Morgan Stanley CDS - Is China Part Of The Problem?

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors

The move in Morgan Stanley CDS has been grabbing some attention.  It has moved wider than any of the other banks.  Its exposure to French banks in particular has been part of the reason.  Potential hedging of counterparty exposure has also been listed as a reason. (Once again I can’t help but wonder why derivatives in general, and CDS in particular, didn’t get forced into clearing or exchanges after Lehman).

Those are both valid reasons, but I wonder if there is concern about its exposure to Asia and Asian property markets are playing a role as well.  Here is a graph showing the CDS spreads of MS, GS, BAC and Citi.  BAC underperforms whenever mortgage lawsuits are in the headlines.  All the banks have moved wider as the problems in Europe have continued to escalate, but the underperformance of Morgan Stanley is fairly recent.  It is only in the past 2 weeks that it has blown through BAC.

Since the European problems have been around for awhile, I’m not sure it makes complete sense to blame the underperformance on their exposure to French banks.  Just below the radar screen of what is trading out there, are problems with Emerging Market corporate bonds in general, but specifically for Asian Property bonds.  These bonds have been dropping in price over the past two weeks and have been part of why China CDS is blowing out.   The price drop for assets tied to Asian properties is big enough to have an impact.

This graph has MS CDS along with SocGen, France, and China CDS.  SocGen CDS has actually improved a lot in the past 2 weeks.  If MS was just going wider on the back of French banks, it should have seen more relief.  Even French CDS has been relatively stable, so it doesn’t explain the move particularly well either.  On the other hand China started widening right around the same time as Morgan Stanley started underperforming.  MS CDS is currently at 470 at China is above 200.

I tried looking through the annual report.  I could see exposure there for French banks  but I remain confused about how much net exposure there really is as the reported numbers are based on Federal Financial Institutions Examination Council’s rules – try saying that 5 times fast.  Level 3 exposures still seem high and in 2008 that was a concern, and could possibly become a concern again.

I don’t know whether Morgan Stanley is rich or cheap at these levels, but I think there is more digging that needs to be done and it should focus on Asian exposures because that seems to correlate best to the recent moves.

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buzzsaw99's picture

they are tbtf so it doesn't matter. they do what they want.

covert's picture

no, china is the solution, our envy instead of ambition is the problem.


MillionDollarBonus_'s picture

How can we be expected take this site seriously when the editor cannot even spell "Morgan Stanley". This site has lost ALL credibility with me.

clones2's picture

Yes - I can see how facts, charts, and links to other news is not "credible" or of interest...

buzzsaw99's picture

I assumed it was a word play on "Margin Stanley".

Money 4 Nothing's picture

Their going to be "Flat Stanley" pretty soon if this keeps up.

LetThemEatRand's picture

You mean, let me understand this cause, ya know maybe it's me, I'm a little fucked up maybe, but ZH has no credibility how, I mean no credibility like it's a clown, it amuses you? It makes you laugh, ZH is here to fuckin' amuse you? 

gangland's picture

Yeah, you're always late. You'd be late for your own fuckin' funeral.

nyse's picture

Make that coffee to go.

Ruffcut's picture

Hey milliondollarbuttfuck, go back to sucking your momma's anus.

Shill fucking asstroll.

Schmuck Raker's picture

Lack-O-Humor, misplaced anger...-1

Money 4 Nothing's picture

MillionDollarBoner just lost all credibility with me cause Morgan Stanley dosen't need any more bad attention pointed out by trolls like you, your going to tank them for bringing their name up around here, that's on your head buddy! 

TBTF, that's what you refer to them around here from now on, got it!?

 Their default swaps are blowing up like the Hindenburg and we are here to help them by placing Put's and tripple shorting the fuck out of them, do you part and be a team player for once in your life.

My advise to you Million Dollar Bonehead after reviewing your stats, Get some seat time, put some informational content in (if you have it) and then you can criticize all you want, till then, Have a Hot Cup of Shut The Fuck Up, sit back and watch the show, You copy me?

Friggin asspipes. TYLER!! You left the front door open again!


And yes, I am The Bad Guy. Don't get it twisted.

SheepDog-One's picture

Tyler's just typing in his Irish brogue this marnin'.

fuu's picture

That was how I read it too.

Dr. Engali's picture

If you lack the intellect to grasp Tyler's humor then maybe you should go back to the yahoo boards.

Overpowered By Funk's picture

Yahoo Fianace will spell it an way you like.

Abitdodgie's picture

MDB you dont have to come here , goodbuy!

warchopper's picture

You continue to post. Why? Why don't you just go away? If the site has lost all credibility, go spend some time on Krugman's blog. Jeesh.

clones2's picture

A little off topic - good article on seekingalpha today with some 2012 S&P estimates and guesstimates on prices based on different PE's.

firstdivision's picture

Our reliance on China to fix everything is the problem, not just MS problem.

