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Broken Markets Spreading

Tyler Durden's picture


From Peter Tchir of TF Market Advisors


For those not "lucky" enough to be involved in the CDS market, liquidity is breaking down in Europe.  Main was quoted as tight as 1/2 bp markets yeserday, is now being quoted on 2 to 3 bp markets, mostly by traders who seem to wish they had left an hour ago.  XOVER, is at least 5 bps wide, and as much as 10 bps wide, but the dealers still brave enough to send something. 

This is not good, and although wider, it hasn't yet felt like anyone is reaching and paying too much just to get a hedge on, which makes me think this is not yet over.

IG16 is holding in reasonably well, but even there the bid/offer has moved back to 1.5 bps so dealers do not want to provide liquidity here.  My IG200 hats are still worthless, but MAIN 200 seems a distinct possibility, even before the close as the best offer I just saw was 196, and that is probably flaky given SPX just broke 1155.


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Fri, 09/09/2011 - 15:23 | 1652086 Id fight Gandhi
Id fight Gandhi's picture

But definitely off the lows fuck off maria! Put the pom poms away /rant

Figures for me turning on cnbs

Fri, 09/09/2011 - 15:25 | 1652107 It is a bargin ...
It is a bargin my friend's picture

Ok I have a thing where I anally do that little chinky one with the dodgy mouth from behind while she screams "off the lows of the day" bothers me that I'm too far into this shit now too extracte myself...advice please

Fri, 09/09/2011 - 15:27 | 1652117 redpill
redpill's picture

Wow dude, maybe switch to Bloomberg for a few days (the Asian chick that hosts the show in the evening covering Asian markets is a little vixen).


Fri, 09/09/2011 - 16:05 | 1652299 Git_Naked
Git_Naked's picture

Like that will help his problem

Fri, 09/09/2011 - 15:31 | 1652124 SheepDog-One
SheepDog-One's picture

Even if the markets are down 3%, its good news, as theyre 'off the lows'...I only hope to see the day when these whores are employed properly as $15 prostitutes. Then I could yell at them as I pass by 'HEY IT COULD BE WORSE, YOURE OFF THE LOWS! YOU COULD BE A $10 WHORE'!

Fri, 09/09/2011 - 15:34 | 1652156 Al Huxley
Al Huxley's picture


Fri, 09/09/2011 - 15:36 | 1652162 Toolshed
Toolshed's picture

Too funny!!

Fri, 09/09/2011 - 16:07 | 1652305 It is a bargin ...
It is a bargin my friend's picture

Summed up nicely

Fri, 09/09/2011 - 15:30 | 1652135 GeneMarchbanks
GeneMarchbanks's picture

Seek help.

Fri, 09/09/2011 - 15:22 | 1652088 TruthInSunshine
TruthInSunshine's picture

1150 marks the spot.

To the extent that one believes technical damage can be done to the spooz (don't ask me, since The Bernank broke the global markets), a hard break below 1150 today will break many hedge funds.

Something about that leverage thing...

Now, who wants to be long over this, of all, weekends?

Fri, 09/09/2011 - 15:25 | 1652112 espirit
espirit's picture

Not me, and I'm thinking of dumping my SPX short ETF and going cash.

Even a short is long in this ponzi.

Fri, 09/09/2011 - 15:55 | 1652251 Joshua Falken
Joshua Falken's picture

"Even a short is long in this ponzi"


Dear espirit

with logic like that, do you work for the Fed or an Algo Scalper?

Fri, 09/09/2011 - 15:50 | 1652228 Popo
Popo's picture

Yeah, but the problem is that 'weekends' are when those annoying sticksaves happen.  And if you're short into the weekend,  you just might wake up to a Monday morning ass-raping by the powers-that-be.  The market opens 10 handles higher, and Stimulus 9.0 is making CNBC anchor women cream in their panties.

I've seen this movie way too many times before, and it's the reason I can't short even when shorting looks like the most obvious play in the world.



Fri, 09/09/2011 - 16:28 | 1652389 SMG
SMG's picture

I feel your pain, but I think this weekend is a good one to chance it and hold on, at least I did.  It really seems like this is actually going to be Greek Default 2011.

Fri, 09/09/2011 - 15:22 | 1652092 Cult_of_Reason
Cult_of_Reason's picture

Trichet Prepares Draghi to Use Tools in ECB Box

Fri, 09/09/2011 - 15:32 | 1652142 GeneMarchbanks
GeneMarchbanks's picture

What kinda 'tools'? *smirk*

Fri, 09/09/2011 - 15:22 | 1652094 Id fight Gandhi
Id fight Gandhi's picture

T/A is bullshit. I can't see an positive in the EU. Greece needs to fucking default already. Quit the foreplay and let's move on.

