JP Morgan Advises Its Clients To Read Zero Hedge Three Weeks Ago

Tyler Durden's picture

Three weeks ago, Zero Hedge was the first to bring the world's attention to the legal (and explicit trading/risk) ramifications of European sovereign bonds. We noted the ECB/IMF's subordinating impact on unsuspecting sovereign bond holders but much more explicitly showed the huge gap in market perception between domestic- and foreign-law bonds (and the fact that they have very different ramifications given the rising tendency for retroactive CACs or simply local-law changes to accommodate restructurings). The arbitrage of "dumping all weak protection bonds and jumping to the 'strong' ones" which we preached is indeed occurring and now three weeks later, JP Morgan is suggesting its clients take advantage of this same arbitrage strategy (citing the very same thesis and legal justifications as we did) as domestic law bonds offer significant advantages to the sovereign (and therefore implicit disadvantages to the lender or bond holder just as we said) relative to foreign law bonds. While we are flattered that our analysis is deemed worthy of mainstream sell-side research regurgitation, we caveat the celebration with the concern that perhaps JP Morgan already took advantage of the information a 'fringe blog' provided to the world (as we know many funds did given the requests for more explicit bond details) and is now looking to unwind the profitable (though modestly illiquid) positions it has been accumulating for the past three weeks.

JPMorgan: CACs and foreign vs. domestic law issues in Greek bonds

Collective action clauses (CACs) make it easier to restructure distressed bonds. If a super-majority of bondholders vote in favour of a modification to bond terms, that modification is applied unilaterally. This can limit the hold-out problem in distressed exchanges. Sovereign bonds issued under foreign law (e.g. English) typically contain CACs already, and the issuer can only change bond terms by garnering enough investor consent.


By contrast, bonds issued under domestic law usually lack CACs, and the sovereign can retroactively change contract terms merely by changing domestic law. Thus, domestic law bonds offer significant advantages to the sovereign relative to foreign law bonds.


In particular, in the case of Greece, Greece could retroactively insert CACs into domestic law bonds and could choose to include unusually flexible terms.


For instance, in Greece’s existing foreign law bonds, the super-majority required to pass a resolution on “reserved matters” appears to be 75% of principal outstanding (and less commonly, 66.7%).9 Also, Greece’s foreign law CACs generally apply to the single bond issue or at most, a common issuance platform. By contrast, if Greece were to retro-fit its domestic law bonds with CACs, it could set a lower voting threshold and/or insert “aggregation” clauses which permit aggregation across distinct bond issues. The latter makes it harder for small bond issues to hold out, as large bond issues can dominate the voting. The main deterrent to such behaviour from Greece is that anything perceived as unfair or overly draconian is more likely to prompt legal challenges and to worsen investor sentiment.



Greece is fortunate in that over 90% of its outstanding debt appears to be issued under domestic law (Exhibit 3). Amongst peripheral countries, this is the lowest such percentage; Portugal is the next lowest with an estimated 96% of domestic law bonds outstanding. Ireland, Spain and Italy all have fairly de minimis levels of foreign law bonds outstanding.


However, this still leaves about 9% of Greek bonds outstanding which are foreign law. These will be harder to coerce into a deep restructuring, given the predefined super-majority voting thresholds. This is why, in Exhibit 2 above, we assume that Greece is able to successfully use CACs only on its domestic law bonds. Obviously, any voluntary participation from foreign law investors would be an added benefit to the PSI exercise.



An interesting question, given that foreign law bonds are harder to manipulate, is where they price vis-à-vis domestic law bonds. Although international bonds tend to be smaller issue sizes or private placements, and thus many lack or have unreliable price data, those that are marked more regularly tend to price about €3-€10 points above similar maturity domestic law bonds (Exhibit 4).



