• Gold Money
    05/26/2016 - 14:27
    Here’s a question that might have you pondering: Is gold a commodity? More importantly, are we doing a disservice to the gold industry by calling gold a commodity? These may sound like silly...

And For Today's Market Ramp Rumor We Have...

Tyler Durden's picture




 

Yesterday's rumor that global central banks may, just may, respond to a Greek exit from the Eurozone, which would send the world into tailspin sent stocks higher. Because without said rumor nobody, repeat nobody would possibly imagine that there could be a coordinated response to an event that would send global risk down over 20%. Today, it gets even dumber:

  • ECB MAJORITY SAID TO OVERCOME CONCERN ON CUTTING DEPOSIT RATE.
  • ECB POLICY MAKERS HAVE OVERCOME A KEY CONCERN ABOUT TAKING THE BECHMARK RATE BELOW 1%

At least yesterday the source was some discredited G-20 member. Now it appears that the media has a front-row seat to ECB deliberations. Fascinating. And what is even more fascinating is that the market continues to fall for these rumors "breaking news" and rumors time after time after time...

More from Bloomberg:

  • Likelihood that such a move would also involve cutting rate the ECB pays banks on overnight deposits from 0.25% is no longer an obstacle for a majority of Governing Council
  • NOTE: Deposit rate traditionally moves in tandem with benchmark; policy makers have been reluctant to take it to zero out of concern it would discourage interbank lending

And the kicker:

  • A rate cut isn’t certain, the officials said
  • ECB spokeswoman declines to comment

So... things may or may not happen depending on what happens? And this sends stock spiking?

Sigh

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Fri, 06/15/2012 - 13:13 | 2529800 fuu
fuu's picture

Over/under on the fade?

Fri, 06/15/2012 - 13:17 | 2529818 Divided States ...
Divided States of America's picture

When shit does hit the fan, my Hit List is just getting bigger and bigger. Will need to double my ammunition stockpiles.

Fri, 06/15/2012 - 13:20 | 2529834 Chris Jusset
Chris Jusset's picture

Just cut rates to ZERO and get it done, already.  Why all the drama?

Fri, 06/15/2012 - 13:22 | 2529845 Bastiat
Bastiat's picture

The "key concern" is that it will do nothing for the economy, as in the US, and show them to be powerless. 

Fri, 06/15/2012 - 13:57 | 2529905 resurger
resurger's picture

 

Understanding JPM loss in very simple way

 

I have been reading about the CDS Indices and how they trade, but i have to say that they got rather confusing, its almost similar to the CDS index but with a little twist. So i have decided to write a small piece so that whenever we read about the CDS trades that cost JP Morgan $3bn at least we understand what the hell was going on. after you read this piece i want you to "correlate" what has happened to JP Morgan chase "Iksil" trades.

 

Ok i want to make this as simple, you have to understand that there are two things in the CDS indices, CDS Global Index  (The global CDO pool with 100, 125 names IG, HY) & CDS Index Tranches.

 

!!!Correlation: represents the spread movement, time to maturity, and the tendency for default, recovery and correlation with other indices.

 

1- CDS Index Tranches

 

The tranches are synthetic collateralized debt obligation (CDOs) based on a CDS Index, they are standardized and they represent different segments of the CDS Global Index. They are split into the following.

 

1- Equity 0-3% (The most Dangerous shit)

2- Junior  Mezz

3- Senior Mezz

4- Junior Senior

5- Super Senior 50-100% (Less Risky)

 

Now understanding the wording is the most important thing, on the tranche you can have those two possiblites:

 

<1> Long Correlation: Means that you are long the Equity Tranche ( Selling Protection on equity) and you are ready to take the default risk OR  (not and, its not a hedge with another tranche) You are Short Senior Tranche (Buying Protection on Senior)

 

<2> Short Correlation: Means that you are Short Equity Tranche (Buying Protection on equity) OR Long Senior Tranche (Selling Protection on Senior)

 

Its exactly like short selling (you are expecting the prices (correlation to drop) as the economy is going to improve or you like long buying (you are expecting the prices to rise) and expecting the economy to be worse.

 

So, JPM where Short Correlation on Super Senior (expecting the economy to get better, and it was getting better due to twist and LTRO) means $$$$

 

 

 

 

2- CDS Global Index

 

The index represents insurance contracts covering the entire pool of credit (i.e all the 125 names listed lets say on IG9).

 

The global index (all the pool of the CDO's) works like the bond prices, when the spread moves for all the 125 companies, the price changes exactly like bonds price / yield it also pays coupon.