Fri, 09/09/2011 - 15:24 | 1652108 SheepDog-One
SheepDog-One's picture

Yea really, sick of watching round and round musical chairs the music never stops.

Fri, 09/09/2011 - 15:27 | 1652119 espirit
espirit's picture

...and it's the same f'ing song!

Enough to drive one bat chit.

Fri, 09/09/2011 - 15:42 | 1652193 john39
john39's picture

that is part of the plan...   that is afterall how you boil a frog...  slowly, so he doesn't jump out of the pot.

Fri, 09/09/2011 - 15:43 | 1652195 Mactheknife
Mactheknife's picture

Damn I'm ready for some football and cold beer.

Fri, 09/09/2011 - 15:25 | 1652110 Long-John-Silver
Long-John-Silver's picture

That could happen right after the markets close this afternoon.

Fri, 09/09/2011 - 15:30 | 1652131 espirit
espirit's picture

Probably be bullish too!

Sad, but lol.

Fri, 09/09/2011 - 15:22 | 1652095 Pig Brotha
Pig Brotha's picture

HF Market Analysis

HF 2Q net exposure the highest since 2007; cash levels low
Based on the quarterly 13F filings and estimated short positions of the
equity holdings of 895 funds, we calculate that hedge funds increased gross
exposure by roughly $50bn to $1090bn in 2Q. Net exposure rose by 6.7% in
the second quarter, after rising 38.8% in 1Q11 and 36.7% during the last
quarter of 2010. HFs had the highest net exposure & lowest cash level since
the 2007 market peak - net exposure was 54% in 2Q vs. 59% at the peak, and
cash levels were at 4.7% in 2Q vs. 4.3% in 2007. This may be dated data but
hedge funds are not likely positioned for the equity market to trade below
1100 on the S&P 500. Hedge funds can still drive equity prices lower.

Fri, 09/09/2011 - 15:22 | 1652097 CClarity
CClarity's picture

Necessities cost more and your assets are worth less.  Isn't that paying for inflation with assets and wages dinged by deflation?  Isn't that a problem?  When will the markets REALLY adjust to this reality?  It isn't simply transitory unless your time line is very long.

Fri, 09/09/2011 - 15:23 | 1652099 1835jackson
1835jackson's picture

BAC back in the 6's bitchez

Fri, 09/09/2011 - 15:24 | 1652104 Id fight Gandhi
Id fight Gandhi's picture

It's gonna be back in the 3s

Fri, 09/09/2011 - 15:25 | 1652114 bob_dabolina
bob_dabolina's picture

Bernanke would print money before that happened again. 

Fri, 09/09/2011 - 15:29 | 1652129 Id fight Gandhi
Id fight Gandhi's picture

Maybe Warren will double down after another bath or lemon party.

Fri, 09/09/2011 - 18:42 | 1652761 OpenEyes
OpenEyes's picture

BAC is this year's Lehman.  They'll be left out of the next bailout party.  Somebody has to be the bagholder, this time looks like BAC's turn to me.

Fri, 09/09/2011 - 15:30 | 1652132 SheepDog-One
SheepDog-One's picture

Buffet just filled another Depends.

Fri, 09/09/2011 - 15:23 | 1652101 Scisco
Scisco's picture

Wish I understood more than the first sentence.

Fri, 09/09/2011 - 15:29 | 1652125 Long-John-Silver
Long-John-Silver's picture

"Much to learn, you still have."


Fri, 09/09/2011 - 17:38 | 1652592 g
g's picture

"...Young Padawan"

Fri, 09/09/2011 - 15:29 | 1652127 JohnG
JohnG's picture

Credit is blowing out, which usually indicated market drops.  The more credit widens, you get to collapse faster.

Fri, 09/09/2011 - 15:35 | 1652160 NotApplicable
NotApplicable's picture

Luckily the world's master bankers (or banker masters, I forget) will have all weekend to fix it. It'll all be good come monday, just you wait and see.

Fri, 09/09/2011 - 15:46 | 1652207 Scisco
Scisco's picture

So the market is float up on hot air that is rapidly cooling. Wonder if the politician's yapping will be able to keep it going. Thank you for the summery.

