For A Nation That Obsessed With What "Is" Is, We Can Now Wonder What "Net" Is

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

For A Nation That Obsessed With What "Is" Is, We Can Now Wonder What "Net" Is

One of the consequences of MF Global and the whole PSI in Europe is that investors are less trusting about what "net" is.

The "gross" positions are about 2.6 billion.  That is across Europe.  If they are long and short all sorts of German and French government bonds in their role as market market, that wouldn't be much of a concern.  If that is the bulk of the gross position, then the market has clearly over-reacted. 

I would like to see gross and net by instrument.  So bonds as one line item.  CDS as another.  Futures as another.  I would like to see gross and net on a notional basis, and DV01 basis.  It would also be helpful to know a jump to default number.  I would want sovereign exposure and European bank exposure.  Basically I would want the data that I would have on my own positions.

If it turns out the bulk of the gross position is in German and French bonds with limited net exposure and a small DV01 then JEF is being punished unfairly and should bounce.  This is probably the most realistic situation as they are a primary dealer in Europe.

If it turns out the exposure involves some big curve bets where they bought long Italian debt and hedged with some short dated protection, that is a different story, and it would be bad.

My guess is the market is over reacting and that the positions make sense in the scope of their primary dealer status and the details would show minimal risk on all proper credit risk measures.  I think more disclosure is better right now, and even if the market takes some advantage of the disclosure to cause some P&L pain, that is far better than losing trust in the company and deciding to do business elsewhere.

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whatsinaname's picture

I see LOTS of MSM articles these days harping on the shale NG boom in N Dakota, Eastern Ohio, Pennnsylvania and Texas. What is the potential impact of such a hypothetical boom on gasoline prices in the US, the USD and economy in general ? Is that the panacea for all our ills ? Wonder if some oil experts would care to comment..

Flakmeister's picture

It is a last desperate play at fossil fuels.... Money to be made, but certainly no panacea.

Look at the decline rates for the wells....

DormRoom's picture

yes, there's been a lot of scientific obfuscation of decline rates.  UPenn shale gas studies are funded by big natural gas firms, so I'd be dubious about their long term conclusion.


Also, there's always the problem with fracking leeching into the water table.


Sadly, like all assets in these modern times, shale gas is a built to  flip play.  CEOs @ Shale gas junior explorers, and big NG firms, investment banks make money on the bubble. And when it pops we have further misallocation, and possibly the poisoning of our water supply.


But if you make enough money, I guess you can buy an island off New Zealand and not have to worry about the environmental degradation, or long term sustainability of shale gas being part of the nation energy mix.


Pladizow's picture

"Basically I would want the data that I would have on my own positions."

Dont hold your breath - Jeffries will be a memory before that happens!

Hard1's picture

What the article describes that they would want to see is exactly what reasonable accounting standards should require financial firms to disclose.  Not being able to see the detail, it is crazy to risk your money on "black box" trading positions, be it in the form of debt equity or any deposit above the government protection threshold. (unless you are banking with a greek, spaniard, italian, portuguese, french or american institution (FU-PIIGS)), in which case you shouldn't even trust the government protection threshold. 

ViewfromUndertheBridge's picture

OT much?...if you really want to know FullerMoney have been covering this extensively and see strong potential for US self-suffiency in energy within 10 years...ties in to re-set and US isolationism/recovery...but don't let's get ahead of ourselves...

Flakmeister's picture

The US peaked in NG production in 1970, that peak maybe surpassed because of the shale production but the US still imports NG. Moreover, it is a taint's width from becoming a net coal importer. See the third figure here

Do some research on your own and don't rely on the Koch Bros. for an analysis of the domestic energy prospects.

Start here

ViewfromUndertheBridge's picture

+1 for caring & sharing Flakkie but maybe time to pump the brakes on the aggression...David Fuller is his own man and I did use the word "potential" did I not, he sees many issues and is no spruiker, he punts his own money and has an interesting community of followers and contributors...and has a track record spanning decades.

gmrpeabody's picture

You should lead off with an OT when you're coming from left field like that!

stirners_ghost's picture

Or affix "bitchez"--that fixes everything

Darth Sidious's picture

like everything else on wall street, shale gas is a sham. returns will not be nearly what is advertised both because decline rates are higher than advertised, but more important, the best areas and wells are being drilled now.  The inventory of wells to drill is not near what is advertised. Look at the results from the Barnett Shale which has the longest history. Also, return profiles are half cycle, not full cycle.  Full cycle includes lease costs and the time value between lease purchase and when the wells are drilled.  Marginal cost of natural gas is probably $6-7.  Today's bloomberg article on CHK was a joke.  How can you take seriously anything said by a ceo of company that has existed for 15+ years, has 12billion of paid in capital and only $400 million of retained earnings.  I'd bet that retained earnings gets written off just like the last time they had any.    hope that helps.