 

 

again, understanding the wording is the most important thing, on the Global index, you have two possiblities:

 

<1> Buy or Long the index: Means you are selling Protection on all 125 names in the entire CDO pool

 

<2> Sell or Short the index: Means you are buying Protection on all 125 names in the entire CDO pool

 

 

3- The Delta

 

The delta measure the spread sensitivity for 1bp change in spread or DV01

 

 

Delta = MTM change or (Dv01) for CDS Index Tranche / MTM change or (DV01) for the CDS Global Index

 

From Merril Lynch example, lets assume those are JPM Super Senior Tranche DV zero- one,  if DV01 for the CDSIT is = $2107 & DV01 CDSGI = $4,540 then you have a delta of (2,107/4,540) 46.4%

 

4- Hedging & Leverage (Delta Hedge or trying to achieve Delta-Neutral)

 

If you are long/short a tranche and you want to hedge it you hedge it with the CDS Global Index, if you do then its called "Delta Hedge Portfolio" and it has a size.

 

assume Tranche notional of $20Mio

 

Delta Hedge Portfolio = Tranche Notional X Delta

                                    = 20 X 46.4 = 231.85

                                  

Leverage = (Delta hedge portfolio)  /  ( Tranche Notional)

                = 231.85 / 20 = 11.6X

 

so if you buy Super Senior Protection and you want to hedge it against Spread movement you have to to Buy 11.6x the index.

 

So what was JPM doing? I dont know exactly, there are so many opinions out there, but am guessing that they were:

 

1- Short Correlation

2- Long the Index

 

this explains why they were making money when the LTRO/Twist came to existance and why the Hedgers (Protections buyers) where getting burned because JPM were not hedging with the Index, on the other hand they were Buying the Index with the above leverage (for example)

 

So when the credits got worse, they started to get burned and then they started to unwind.

 

I think there hedge was (Buy 5Y CDS Tranche) which could helped to reduce some of the losses, but who knows.

 

Now this is the most important thing i want to know, who was on the other side of the trade, and who made $3bn, those are the guys

 

1- Weinstein's Saba Capital Management.

2- Blue Mountain Capital.

3- BlueCrest Capital.

 4-Lucidus Capital Partners.

 5- CQS III

 

Benefited from taking the opposite position to JP Morgan...

 

Hope that helps, cheers

 

P.S hope this helps you to clear the confusions, but this is how shit works, wording is important

Fri, 06/15/2012 - 14:05 | 2530019 Matt
Matt's picture

July 12, 2012 JPM reports earnings and on the call, will explain to shareholders the total losses and current situation.

Fri, 06/15/2012 - 14:16 | 2530090 slewie the pi-rat
slewie the pi-rat's picture

the fuu-fighters fade line for the respose would be:

over/under minus 5 minutes

[yes, this does indicate the SNB 2B today's rumor source.  again  L0L!!!]

Fri, 06/15/2012 - 14:25 | 2530138 CClarity
CClarity's picture

Everyone's flat for the weekend . . .  fade to grey.

Fri, 06/15/2012 - 14:35 | 2530198 fuu
fuu's picture

No fade today I guess. That rumor was not priced it.

Fri, 06/15/2012 - 14:45 | 2530250 ghengis86
ghengis86's picture

Thank you. This helps out a ton. I've read the ZH articles on JPM/IG9/Iksil a few times each and still didn't have it all clear in my small brain.

This is why ZH rocks; articles and analysis you can't find anywhere else plus ZH commenters are the cream of the cream (even the trolls, troll well!)!

Fri, 06/15/2012 - 15:13 | 2530300 resurger
resurger's picture

you are most welcome, i wrote this on the fly....

i just wanted to add a couple of things is that the Leverage (above 11.6x) if you multiply it by the tranche notional you get how much you need to hedge in the Global CDS Index (11.6 X 20 = 231mn) , so for you to protect the spread movement you need to buy/sell that much on the CDS Global Index (by the way i used global just to simplify things up)

In addition, if the leverage on Super Senior was 11.6x, then on Equity the leverage will be 30.5x because it's more dangerous (30.5x is a hypothetical number)

 

so after sometime, it just becomes easy so you can say

1- i sold protection on tranche and bought protection on the index

or

2- i bought protection on tranche and bought the index

or

3- i was long the tranche and i hedged it by selling the index

so you dont need to use the short/long correllation.

if you want to dig further you can take a look at the following:

http://en.wikipedia.org/wiki/2012_JPMorgan_Chase_trading_loss

http://www.seasholes.com/files/Credit_Corr_Trading_ML.pdf

http://www.mathematik.uni-ulm.de/finmath/confpage/papers/elmorsalani.pdf

https://www.quantnet.com/forum/threads/index-tranches.1527/

https://www.quantnet.com/forum/threads/index-tranches.1527/

http://www.bis.org/publ/qtrpdf/r_qt0503g.pdf

 

 

 

 

Fri, 06/15/2012 - 21:47 | 2531182 Buck Johnson
Buck Johnson's picture

Bingo.  The govt. can't be shown that they are out of ideas and are powerless.  Then people will look to others for leadership and so the end of a nation.