Fri, 09/09/2011 - 15:48 | 1652223 blunderdog
blunderdog's picture

Increased rates on short-term liquidity means that big providers are increasingly concerned that there's going to be a major event which they can't recover from.  If you think of it as gamblers at a poker table, where everyone is "known" to be really loaded, they can extend short-term loans to each other effectively "risk free."

Once someone starts thinking that one guy isn't good for it anymore, no one wants to take the chance. 

Fear spreads instantly because of how closely intertwined all the balance sheets are.

Fri, 09/09/2011 - 15:23 | 1652102 Long-John-Silver
Long-John-Silver's picture

Dominoes Bitchez!

Fri, 09/09/2011 - 15:25 | 1652113 mt paul
mt paul's picture


opens tool box 

finds bent screw driver

and a hammer

with broken handle....

Fri, 09/09/2011 - 15:37 | 1652167 NotApplicable
NotApplicable's picture

...and proceeds to pry the lock off of the liquor cabinet, yet again (which is how the tools were broken in the first place).

Fri, 09/09/2011 - 15:26 | 1652116 Piranhanoia
Piranhanoia's picture

Since we have machines to vote, think and purchase for us,  they will tell us what's right.

After this brief intermission there will be a few thousand dukes yelling "turn the machines back on" all weekend.  May not be this one, but do you get the feeling that is how it ends?  Someone in the travel business should alert us if a whole lot of big shots plan on flying so we will know. 

Fri, 09/09/2011 - 15:30 | 1652134 Henry Chinaski
Henry Chinaski's picture

And the President on the Oval Office saying "Who's been putting out Kools on my carpet?"

Fri, 09/09/2011 - 15:36 | 1652161 RichardENixon
RichardENixon's picture

It was a Newport. And I couldn't find an ashtray anywhere.

Fri, 09/09/2011 - 15:38 | 1652172 NotApplicable
NotApplicable's picture



Fri, 09/09/2011 - 16:55 | 1652478 New_Meat
New_Meat's picture


Fri, 09/09/2011 - 16:05 | 1652295 blunderdog
blunderdog's picture

Isn't it a violation of Federal law to smoke in the White House?


Fri, 09/09/2011 - 15:27 | 1652118 Henry Chinaski
Henry Chinaski's picture

Good thing it is Friday.  Wonder if there will be an new surprise announcements tonight.

Fri, 09/09/2011 - 15:31 | 1652136 JW n FL
JW n FL's picture



sitting on the sidelines on a bench made of Gold.. as uncomfortable as it sounds.. I promise that it is anything but.

Fri, 09/09/2011 - 15:34 | 1652154 SheepDog-One
SheepDog-One's picture

Yea I'll let these lunatics devour each other while watching from the sidelines stacking up some PM coins.

Fri, 09/09/2011 - 15:35 | 1652158 GeneMarchbanks
GeneMarchbanks's picture

You poor bastard. Pure Au is actually quite soft. You might have a tungsten bench...

Fri, 09/09/2011 - 15:39 | 1652180 NotApplicable
NotApplicable's picture

I hear if you let it warm up in the sun first, it's good for the 'roids.

Fri, 09/09/2011 - 15:48 | 1652219 Scisco
Scisco's picture

Explains the toilets at GS.

Fri, 09/09/2011 - 15:34 | 1652152 Belarus
Belarus's picture

Yup, broken markets will levitate into the close for 2% or so down day. Warning, I'm almost always wrong on these nano-second trading patterns. I will probably be wrong once again!

Fri, 09/09/2011 - 15:34 | 1652153 cocoablini
cocoablini's picture

Attention all dollar haters: Here comes your margin call! 77. Up 88 cents! Watching the carrytrade implode, the Yen implode, the run to cash. HOLY SHIT this may be bad

Fri, 09/09/2011 - 15:35 | 1652159 SheepDog-One
SheepDog-One's picture

FED will go nuclear before they allow the dollar to rise, the whole thing depends on a low dollar.

Fri, 09/09/2011 - 15:36 | 1652166 Belarus
Belarus's picture

so much for the exceptional corporate proftis for the mult-nationals!

Fri, 09/09/2011 - 15:38 | 1652169 plocequ1
plocequ1's picture

Holy Peter Schiff Batman!!!

Fri, 09/09/2011 - 15:34 | 1652155 Piranhanoia
Piranhanoia's picture

like the sarc about the CDS, but if you think about it,  we are all priced in to CDS.  It is the rotten floorboard holding up the vault with all the metals.

Fri, 09/09/2011 - 15:39 | 1652177 Little John
Little John's picture

The Rodeo is here - ???  May be time to clean and oil the FAL.