Flakmeister's picture

Shale Gas is "booming" because it is the only game in town....


topcallingtroll's picture

There is a chance we are energy independent by 2025, but for how long?

Certainly bullish if extraction rates keep increasing.

Flakmeister's picture

See my comments above on the historical C/P ratios for oil, NG and Coal.... There is no energy independence....

the grateful unemployed's picture

speculators (and all commodities) get a lift from Fed policy, ZIRP, which was crafted to save the banking industry and a few homeowners who had no skin in the game anyway. as the cost of commodities threatens inflation the USG has to intervene in the exchanges which trade these commodites, to manipulate prices lower. UNG is the NatGas ETF, but exchange rules prohibit them from buying contracts in size to offset the number of shareholders they have, (USG wants to keep UNG out of the hands of speculators - read rational investors who see NatGas as a good investment) so the fund managers had to go to SWAPS to gain exposure.

you can currently fill up your Natgas car for about half of what gasoline costs. yes there are Natgas cars, and yes there are public fueling stations, but the powers in Washington are behind solar and electric cars.

many trucking companies (such as my waste management service) are already converting. within a year you will probably see Natgas at all major service stations.

as far as oil is concerned the POTUS is very much more interested in keeping oil prices high (he gets money to run the country from oil companies) he said Drill Baby Drill, before BP said Spill Baby Spill.

the reason for this is also that asset classes move together, crude oil goes to $50 and mortgage prices will follow. see first para.

there is no economic growth because of extend and pretend, and POTUS has to convince us he is really trying, when we know, he is really lying. now what this has to do with a chain of commodities and futures traders going belly up is that it makes their job easier, (manipulating the market, but remember they do this so inflation doesn't wreck everyones party)

and in full tinfoil hat mode, what I want to know is if MF global was holding all this Euro debt, who were they holding it for? initials BB ring a bell??

as far a political fallout lookout, Corzine is a highlevel Democrat and if it looks as though he is being given a get out of jail free card the Republicans might take POTUS to trash. in the past some of them have shown aversion to bailout and TBTF. but mostly they just want to win next fall, whatever that takes.



azusgm's picture

Compressed natural gas school buses are already available. They cost $50-60k more than diesel, but have advantages.

the grateful unemployed's picture

no way my trash co is paying that to retrofit, i just priced a conversion kit for my car, $599 plus the tank. maybe the WH has your figures

azusgm's picture

Got that number from the school bus dealer.

earleflorida's picture

fracking works great with the new lubricants, and technogies coming on line -

as far as leeching - high water table,  combined with shallow drilling and corrupt public officials with slack or  no gov't over-site -

note: fracking can be done anywhere and show positive results,...  but aquifers, and geological faults must be considered as we see in 'Appalachian- States' -     

lastly,... water treatment facilities should be constructed as a "Toxic Reclamation/Filtration Site" of waste water [solid & liquid] debris - accessible to all drilling platforms within designated area/parameters  throughout a defined network of hubs.

Important: Big Oil doesn't like the idea of someone budding in on their cash cow,... so they will do some corporate sabotage [physical malfeasance?] to poison the public's opinion - remember,... natural gas is being retrofitted to hundreds of thousand gov't/public municipalities/ etc., etc., vehicles today, at a cost of ~$3k-$4k/ each - saving on per vehicle using natural gas cuts fuel cost by ~ 60% 


Deadpool's picture

Silver analyst Ted Butler published his mid-week commentary yesterday...and here's a purloined paragraph for free...