Finally, we do a similar exercise for Portugal. Portugal only has a limited number of international bonds outstanding, and just a few have realistic pricing data on Bloomberg. Out of these, an admittedly small sample with wide bid-offers, there appears to be relatively little pricing premium currently given to foreign law vs. domestic law bonds (Exhibit 5). The lack of a pricing premium is striking given the high probability of a Portuguese restructuring over the next one year, as implied by CDS markets (roughly 1/3). Liquidity permitting, we recommend overweighting Portuguese foreign law vs. domestic law bonds going forward.

Of course we agree with JP Morgan's perspective, since we came up with it, and in the case of Portugal there has indeed been less differentiation so far but extreme amounts of volatility in the last few weeks. While the market is indeed mis-pricing the legal differences between bonds as the 'option' to retroactively 'adjust' domestic law becomes worth more and more to the sovereign (and reduces value for the bond-holder) and so during this volatility we would remain vigilant for the ability to pairs trade - selling domestics into strength and buying foreigns - as bid-offers will compress if we see more LTRO-driven exuberance in the peripherals.

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Mr Lennon Hendrix's picture

First they will mock and laugh at you, then they will hate you for making money in the PM market, then they too will read Zero Hedge.


Nobody special's picture

While the content may match a ZeroHedge article, I fail to see any place where JPM gives ZeroHedge credit, recognizes ZeroHedge, or recommends ZeroHedge in any way. Am I missing something?

lizzy36's picture

My dear, JPM sell side analyst would rather swallow generic mustard, than admit that they got this idea from a "fringe blog" and that they basically plagarized their "analysis".

Alas, the work speaks for itself.

Jim in MN's picture

Kind of like when bystanders have been yelling 'STEAMROLLER!!!' over and over at you and then you look up from the pennies and see the steamroller.

Who gets credit?  Uhm, maybe worry about that later.



The Big Ching-aso's picture



Sooner or later everyone comes to harsh reality whether they hallucinate to it or not.

Reese Bobby's picture

You seem so, how can I put this, not very special to me.

GetZeeGold's picture



When Liesman pumps ZH.......that will truly be the end.




Cindy_Dies_In_The_End's picture

Hey Tyler! Um didn't these asshats threaten to sue you guys last year?!?!? Geez, what a love / hate psycho thing they got going.


PS--Those from JPM reading ZH: YOU are part pf the problem!!!!

Jim in MN's picture

I think that was I'dfightghandi that said that, not Ghandi.  But we could go edit Ghandi's Wikipedia page to make it look like he did for a brief period.

_underscore's picture

Deffo time to short ZH then, as it's now become a contrarian indicator ;)


He_Who Carried The Sun's picture


JP Morgan Advises Its Clients To Read Zero Hedge Three Weeks Ago


That's because behind JPM and ZH are the very same people, believe it or not.... ;-)



Oops, did I just say it...?

Buck Johnson's picture

The sick thing is that we don't know how much of the debt is under domestic law anymore compared ot foreign.  I mean as one put it on another post, if they have known for 2 years about the issues of debt most of these banks and institutions would have by now sold their domestic law bonds and/or swapped them for foreign law bonds irregardless of how much it would have cost them.  Because they wouldn't be caught in the CAC agreement.  I think almost all of the debt from Greece is under the axe and the information that CNBC's Michelle Carruso Cabrera and others are spouting is BS.

Aarnog's picture

I appreciate your use of 'irregardless'.

emsolý's picture

I called it Gresham's Law in Greek sovereign bonds, with the smart money holding the foreign-law issues, and the dumb money and ECB holding the local-law ones.

dhussey's picture

So... you mean EVERYONE is now on board with this ECB analysis?

Contraian in me is screaming for attention...

Dr. Engali's picture

It's nice to see they are ahead of the curve. It only took them three weeks to catch up.

Reggie Middleton's picture

Just in case nobody notices, I tried to draw attention to this TWO years ago on May 11, 2010

 How the US Has Perfected the Use of Economic Imperialism Through the European Union!