<OT> Holy fuck this market is boring today.  What is with the magnetic attraction to 1150?</OT>

clones2's picture

I'm guessing late day fade...  I'll go under 1140 by close.

clones2's picture

Should have said by the end of lunch... got half of that 1% move to the downside in 30 minutes...

clones2's picture

And there's your afternoon fade and 1140 by close.  I hope my NFL wagers go this well again this weekend.

ActionFive's picture

1100 is the extent of deflation in equities/floor per the fed.

Ruffcut's picture

JUst maybe the frogs are tired of this euro trash ponzi scheme and are telling Morgue Stanley to fucking take a hike.

GS meddled with greece into proverty, but the french don't smile very much and never did much like merry-go-rounds.

anynonmous's picture

Margan Stanley  ach awa' laddy

Momauguin Joe's picture

Ya shuddin't mix that Jameson wit ur coffee dis urly n the Margan.

Money 4 Nothing's picture

You posted the graph chart up-side-down, dumb ass.


BTW, get ready to duck and cover, the last wheel on the EU Mushene is about to come off.

The Bad Guy.

PulauHantu29's picture

$1.5 Million for 1,500 sf in HK.

The Asian Housing Bubble is closer to it's Pin. When RE Bursts in Asian (esp China and HK) Australia will see some serious plunging since they are very dependent on China's demand...

hungarianboy's picture

Yeh short AUD/JPY and AUD/USD :-)

Larry Darrell's picture

Some forward looking individuals probably just accidentally put out the sign denominated in FRN's that will be current in another couple of years. 

hungarianboy's picture

So no position yet Tyler?

The Axe's picture

You think Johnny Mack  leaving   is a accident????

Clayton Bigsby's picture

Coming soon - Warren Buffett buys preferred yielding 10% a la Goldman???

Fíréan's picture

there seems little cross reference between the articles posted at this website, or was the poster here not aware of the Reggie Middleton post, regarding Morgan Stanley and CDSs., linked to and quoted today at ZeroHedge ?

bonddude's picture

Puts aren't confirming CDS widening ?

Newsbounce's picture

Tyler cnbc mentioned ZH earlier. Hopefully the plug will keep driving more traffic to your site. Thank you for the articles and trade ideas .

Outlaw Of The Wasteland's picture

dr jon najarian says it's nothing to worry about as he isn't seeing large put options being bought at the offer.

He is also "nibbling" on nflx.

Thanks cnbc.  Keep up the good work.

oddjob's picture

Never take advice from a greaseball that takes drugs that were made for a horse.

onlooker's picture

(Once again I can’t help but wonder why derivatives in general, and CDS in particular, didn’t get forced into clearing or exchanges after Lehman).

Either oversight or just hang all the bastards.

bonddude's picture

Larry Summers can answer that.

Schmuck Raker's picture

Go on Pete! Get down wicha own bad self!

Tense INDIAN's picture

we can ask some of the speculators themselves what they are seeing....

paul_Liu's picture

ZH is the best site I have even followed. It provides a lot of professional information usfule for all investors.

Tyler could be GS's CEO.

Fíréan's picture

"Tyler" is a pen name for more than one person.

Big Ben's picture

Wouldn't be too surprised to discover that MS is underwriting CDS against itself.

chinaboy's picture

It is fun to read Peter's analysis everyday. It is even more fun to read him over analysing.

there are countless ways for any too-big-to-fail to be exposed to something. Relating that to China is too fun to believe. Look at it this way, gold, silver... are all traded down. The Dow could go either way 500 for nothing.  The hedgies will do everything before they call JC Flowers.

slewie the pi-rat's picture


the last piece tyler put up about their exposure to french banksters was based on year-end-2010 data

here is a doug noland paste from his 9.23 weekly summary:    Debt issuance slowed sharply.  I saw no Investment-grade issuance this week.  

Junk bond funds saw inflows of $517 million (from Lipper). Junk issuance included Bill Barrett Corp $400 million, Iron Mountain $400 million, and AE Corp $250 million.

and this:  Total Money Fund assets fell $11.8bn last week to $2.621 TN.  Money Fund assets were down $189bn y-t-d, with a decline of $182bn over the past year, or 6.5%. 

Total Commercial Paper outstanding declined $13.4bn (10-wk decline of $207bn) to $1.030 Trillion.  CP was up $58bn y-t-d, or 6.8% annualized, with a one-year fall of $34bn.  (end pastes)

if one's job is exposing one's clients' monies to these markets, safely, for a nice return for them and for the company, too, that's quite a challenge!