Fri, 06/15/2012 - 13:24 | 2529850 Eternal Complainer
Eternal Complainer's picture

Isn't that almost their last and final arrow, beyond the printing and rigging and lies and propaganda, fake wars etc etc?

Fri, 06/15/2012 - 13:33 | 2529892 El Oregonian
El Oregonian's picture

I can visualize the future conversation of people going into banks:

"OK, so how much do I have to pay so you hold my money here?" <sarc off>

Fri, 06/15/2012 - 14:19 | 2530104 TruthInSunshine
TruthInSunshine's picture

As Marc Faber would say (as he laughs menacingly in the face of a Bloomberg reporter-bot during an interview), it's time to find out if Bernanke is a true money printer or just an amateur.

 

Marc Faber laughing his ass off to Bloomberg Reporter while calling Bernanke a "liar." 


Bernanke "Is a Liar"

 

I need Banzai's mad skillz for this one; anyone seen Banzai around, and maybe The Limerick King?

Antonov An-225 Mriya Bernanke

http://1.bp.blogspot.com/-yMNjEftfB-4/TZVmjmcI3oI/AAAAAAAANC4/uTPDTD1d07...

http://4.bp.blogspot.com/_ja676MG45Zg/TEa1o1O483I/AAAAAAAAEPg/qcIg4z9p6n...

 


Fri, 06/15/2012 - 14:26 | 2530146 walküre
walküre's picture

TIS, the AN-225 is an amazing aircraft. Nice pics.

Fri, 06/15/2012 - 14:58 | 2530291 TruthInSunshine
TruthInSunshine's picture

Indeed it is. It would be nice if the people stormed the central banks, burned the fractional reserve banking ponzi shackles to the ground, and got their economies back to a point where making tangible things of inherent value was rewarded moreso than 'engineering devious, wealth shifting & destroying, financial instruments."

 

At such time, the true value of bankers would be revealed as less than zero, and the value of competent engineers with true skills in terms of making actual value-accretive goods would skyrocket.

 

Here's the link to the hilarious Faber interview (only 10 seconds of it):  http://www.youtube.com/watch?feature=player_detailpage&v=2gBV8ihVTH0#t=326s

Fri, 06/15/2012 - 15:41 | 2530478 walküre
walküre's picture

The theft has been a couple decades in the making. Righting the wrongs will take a few years of proper education and understanding. Too many people grew up with the propaganda.

My wife and I do what we can to put our kids on the right path. They're being schooled at home for starters. We grow our own food including livestock. Kids are involved and learn "hands-on" what is important in life. Social environment is carefully monitored as well. I have a thing for the Amish but we're not there - yet. In due time and after SHTF the transition to Amish life will be easier for us.

Fri, 06/15/2012 - 15:36 | 2530457 cbxer55
cbxer55's picture

I love that big old aircraft. Typical Russian, bigger-is-better. There are some excellent videos on You Tube, of this thing performing low to the ground during air shows. I'd link a few, but have to head off to work for the night, working on aircraft. It's an amazing aircraft, for sure.

Fri, 06/15/2012 - 14:51 | 2530111 TruthInSunshine
TruthInSunshine's picture

Double-tap and glitch in the Matrix.

Fri, 06/15/2012 - 14:40 | 2530227 Hohum
Hohum's picture

El Oregonian,

I think for many financial institutions that's the present.

Fri, 06/15/2012 - 21:45 | 2531181 Buck Johnson
Buck Johnson's picture

Because if they put it at zero and it still doesn't work then everyone with an IQ over mud will know that they are out of bullets.

Fri, 06/15/2012 - 13:14 | 2529803 DavidC
DavidC's picture

Hugh Hendry's going to be rich if they do.

DavidC

Fri, 06/15/2012 - 13:59 | 2530001 q99x2
q99x2's picture

I hope it doesn't stress him out.

Fri, 06/15/2012 - 14:27 | 2530154 LULZBank
LULZBank's picture

I would doubt anyone who pre announces hes going to be rich soon. Unless you intend to grow rich by finding enough buyers for something you want to sell, otherwise known as "offloading."

Fri, 06/15/2012 - 13:15 | 2529807 carbonmutant
carbonmutant's picture

Fear can make you do strange things...

Fri, 06/15/2012 - 13:16 | 2529813 TooBearish
TooBearish's picture

Ty- u gotsa get off the doomsday train- its a fukking election year and the S&P yields 50BP more than the 10yr

Fri, 06/15/2012 - 13:34 | 2529898 Bob
Bob's picture

Oh, ironic humor.  Funny!  +1

Fri, 06/15/2012 - 13:16 | 2529814 reader2010
reader2010's picture

The whole world goes the Japanese way.