How many of those Greek, Portuguese, Irish and Spanish bondholders have factored the near guaranteed "additional" haircut (/scalping) they will receive having to stand behind the IMF in the event of a (probably guaranteed) default or restructuring? Do you think the investors of European banks (that includes central banks) that are holding/and currently still buying a boat load of these bonds have factored this into their valuations?

The IMF, like many other international institutions, asserts that it has a "preferred creditor status", and this has been a practiced convention in the past. Thus, IMF has de facto seniority rights over private creditors despite the fact that there is no legal or treaty-based foundation to support this claim and this seniority of rights for IMF will continue under the recent EU rescue plan announced as well as it has not been noted otherwise implicitly nor explicitly. This is the reason why Sarkozy said it is a said day when the EU has to accept a bailout from the IMF (aka, the US). The EU now, and truly, contains a significant parcel of debtor nations.

To add fuel to this global macro tabloidal fire, the Euro members’ loan will be pari passu with existing sovereign debt i.e. it will not be considered senior.

Please keep in mind that these numbers are based on what we perceived (as does simple math) to be pie in the sky optimism. I urge all readers to reference Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!.



Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still 

Mr Lennon Hendrix's picture

The 666s are making this article a little hard to focus on.  It's like Bale is trying to tell us something.

fredquimby's picture

It this Middleton character a serious self-aggrandising wanker (+)

or is he simply a nice @humblebrag kind of a guy (-)



Tyler Durden's picture

You are referring to the IMF's loan priming existing debt. That is correct, but largely irrelevant for this analysis. It is also the basis for why the ECB is so concerned about creating a further tiered market depending on how its Greek bailout loans are treated.

Incidentally, the fact that Portuguese bonds have a clear negative pledge is why, as we said in our original post three weeks ago, the IMF can not prime the Portuguese balance sheet.

We give the market another 3 weeks before it understands what this means...

francis_sawyer's picture

Geez ~ I knew I was being lazy at the time by not doing my homework (and asking you which 'other' subsequent dominoes went through London)...

But these guys take the cake at (the dog ate my homework) excuse...

Reese Bobby's picture

GFY Francis.  You want to suck dick?  Head on over to The Big Picture.  Maggot.

vh070's picture

Looks like the market acting on/anticipating the estimates.

SwingForce's picture

Jpm needed 3 weeks to frontrun its clients and stock up on the bonds they are now selling. Nice job Tyler!

Mr Lennon Hendrix's picture

Or they had been watching midget tranny porn for three weeks and while browsing Super Bowl ads they came across Brian Dingleberry's comments and decided to look up this "Zero Hedge".

"What's this?"  Asked Jaime Dimon.

"I dunno."  Replied Lloyd Blankfein.  "But we should probably use its research.  It could make us some money."

They both began drooling....

Problem Is's picture

Jamie & Lloyd: Amerika's Shoe Shine Boys

If it wasn't for felony fraud as their only business model... Jamie & Lloyd would be shining shoes for a living...

Gimme a shine Jamie!

Jim in MN's picture

Hey, who DOESN'T love a Monday morning in February???

Allow me to further impr0ve the m00d...Fukushima Unit 2 experiences nearly 50% temperature increase in four days, cause unknown, not responsive to increased squirting.


Temperature at No.2 reactor remains high

Attempts to cool the temperature in the No. 2 reactor of the disabled Fukushima Daiichi nuclear power plant have only partially succeeded despite the injection of more cooling water.

The temperature in the reactor has gradually risen from about 45 degrees Celsius registered on January 27th.
In the past 4 days, the temperature has climbed more than 20 degrees to above 70 degrees.

The plant operator, Tokyo Electric Power Company began pumping more water into the reactor at around 1:30 AM on Monday. But at 7 AM, the temperature stood at 73.3 degrees and at 5 PM, 69.2 degrees.

The utility firm says 2 other thermometers elsewhere in the reactor gave readings of about 44 degrees.

TEPCO says the rise in temperatures indicate that the flow of water in the reactor may have changed direction after plumbing work, and is no longer able to properly cool down the melted down nuclear fuel.

