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Presenting The Bond That Blew Up MF Global
Reaching for yield (and prospectively capital appreciation) while shortening duration had become the new 'smart money' trade as we saw HY credit curves steepen earlier in the year (only to become the pain-trade very quickly). The attraction of those incredible yields on short-dated sovereigns was an obvious place for momentum monkeys to chase and it seems that was the undoing of MF Global. The Dec 2012 Italian bonds (of which MF held 91% of its ITA exposure in), as highlighted in today's Bloomberg Chart-of-the-day, appears to be the capital-sucking instrument of doom for the now-stricken MF.
As if we need to remind readers, there is a reason why yields are high - there is no free lunch - and while some have already leaped to the defense of the bet-on-black Corzine risk management process with comments such as 'He was simply early and will be proved correct' should remember that only the central banks have bottomless non-mark-to-market pockets to withstand the vol.
Perhaps the largest lesson, and one that Mr. Barroso, Van-Rompuy, Draghi et al. should bear in mind is just how quickly a levered (firm not instrument) position supporting risky sovereign debt can go against you - but then today's EFSF issue demand perhaps makes that discussion moot.
Chart: Bloomberg
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Blame the Bunga!
If you're gonna go out, you might as well go out big. And boy did they exceed expectations.
This story coming soon to a French bank near you.
I hope this teaches European politicians a valuable lesson about the dangers of indecisive economic policy. The delayed EFSF expansion may just have caused the BANKRUPTCY of a primary dealer institution. It's time for European officials to get organized and start pushing for decisive and coordinated fiscal policy so that we do not have to witness a tragedy like this in the future. Politicians need to stop worrying about populist referendums and start showing some LEADERSHIP. I and many others with financial equity portfolios are counting on them.
Good point MDB. I wish they would stop allowing people to experience pain and just start printing in earnest. Let's get this party started!
Just a guess, but I bet you laugh out loud while you're typing.
True dat. He's gotta be a junk collector and loving every minute of it. Funny stuff.
Hey MDB it´s great that an slovakian earning 900 USD/month has to pay to ensure your financial equity portfolio.
I would be willing to pay the plane ticket to that slovakian to allow him to discuss the issue "face to face" with you.
Hope Obamacare covers your hospital bill
But, i thought Timmy G said the Euro cluster would not come to our shores??? WTF?
Naked long the Italy 1 year... got to be more to it TD
Well, apparently, even if they were hedged with CDS, they were effectively naked as illustrated by worthless Greek CDS.
Very useful benchmark to see if there will be "a Lehman event" from this to MF counterparties.
I wonder how many rotten American asset schemes will be blowing up? I guess the MBS investors and funds will be next. Will the US Government bail any of them out? I guess yields will explode in risk assets again.
The one CNBC anchor said this afternoon that Corzine's decisions where akin to hailmary passes. The problem is if you do throw those you have to make them, pure and simple.
Then I guess this was an interception on the 1 yard line plus a 99 yard runback. Good going, Corzine.
Who's next coming up to bat? There has to be someone on deck or the game can't continue...
Great job there Corzine.
Whats up DCRB? I'm still stacking. :)
This one is for Corzine...
"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."
John Kenneth Galbraith
"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage."
So I got that going for me...which is nice.
@ snidley
Doing alright, thanks. I hope you are too.
Nice quotation from Galbraith, looks very true for Corzine, who has had multiple opportunities to show what a complete POS he is. The world's worst?
Drop me a gmail at my name if you would like to visit my blog.
EDIT:
Still stackin'
+1
Nice quote there
Smuck. First he screwed NJ now he is moving into screwing up the remainder of the economy.
I am a beginner when it comes to the economy, however doesn't this mean a bunch of CDS come into play, thus dragging other shitty firms down?
Corzine is such a jackass, yet he is still going to make a bundle.
The market has only dropped 200 today. I am surprised this hasn't caused a massive crash.
'He was simply early and will be proved correct'
heard the very same words spoken about John Merriwether. 'if only they had more capital to withstand that August battering...'
There's a lot more to the LTCM comparison.
If you rememeber, it was Meriwether's investment in BTP Italian bonds financed with Lira repo and hedged with Lira Interest rate swaps that blew them up.
Of course there was also a tax dodge thrown in, in the form of a spurious withholding exemption, all being funded by a carry trade.
plus ça change...
Based on MF Global’s disclosed assets in its bankruptcy filing, it is likely to slot in just ahead of Chrysler as the eighth-largest U.S. bankruptcy.
1) Lehman Brothers Holdings, September 2008: $691 billion in assets
2) Washington Mutual, September 2008: $327.9 billion
3) WorldCom, July 2002: $103.9 billion
4) General Motors, June 2009: $91 billion
5) CIT Group, November 2009: $80.4 billion
6) Enron, 2001: $65.5 billion
7) Conseco, 2002: $61.4 billion
MF Global: $41 billion (as of Sept. 30)
8) Chrysler April, 2009: $39.3 billion
9) Thornburg Mortgage May, 2009: $36.5 billion
10) Pacific Gas & Electric Co., 2001: $36.15 billion
Source: BankruptcyData.com; SEC filings for MF Global asset size
In a quarter or two they'll be out of the top 10.
I wish I could give you 5 greens for that. LOL... Uh, I guess...
