but they sure as hell are not timid in asking for free 'money'.
Come on--someone tell me what I'm missing---I don't know a thing about derivaties om"
blindman, if you can scribe a few words of comment about the above, I will be most obliged---I usually get to every party a little late----when everyone has gone thanks, again om
the above sounds about right. the pool of
players in this market seem to be familiar
with one another and share a common pedigree,
all the better for the incest engagement. the
times' piece had a revealing paragraph..
The Hunch, the Pounce and the Kill
http://www.nytimes.com/2012/05/27/business/how-boaz-weinstein-and-hedge-...
.
"..Other hedge funds were also big winners. Blue Mountain Capital and BlueCrest Capital, both created by former JPMorgan traders, were among those winners. Lucidus Capital Partners, CQS and a fund called III came out ahead, too. " ...
the ground work for open incest and stealing has been
laid and tilled and fertilized and soiled all in broad
daylight, what a show. and who is investigating this?
Senate Banking Investigation of JPMorgan to be Headed by Former JPMorgan Lobbyist
May 25th, 2012
http://silverunderground.com/2012/05/senate-banking-
investigation-of-jpmorgan-to-be-headed-by-former-jpmorgan-lobbyist/
.
the incest just gets better and more public as
time goes by. ( fascism )
so there it is. the best way to rob the treasury is
to be or own the treasurer and the laws relating to
the "proper" functioning and duties there upon. it
appears inevitable that the lowest forms will ascend
to the highest chambers and destroy the integrity
which is required for legitimacy thereby devaluing
even the essential and beautiful, the fate of fiat
with the current criminal specimens?
i think so.
Thanks, blindman
om
om,
thank you for the post and invitation!
Is it possible to commit a crime when you are executing wartime monetary policy on behalf of .gov in a battle zone? Face it, Uncle Sam is a paranoid psychopath willing to justify all manner of atrocity to perpetuate its own existence.
Is it not obvious that .gov has determined(post 9/11) new money MUST be printed into circulation as rapidly as possible in the interest of National Security? If this is true then we have succeeded in the print of perhaps 50 Trillion or more dollars over a ten year span that otherwise would not have existed.
There is no other answer for the observable craziness and lack of prosecutions. Do we not hear claims in each instance of misdeed that these entities are merely executing .gov policy or trapped by it? In the end these scoundrels will seek refuge in that old familiar place.
control fraud refined.
Why to get excited about all those trades? they don't produce anything, it's just gambling. They should not be allowed to play with your money though. They can wager whatever money they have except yours. Every year we have winners of the game (anonimous) and losers who blame some shithead for it. What those games have to do with real economy? Nothing, sometimes it helps them to show better earnings, but not real ones, they forgot long time ago how to make money the old fashion way. That's all.
We also get excited about people who don't actually put on these trades, but who merely write about it and advise people---for a fee---how to play the game. That is all the Guest Post Casey Group does, which seems equally or even more useless than the traders themselves. Then there are those of us who comment on those who advise how to do these useless trades. Quite the (un) virtuous circle!
Strange how riverboat gamblers (with OPM) like Boaz Weinstein, whatever their fuckups - and they are epic - do not fade away. Greed (as in desire for the unearned) conquers all. Until it doesn't.
Dudes, cut the shit. What this means is that the decision to halt the stock buyback program was based on the last Stress Tests and that the loss EXCEEDS $31 BILLION
Read ZeroHedge, why dontcha? http://www.youtube.com/watch?v=BlkT0XKX5a4
this is GREAT news it means the too big too fails will collapse even faster.
when you are too big too fail , you are too big to have any loyal 'employees'. everyone is an opportunist, seeking like minded opportunists to help take advantage of one another. a vipers den of snakes eating their own tails
Bummas begging Germany.. it must be close to crisis time again
Speaking for those of us that dont trade CDS, I just want to say thank you TD for pulling back the curtain and revealing the leperous midget that is the "invisible hand" of the market. This is multiple levels of investigation, curiosity and balls beyond where anyone else will go.
Sincerely,
Shakes
Jubilee for the Queen, and a( banking) 1/8 Forte Night holiday.
And The EU wants a financial transaction tax! Now I know why everyone in Europe is on perpetual Holiday!
Soon the only way to leave a sensitive TBTF desk will be via the grave, like any true criminal organization.
The media should not be treating Boaz or Dimon with kid gloves.
Its like two golden kids at a rich private school getting caught for cheating.
Normal kids would get expelled. But these two kids are special.
It would be much different if their last names were Fuld or Rajaratnam.
And it certainly helps that Boaz's wife works in the Justice Department.
What a hypocrisy.
If the ignorance of others is required for a plan to work correctly the plan needs to be changed. I can see a risk assessment now; no one would think of this, but us.
How soon we forget all those perfect trading quarters at JPMorgue and the Giant Vampire Squid.
http://www.zerohedge.com/search/apachesolr_search/perfect%20trading%20qu...
http://ckuik.com/John_Trudell_&_Graffiti_Man
mining our minds for the machine
.
"..it is a disease
that travels through
the minds through
the generations." johntrudellakagraffitiman
.
John TRUdell "Living in reality"
http://www.youtube.com/watch?v=GFVCWmR-63A&feature=related