However, the utility says radioactive xenon has not been detected in gases around the reactor, and that nuclear criticality is not taking place.

The government and TEPCO announced in December that the 3 troubled reactors at the Fukushima plant had reached a state of cold shutdown with their temperatures below 100 degrees. But the situation inside the reactors remains unclear.

New regulations established after the state of cold shutdown was achieved require the utility to keep temperatures inside the reactors below 80 degrees.

TEPCO says it will increase the amount of water being injecting into the reactor to see if the temperature in the reactor drops.

The government's Nuclear and Industrial Safety Agency says there is a need for a comprehensive study to determine whether the reactor is actually in a state of cold shutdown. It says a brief reading of over 80 degrees on one of the thermometers does not necessarily mean there is trouble in the cooling system.

Meanwhile, the Chairman of the Nuclear Safety Commission, Haruki Madarame, says that a recurrence of nuclear criticality is unlikely.

But he criticized TEPCO and the nuclear safety agency for their handling of the matter. He says they are failing to properly explain the state of the reactors to the people.

Monday, February 06, 2012 20:48 +0900 (JST)

Mr Lennon Hendrix's picture

Close your eyes and repeat after me everybody.

It's all going to be ok.  It's all going to be ok.  It's all going to be ok.

There!  Problem fixed!  Go about your day!!

Problem Is's picture


Hopium from Mr. LH... +1

Bansters-in-my- feces's picture


Whats up with gold .......?

Fuck you's PPT.

William113's picture

There is an ad on Zero Hedge today about Glenn Beck predicting economic collapse. So who from Zero Hedge gave Hypocritebeck permission to use their information because steals everything he says.

Clowns on Acid's picture

Tyler - your JPM story reminds me of the Irish doctor and a pint of Guinness..

As recently as the 60's country Irish doctors would prescribe 1 Guinness a day to pregnant women, (For mostly the Iron and vitamin content presumably).

So the adage went, " 1 Guinness a day if you are pregnant, 3 Guinness a day if you want to get pregnant".

The story seems apt to your content.


Bartanist's picture

The "pause that refreshes" the bottom line.

airedalesrule's picture

Your finding evidences the flight of intellectual capital and ethics from what was formerly J.P. Morgan, now better known as Planet of the Apes.


Problem Is's picture

And that is why JPM analysts are paid the big US taxpayer financed bonuses...

To plagiarize the work of fringe blogs...

JW n FL's picture







The Federal Reserve collects enough in interest payments from Private Debt that the public debt should be a wash.


Why is NO! ONE!! Talking about what the Federal Reserve Earns in Interest Payments from the Banks of the World!

Why is no one mentioning that given the 6% in earnings that the FED Share Holders Earn.. should be more than enough to right ALL of the WALL STREET BANKS?


How come NOT! one person has bothered to line item the FED's earnings?




Must I do everything?

JW n FL's picture



The Month in Review
A recap of last month's articles & documents JUMP TO:
News Article Recap
Conference Update
Document Recap OffshoreAlert monitors individuals, businesses and important events regarding the offshore world. Once we find out about something of material importance, subscribers are notified about it shortly afterwards. Click here to learn more about gaining Unlimited Access to the Largest Offshore Database For Less Than $2 per Day. NEWS ARTICLE RECAP Jonathan Curshen faces up to 20 years in prison after Florida jury convicts him of securities fraud and money laundering
February 03, 2012 - Jonathan Curshen, a former offshore financial services provider and Honorary Consul to Costa Rica for St. Kitts & Nevis, has been convicted of securities fraud for the second time in two-and-a-half-years.

Swiss private bank Wegelin & Co. indicted in U. S. for allegedly conspiring to defraud the IRS
February 02, 2012 - Switzerland's oldest private bank, Wegelin & Co., was indicted today in the United States for allegedly conspiring to defraud the IRS and, in a parallel civil action, had $16 million seized at its correspondent bank, UBS AG, due to alleged money laundering.