Fri, 09/09/2011 - 15:39 | 1652179 InconvenientCou...
InconvenientCounterParty's picture

please just let the markets open Monday morn.

my FAZ has some room to run.

Fri, 09/09/2011 - 15:40 | 1652184 buzzsaw99
buzzsaw99's picture

brk is gonna limp dick the bear flag already?


My new motto: Be like buffett, pick yourself out a nice tranny.

Fri, 09/09/2011 - 15:40 | 1652185 Cdad
Cdad's picture

**Breaking News**

3:35 est ......... BlowHorn [CNBC] ......after yesterday, announcing that bears needed to be cautious....Bob Pisani...

"If some sort of statement comes [from central banks], the Street is set up short and some sort of move upward would obviously happen."

So......we are down to saying it outright...the US equity market primary catalysts is......statements from bankers......the same bankers that destroyed both the economy and the markets.

Brilliant, Bob!



Fri, 09/09/2011 - 15:52 | 1652236 GeneMarchbanks
GeneMarchbanks's picture

I share your dislike of Bob Pisani, however you really need to lay off of CNBC cause I heard if you watch more than fifteen minutes of it, your soul leaves your body. The soul doesn't come back 'till you buy a silver Eagle.


Jus sayin

Fri, 09/09/2011 - 17:00 | 1652499 New_Meat
New_Meat's picture

my mom said somethin' about "going blind"

- Ned

{but I hear I could still get an acorn once in a while}

Fri, 09/09/2011 - 15:43 | 1652197 Belarus
Belarus's picture

I wonder why PM's never levitate into the close?

Fri, 09/09/2011 - 15:45 | 1652198 dwdollar
dwdollar's picture

Time for the fun run back above 11,000...

Sometimes this shit is so predictable I wish I still had some in.

Fri, 09/09/2011 - 15:47 | 1652217 catladdy
catladdy's picture

Is 7 ES pts well off the lows following a 39 pt sell off? I don't think so

Fri, 09/09/2011 - 15:48 | 1652221 chump666
chump666's picture

getting real bad,  CDS markets have no liquidity.  Greece/ Italy 2 yr Yields are now in default ranges.  Greece will go...

Fri, 09/09/2011 - 15:50 | 1652226 Little John
Little John's picture

 RIP J M Keynes

Fri, 09/09/2011 - 15:52 | 1652235 Ned Zeppelin
Ned Zeppelin's picture

349 pm "must. . . close. . . over. . . 11,000. . . <cough> <wheeze>" you can see it edging up.  Fugging A.

Fri, 09/09/2011 - 15:52 | 1652238 chump666
chump666's picture

the dow 11000 meltup is bulltrap prior to close...won't hold

Fri, 09/09/2011 - 15:53 | 1652243 BetTheHouse
BetTheHouse's picture

DOW ... must ... close .. above 11,000 ....must close above 11,000

Fri, 09/09/2011 - 15:54 | 1652250 Belarus
Belarus's picture

Sure....I'm wanna go very long this market going into a weekend that Greece might default and banks tank another 50% on the limit down open on Monday. It always makes so much sense. Therefore, markets will rally at least 4% on Monday, right? Isn't that the way this works. 

Fri, 09/09/2011 - 15:59 | 1652269 Overpowered By Funk
Overpowered By Funk's picture

5 mins to go and there is a mighty PPT battle going since 3:35pm - unbelievable NOT!. Will it hold? BB on the phone with a big market order.

Fri, 09/09/2011 - 15:59 | 1652271 carbonmutant
carbonmutant's picture

Speaking of Broken Markets...

6.7 just hit Vancouver Island

Fri, 09/09/2011 - 16:04 | 1652288 chump666
chump666's picture

done.   it was a bidless market, nice bear signal for next week

Fri, 09/09/2011 - 16:06 | 1652300 Overpowered By Funk
Overpowered By Funk's picture

Bob "the important thing" Pisani FTW!

Fri, 09/09/2011 - 16:07 | 1652302 ZeroPoint
ZeroPoint's picture

Damn. Should I acquire some extra Bernanke bucks before the weekend hits, just in case?

Fri, 09/09/2011 - 16:15 | 1652306 Ned Zeppelin
Ned Zeppelin's picture

SCORE! we close over DOW 11K.


Wait, no, screen refreshing, wait. . a . . minute. . Ben. . this can't be happening? Did the PPT take a last minute coffee break? It's below 11K.  WTF??!?!?!?!

Turn those machines back on!