Fri, 06/15/2012 - 13:32 | 2529890 ghengis86
ghengis86's picture

I'm turning Japanese right now with all these rumors and ramps

Fri, 06/15/2012 - 13:55 | 2529989 PivotalTrades
PivotalTrades's picture

Why we are not going Japanese,

While the Japanese were going Japanese, the rest of the world was still growing (USA BRICS) and they were selling shit into that growth and collecting USD allowing them to continue to support their debt..We will have nobody to sell anything too. It will be just print and buy like we are currently doing until we can't. It will not take a decade. 2 years at most.

Fri, 06/15/2012 - 13:17 | 2529817 derek_vineyard
derek_vineyard's picture

and another generation of retards works at JPM , GS , etc and buys into all the catch words and propoganda

i've been following markets all my life and i'm baffled at the daily gyrations

Fri, 06/15/2012 - 13:17 | 2529819 goldencross10
goldencross10's picture

Boy who cried wolf, people keep responding, still no wolf...

Fri, 06/15/2012 - 13:18 | 2529823 economessed
economessed's picture

"....some said"  some said.

-modern reporting.

Fri, 06/15/2012 - 13:33 | 2529894 SeverinSlade
SeverinSlade's picture

"According to anonymous source."

"According to unconfirmed source."

"According to unconfirmed reports."

So in other words, everything is bullshit?

Fri, 06/15/2012 - 13:37 | 2529916 Bob
Bob's picture

Nah, trust your corporate news source.

Fri, 06/15/2012 - 16:06 | 2530565 HD
HD's picture

"So in other words, everything is bullshit?"

"Some people" say that.

Fri, 06/15/2012 - 13:18 | 2529824 FL_Conservative
FL_Conservative's picture

Come on.....crash and burn, already!

Fri, 06/15/2012 - 13:39 | 2529917 johngaltfla
johngaltfla's picture

You forget:

 

Buffett purchased Bear Stearns 47 times before it finally went Tits Up.

 

Greece and Europe will have at least 30 more rumors to go INCLUDING Warren Buffett saving them.

Fri, 06/15/2012 - 14:10 | 2529945 BlueCollaredOne
BlueCollaredOne's picture

3 of out of the last 4 comments here have been by someone toting a V for Vendetta avatar.  I know Im in good company when my two favorite books/comics/movies (Fight Club/V for Vendetta) are represented in such a predominant fashion. 

The gadsden flag comes in a close second. 

Thanks ZH.

 

Edit : yes, the ratio of 3 to 4 is going to change as people continue to post, but you get my premise. 

Fri, 06/15/2012 - 14:28 | 2530162 pods
pods's picture

Yes, it indeed will change.

:)

Fri, 06/15/2012 - 13:19 | 2529829 Bastiat
Bastiat's picture

“The newscaster announced that “the stock market had fallen 100 points on news that an asteroid was heading to Earth and all life would be destroyed within 24 hours… before recovering on word that the Fed had increased QE to infinity.”

Lifted from jsmineset.com

Fri, 06/15/2012 - 13:22 | 2529839 junkyardjack
junkyardjack's picture

This market wants to rip

“Prices, like everything else, move along the line of least resistance.  They will do whatever comes easiest, therefore they will go up if there is less resistance to an advance than to a decline; and vice versa.” - Jesse Livermore

Fri, 06/15/2012 - 13:27 | 2529865 Tyler Durden
Tyler Durden's picture

Here is another one: stuff goes up when there are more buyers then sellers. And vice versa.

Also, never confuse this long-dead concept known as the "market" with Brian Sack/Ben Bernanke.

Fri, 06/15/2012 - 13:41 | 2529927 junkyardjack
junkyardjack's picture

Agreed, with so many people short there are a lot more buyers than sellers in this market.  Also if Brian Sack and Bernake are manipulating the markets it can't go down, I don't actually believe that they are but with that argument there shouldn't really be so much confusion as to why the markets are going higher

Fri, 06/15/2012 - 13:57 | 2529993 BlueCollaredOne
BlueCollaredOne's picture

One word.  Hopium.

Fri, 06/15/2012 - 13:59 | 2530002 resurger
resurger's picture

"I don't actually believe that they"

 making money these days its so easy ... just wait for Ben to say Print / No Print

Enjoy

Fri, 06/15/2012 - 14:21 | 2530121 BlueCollaredOne
BlueCollaredOne's picture

<------ Ben says "we are stimulating the economy" on 6-20-12

<------ Ben says "The FED is actively doing all they can" on 6-20-12

 

 

Fri, 06/15/2012 - 13:22 | 2529843 Cognitive Dissonance
Cognitive Dissonance's picture

I always salivate when I hear the music from the ice cream truck.

"I want chocolate sprinkles on top."

Fri, 06/15/2012 - 13:35 | 2529909 carbonmutant
carbonmutant's picture

As I've gotten older I've become suspicious of Ice Cream Trucks...

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