Ernst & Young (Cayman) current & former partners settle litigation with Cash 4 Titles 'investor' Lewis Rowe
January 27, 2012 - A legal dispute in the Cayman Islands in which current and former Ernst & Young partners Dan Scott, James Cleaver and Richard Fogerty were accused of illegal conduct towards Lewis Rowe over his alleged participation in a Ponzi scheme known as Cash 4 Titles has been settled.

Credit Suisse (Guernsey) and trust officers accused of concealing proceeds of corruption by Ukraine politicians
January 17, 2012 - Credit Suisse (Guernsey), three of its trust officers and a BVI-domiciled IBC are being sued for allegedly concealing the proceeds of a corruption by former Ukraine Prime Ministers Pavlo Lazarenko and Yulia Tymoshenko and avoid paying debts, including an $18 m judgment. At least $2.6 m in "bribes" went into accounts at Barclays Bank, in the Cayman Islands, it was alleged.

Ex-owners of Clarendon Insurance seek to enforce $92 m Bermuda judgment regarding Stirling Cooke fraud
January 10, 2012 - The former owners of the Clarendon Insurance Group have taken legal action to force Travelers Indemnity and Executive Risk Specialty Insurance to satisfy $25 m of a $92 m judgment in Bermuda arising from a fraud committed by the now-defunct, Goldman Sachs-controlled Stirling Cooke group.

Bahamas-domiciled Gemini Investment Fund and IBCs in BVI and Panama 'used for $183 m fraud'
January 09, 2012 - Bahamas-domiciled Gemini Investment Fund, which is administered by Trident Corporate Services, and IBCs in the British Virgin Islands and Panama were used launder $183 million from two frauds perpetrated against the Russia-based Otkritie financial group by London-based trader Georgy Urumov, it has been claimed.

Bancroft Life's fired managers must return records and 'cease interfering' with relationships, rules US Court
January 07, 2012 - The U. S. Court of Appeals has upheld a lower court's decision ordering the former managers and professional advisors of offshore insurer Bancroft Life & Casualty to return its "corporate books and records" and "cease interfering" with the insurer's relationship with its insureds.

Antigua police appeal to former diplomat Sir Ronald Sanders to co-operate with corruption investigation
January 04, 2012 - The Royal Police Force of Antigua and Barbuda has issued a public appeal to the country's former Ambassador to the United Kingdom – Sir Ronald Sanders – to co-operate with a corruption investigation in which he is a suspect.

Swiss bankers indicted for conspiring to defraud IRS while working for Wegelin & Co.
January 03, 2012 - Three former client advisers with Swiss bank Wegelin & Co. - Michael Berlinka, Urs Frei and Roger Keller - have been indicted in the USA for allegedly conspiring with U. S. taxpayers and others to conceal more than $1.2 billion from the IRS.

Insolvent Bahamas insurer sues former directors over 'dubious' Florida property deals
January 03, 2012 - The court-appointed managers of Bahamas-domiciled British American Insurance Company Ltd., which operated throughout the Bermuda-Caribbean region, are suing the insurer's former directors and others for 'recklessly gambling away' hundreds of millions of dollars on 'speculative' Florida real estate investments. GET FREE INSTANT EMAIL ALERTS
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JW n FL's picture



Federal Reserve Earnings verse Federal Reserve Loans to the United States of America



1.    How much does the Federal Reserve Bank Earn in Interest Payments? From anyone other than the United States of America.


Federal Reserve $15 Trillion Dollars in Loans Bloomberg


Loans from 3 / 9 / 2008 to 3 / 9 / 2009 totaling $15,760,004,161,955.00


Getting Bigger

Instead, the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble.

Total ** assets ** held by the six biggest U.S. banks increased 39 percent to $9.5 trillion on Sept. 30, 2011, from $6.8 trillion on the same day in 2006, according to Fed data

** **



The Fed’s Secret Liquidity Lifelines




2.    Who are those Monies Participated Out too? That the Federal Reserve Bank Collected?

Who owns the Federal Reserve?