Fri, 09/09/2011 - 16:53 | 1652469 bercy
bercy's picture

This is a small enough post, yet I don't understand any of it.

Can someone explain quickly what CDS markets are (I know it's about defaults, that's about it), what their relation is to liquidity, what does being at 10 bps wide mean...

With the number of posts Tyler's made about CDS in the last 2 months, I'm guessing it's got some importance...

I'm sure a few dozen other readers would appreciate.

Fri, 09/09/2011 - 19:03 | 1652827 blunderdog
blunderdog's picture

Simple-minded overview answer:

CDS markets are where the price of "default insurance" is determined.  Investors buy insurance against counterparties defaulting so that if the counterparty goes broke, they haven't lost everything.  When default looks more likely, CDS prices increase.

When CDS prices are going way up, it's because people think "someone" is much more likely to default.  They have to be more cautious with how much money they lend out, even very short-term, because the default is likely to affect their balance sheets.

10BPS is a tenth of a percentage point--if a given interbank loan rate is .25%, that's a significant range. 

I'm not an expert, so this is a bit of an inference: "width" may refer to the difference in rates being demanded by different lenders.  In normal periods, the rates should equalize almost instantly because of the huge amounts of money flowing and the ease with which a borrower can switch from one source to another.

Fri, 09/09/2011 - 22:48 | 1653372 ZeroPower
ZeroPower's picture

I sit on a credit desk which deals specifically in this and since it was asked above again, ill chime in for some of this stuff.

CDS markets are quoted OTC, so you cant make a 'purchase' or sale on a CDS unless you are hooked into a market maker's quotes, or 'runs' as theyre called. Any decent bulge or even mid market trading desk will have their traders dealing in CDSs and once a relationship is established with a desk/bank, you start getting runs from the MM dealing in either a particular company, industry, or sector - the big sell side firms typically have guys on all of these types of CDSs, other times no as if you are a MM in CDS you are typically dealing with a very specific industry (i.e. EU Fins) or sector (i.e. MENA, CEEMEA).

The liquidity in CDS should theoretically always be there (assuming a run goes out indicating levels), but it will definitely be harder to attract somebody to take the other side of your trade if you want to go in with size (10MM+) or on an issue thats thinly traded or hard to be hedged. Typically, the more bonds are outstanding of an entity, the more common it is to see volume and more runs of that CDS go out.

What Peter wrote up above was specifically about CDS indices. Not too far off from the SPX or Dow... they each containt a bunch of CDSs which pertain to the characteristics necessary to be included in the index. Main, Crossover (XO), the Fins, the Sovereigns (SovX) are all very widely traded and thus you can get large clips out with barely moving the price. But soon as a MM is hit, he'll typically adjust his price right after to reflect whether the hit was on the bid or offer side, pushing his prices up or down accordingly. Just like in a liquid stock where youd want to pay no more than a $0.01 spread on the trade, in credit youd like less than a bp ideally, 0.5 is considered really good. When the market is 10bp wide, its cause the MM creates enough of a cushion to be willing to take either side of the trade. They take less directional bets (though inevitably are stuck sometimes with them) and more make money on simply the spread they charge.

Im not a market maker, but every time i see these guys on a day like today or basically that whole week in mid Aug, they look like death and are tired as shit from sitting at their desk with literally no breaks sicne they have to be on top of literally every little thing that can move the market and be adjusting their auto fill prices as well as runs they send to other participants.

Sat, 09/10/2011 - 07:06 | 1654049 bercy
bercy's picture

Thank you both

Fri, 09/09/2011 - 16:59 | 1652495 cocoablini
cocoablini's picture

Part of the PPT IS THE BANKS.

If the banks are get monkey hammered by lawsuits, CDS's, Administration backstabbing and margin calls then the PPT will turn off and the selling begins.

PPT only works if there is profit and a system to return to. Basically the entire financial machine is running backwards(credit implosion, higher dollar,less money supply, liquidity trainwrecks, lower asset values,mistrust, sovereign NON-cooperation and panic) and thats just how ponzi mechanics work.

At some point you need to run for cover and take what you have.

Fri, 09/09/2011 - 21:49 | 1653234 Ned Zeppelin
Ned Zeppelin's picture

Cash (yes, FRNs), PMs and lead. 

Fri, 09/09/2011 - 17:41 | 1652604 Highrev
Highrev's picture

Main was quoted as tight as 1/2 bp markets yeserday, is now being quoted on 2 to 3 bp markets, mostly by traders who seem to wish they had left an hour ago.

You don't say so yourself?

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