Exactly...JPM, BofA, GS, WFC...don't forget DB, CS, BNP...when this crisis comes to an end the top ten will be measured in how many TRILLIONS they lost in BK.
Bankers should bring brown slacks back in fashion!
JPM top creditor again. Well done JPM!!
Haha... 41B is nothing. The US prints that in a fucking day. The only reason the monkey in chief won't bail them out is because the signing of the paperwork would interfere with tee time.
Stop the bailing!
I hope all the OWS folks are moving over to Corzine's place to protest his $12.1M severance package. I wonder how much the MF Global analysts who warned him that this was a bad idea are going to be compensated when they get sent packing.
So let's postulate for a mo. If one of the 22 dealers has failed due to obvious incompetence, ignorance and stupidity....
Is there even a chance the remaining 21 are not insolvent as well?
A very good question. Hummmmmmmmmmmm.
levered-up @ 40:1 ,... i'm sure the 'others/them', are levitating or better said, straddling -- 25/50:1
oops,... there goes another rubber-tree plant
There's a reason why they're called the "american zombie banks".
When you see asset price movement correlation of 0.999999999999999999999999 it does make you wonder.
http://confoundedinterest.wordpress.com
Trouble in Rhineland City – 30yr Treasury Prices Surge – “We’re Going To Need A Bigger Boat”Eurozone blow-up of MF Global will be first of many.
Now if only he could go as head of Goldman Sachs or JPMorgue to blow them all to hell it would be nice.
I'm sure there is a spot at treasury for him.
K St.
Treasury?
Clearly presidential material! Eh MDB?
He'll be back on CNBC.
im just waiting for the sec investigation.....
Right . . . like that will ever happen.
start shooting-up some , hopium
Be first, be smarter, or cheat (pick two).
I think it was less so this 1 individual bond or another 1 individual security and more the fact that they were levered 40 to 1. Just my 2 cents.
You think the rest of them aren't levered up?
I'd say you're looking at two sides of the same coin. Makes me wonder how many other single issue "trip-wires" lie unseen.
It's the combination of 40:1 leverage and making bad investments that causes things to blow up. Leverage is great if your investments only go up. I am captain obvious.
John Corzine would be wise to 'get the hell out a dodge'...I don't know how many 'political friends' he has left in either NYC or DC!
Hopefully a LOT of his political and financial friends invested with him.
We all know the PPT monkeys are on overtime already...Anytime 'dead-debt' rises to the surface, the ringfence/firewall meme comes out swinging!!!
I mean, I have no hedge fund managing experience, but I could have told you those yields were not going to work out...
Who in their right mind would invest in a fund called "MF Global" led by John Corzine. I mean...seriously...that must have been a lot of senile old lady money.
I heard Rod Blagojevich was starting a fund called "Prestige World Wide". I'm in. Boats and Ho's, Bitchez!
That was very fuuny.
Lemonheads, Nachos and my Dad's boat.
Well, after Madoff shut down, you know that money had to go "somewhere." I'm wondering how much NJ (and other gov) money got sucked in.
What money? That was the problem. There wasn't enough money to keep the game going.
Jeebus... those 55 billion € found at HRE's bad bank? Talk about lifting one corner of the carpet
http://de.reuters.com/article/companiesNews/idDEBEE79U0AG20111031
Mark to market valuation is no longer necessary according to German GAAP. Models are allowed instead.
once a member of squid , always a member of squid.....
Calamari fritti?
That doesn't mean they were still talking to him. Once an asshole, always an asshole.
since it appears that price waterhouse is up to its eyeballs in this mess, if i were working there, i would already be looking for me another job.......
TD waterhouse?
ONCE YOU GO ITALIAN, YOU'RE PEPERONI'D !
LOL... Very good! + 1
Bloomberg is going 110% on why this is no big deal...Not even close to the bankruptcies of Lehman, WC, or Enron!!! Don't worry! it's all contained! Kim Kardashian!!!!
The "smartest men in the room" aren't learning any lessons. If they are, they are not aiming for the same outcomes as the world-wide rabble.
www.pmbug.com
All my prediction charts are now in one place without unnecesary text:
http://www.tfmetalsreport.com/forum/2814/ivars-charts
Please visit!
One of the more easier trades recently, shorting Italian bonds when the yield dropped to around 5% recently. Just shows you how incompetent some managers are even today.
Serious question with US accounting rules, why did they have to mark it to mark it? Couldnt they consider the euro crisis transitory and mark it at face?
It was borrowed money from people who borrowed the money that was lent out. Leveraged lending requires a constant assessment of who will lose the most if it collapses. As you point out, it takes a whole chain of patience to make it work.
ZH points out that only CBs have deep enough pockets to wait it out - not true - non-levered participants can often afford it.
All your upside are belong to us. All your downside are belong to taxpayer.
Short duration - is there a cure for that?
If enough holders of sov's go under will this help allieviate the debt load problems?
It was a typo, I meant bone crushing trade not bond crushing.
Just read that 100's of millions missing from MF Global accounts.
http://dealbook.nytimes.com/2011/10/31/regulators-investigating-mf-global/
Last week MF Global sold $340,000,000 in bonds rated investment grade by S&P and Moodys . One week before Bankruptcy. Ratings you can count on to be a fraud.