The Federal Reserve System fulfills its public mission as an independent entity within government. It is not "owned" by anyone and is not a private, profit-making institution.

As the nation's central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms.

However, the Federal Reserve is subject to oversight by the Congress, which often reviews the Federal Reserve's activities and can alter its responsibilities by statute. Therefore, the Federal Reserve can be more accurately described as "independent within the government" rather than "independent of government."

The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation's central banking system, are organized similarly to private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.



So! The question stands.. if the Federal Reserve is collecting .25% interest on $100 Trillion Dollars a Month.. Where Does ALL!! That Money Go?!?!?!?!?!

6% here.. 6% there.. Participated Out to the Shareholders.. into thier Federal Reserve Bank Accounts.


JW n FL's picture




So if the Federal Reserve is Collecting 6 times more a MONTH in Interest payments than is due by the United States of America.. why are the American People having to carry that debt?


Henry Ford-

"It is well enough that people of the nation do not understand
our banking and monetary system, for if they did,
I believe there would be a revolution before tomorrow morning."


If the Shareholders of the Federal Reserve are collecting their 6% of the $100 Trillion (minimum) Dollars a month in Interest payments..


Then why in the FUCK! Do We the People of the United States need to be taxed to death to pay for the Bank Bailouts?

How fucking hard is this for anyone to understand?

How can I dumb it down more for you?

How many people do you think you could explain this very simple FACT too?


When do you think would be a good time to let people know this?

Never mind Baby Boomers! I know you are just trying to sneak out without having to pick up this for shit bar tab the rest of us are saddled with!

But you younger people that will have to live this fucking nightmare going forward for a good long while should take a GREAT! Amount of interest in the facts that have been dumbed down and sourced and sited for even the most simplistic of mentalities to be able to grasp, easily.



Clip and Paste!

And then send it to everyone you know in your email box.. it is like you have to click the mouse 5 or 10 times total to educate everyone you know.. and feel free to let the dumbasses that you are sending this to as well know how simple it is to educate everyone they know..

And maybe..

Just fucking maybe!

We will be able to stop getting RAPED by the Federal Reserve and Washington DC via the Wall Street Lobby!


Thanks for Playing Along!

Add your name here! _____________________


Eric L. Prentis's picture

JP Morgan sell-siders, welcome to Zero Hedge. I suspect you are doing this because JPM buy-side customers are already reading ZH, and you need to think up plausible answers to your clients’ more probing questions, beforehand. However, be forewarned, once you and your clients take the ZH “red truth pill,” market anxiety leads to angst, and then to dread.

anonnn's picture

The situation might be more workably viewed as:

Unfairness begets chaos.

And note that deliberately encouraging  chaos creates an oppportunity for the unscrupulous to impose control in a power grab, via takeover/pre-emption/coup d'etat/tyranny/rule changes and other "emergency" measures.

What's so complicated?

ucsbcanuck's picture

So what JPM clients pay for we get for free. I love it when I get stuff for free. Thanks TD!

LeBalance's picture

I believe Bard Tom Lehrer said it best:

"Who made me the genius I am today,
The mathematician that others all quote,
Who's the professor that made me that way?
The greatest that ever got chalk on his coat.

One man deserves the credit,
One man deserves the blame,
And Nicolai Ivanovich Lobachevsky is his name.
Nicolai Ivanovich Lobach-

I am never forget the day I first meet the great Lobachevsky.
In one word he told me secret of success in mathematics:

Let no one else's work evade your eyes,
Remember why the good Lord made your eyes,
So don't shade your eyes,
But plagiarize, plagiarize, plagiarize -
Only be sure always to call it please 'research'.

And ever since I meet this man
My life is not the same,
And Nicolai Ivanovich Lobachevsky is his name."

Excepted from "Lobachevsky" by Tom Lehrer : Superman and not afraid to sing it!