"The first point about MF Global that I would like to make is that I believe the event was primarily responsible for the sudden take down in the price of silver and other commodities yesterday and Monday. Here’s my reasoning. MF Global was one of the largest clearing (guaranteeing) firms of all, including being the largest on the NYMEX/COMEX (according to MFG’s web site). Since we know that JPMorgan and other large commercial clearing firms on the COMEX are the big shorts in silver and therefore wouldn’t rely on MF Global for clearing purposes since they clear their own trades, it is most probable that MFG held a net long position for its customers in COMEX silver. Since the immediate fall-out of the race to bankruptcy was customer account freezing and then an order for liquidation only, it stands to reason that long silver contracts would be among the first to be liquidated, especially if prices started off lower just prior to the freeze (which they did). The resultant fall in the silver price fueled more silver long contract liquidation by MFG customers. As is the case in times of emergency and panic, more attention is given to those leveraged positions which continue to generate loss. Any short contracts held in liquidation-only accounts would tend not to get liquidated withy urgency, since they weren’t incurring losses on the downdraft in prices. This would explain why selling occurred even in commodities without a big speculative net long position, like copper."

the grateful unemployed's picture

you don't need a conspiracy theory, but its nice. asset prices tend to fall as a class

jcaz's picture

Of course it would make sense, if we could see a ledger book representation of postions;

But that would give away the whole scam, wouldn't it?

Music stop yet?

earleflorida's picture

reiteration ___ ex-anti [BS?] and Double-Entry Book-Keeping Accounts via "Trash Bin?"

current financial software is programmed  to loop around these red-flag integrity anomalous realities! 

Segestan's picture

would you like a topping with that? ....that's extra.

Cone of Uncertainty's picture

 Why is the market over-reacting when the entire fucking global fiat monetary system is based on nothing more than belief in the full faith and credit of dumb fuck politicians and central banking whores posing as stewards of the people's money?

the grateful unemployed's picture

there's 1) the things you would like to know 2) the things you need to know and 3) the things they will tell you (which is one too many)

Chappy's picture

I see this at work all the time.  People thrive on creating ambiguity and mystery around everything.  Asking relevant questions and uncovering the truth is frowned upon.  Issues are swept under the table.  This way all the people are fat, dumb, happy, in the dark ignorant.

ZeroPower's picture

Yup, we have daily PnL aggregated across desks and asset classes which are eod sent to MDs, as well as DV01 PV01 (and CR01 for the credit/IR products), but id be extremely surprised if our MD our head would ever divulge any of that info to the public outside of the firm.

Dr. Engali's picture

Based on the longer term chart the market has been sniffing out JEF and their problems.

Doubleguns's picture

I am curious if any cigars were used and are there any soiled dresses lurking in the "net". Stockings of course are possible since we are dealing with the definition of "net".

Doubleguns's picture

I am curious if any cigars were used and are there any soiled dresses lurking in the "net". Stockings of course are possible since we are dealing with the definition of "net".

Mercury's picture

One would think that if this were mostly an apples on this side vs. apples on that side situation then the principals themselves would be trumpeting that message from their ramparts at this point.

EZT's picture

I wonder if has an index of how many luxury items they have for sale now comparison too last year..

SheepDog-One's picture

The people of Europe, or Greece at least, better get a big net and throw it over these lunatic govt clowns quick or else theyre toast.

Rainman's picture

Peter wants to open the black he's going to find something good in there. Ponzinomics is the game !

Smiddywesson's picture

My guess is the market is over reacting and that the positions make sense in the scope of their primary dealer status and the details would show minimal risk on all proper credit risk measures. 

There's a lot of talk everywhere about how fragile the system is because known risks: derivatives, bankrupt banks, sovereign debt, you name it).  Maybe this underscores that just as much risk exists in over reaction to unknown risks.  Yes, things are very, very, bad, and they are interconnected, but the real stampede can come from the fact that the market is not transparent and everyone knows it.  Anything can cause a stampede at this point.

I am a Man I am Forty's picture

If I was Jeffries and knew WTF I was doing I would throw all the details out there.  Show them everything, if I knew what I was doing and there was absolutely nothing to worry about.

azusgm's picture

The term "net" always reminds me of this MIT lecture by Eric Rosenfield. It is a post-mortem on LTCM. One point that sticks with me is that in a liquidation event, paired trades become unpaired. So netting does not always happen as envisioned.

Piranhanoia's picture

You wish to know what must be concealed from you. It isn't that we don't have that information, it is just that it is not palatable in it's raw form. The "net" is as it has always been.  It is very large,  and has 4" holes in it everywhere.  How could we tell you what fell through the holes?  Don't be absurd, that is why it is called a net,  to catch everything.  

JPM Hater001's picture

Gross-net-DVo1--- It's all Greek to me...

I made a funny.

alexwest's picture

##I would like to see gross and net by instrument. So bonds as one line item. CDS as another. Futures as another.

well I'm too.

also I'd like to make contest 'BRAZILIAN MOST HOTTEST TWINS' then I'd like see them to be engaged in hot steamy lezbian act.. you know what i mean ..

that will be all my wishes for today..