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The Rise Of Activist Sovereign Hedge Funds, The "Subordination" Spectre, And The Real "Coercive" Restructuring Threat

Tyler Durden's picture




 

When Zero Hedge correctly predicted the imminent rise of the "activist sovereign hedge fund" phenomenon first back in June 2011 (also predicting that the "the drama is about to get very, very real") few listened... except of course the hedge funds, such as Saba, York, Marathon, and others, which realized the unprecedented upside potential in such "nuisance value", long known to all distressed debt investors who procure hold out stakes, and quietly built up blocking positions in European sovereign bonds at sub-liquidation prices. Based on a just released IFRE report, the bulk of this buying occurred in Q4, when banks were dumping positions, promptly vacuumed up by hedge funds. More importantly, we learn from IFRE's post mortem of what is only now being comprehended by the market as having happened, is the realization that the terms "voluntary" and "collective action clauses" end up having the same impact as a retailer (Sears) warning about liquidity (and the result being the start of the death clock, with such catalysts as CIT pulling vendor financing only reinforcing this) to get the vultures circling and picking up the pieces that nobody else desires. As a reminder, it was again back in June we predicted that "the key phrase (or two) in the proposed package: "Voluntary" and "Collective Action Clauses"." Why? Because what this does is unleash the prospect of yet another word, which is about to become one of the most overused in the dilettante financial journalist's lingo: "subordination" or the tranching of an existing equal class of bonds (pari passu) into two distinct subsets, trading at different prices, and possessing different investor protections (we use the term very loosely) with the result being an even greater demand destruction for sovereign paper.

Incidentally this is precisely the reason why we predicted the second Greek bailout would be dead back in June of last year (proven right) as it underscores a very specific dynamic in bond trading, and thus demand, which apparently nobody in Europe grasped at the time, except for the hedge funds who now control the entire process and can demand anything to keep the Eurozone from falling apart. Unfortunately, it is now likely too late - with everyone finally figuring out what subordination means, and the S&P making it the highlight of their downgrade FAQ, the fear of future subordination alone is why demand for peripherals will likely plunge even more, paradoxically allowing activist funds to build up even bigger blocking stakes at cheaper price, throwing Europe into a toxic loop where courtesy of its stupidity it will now have to pay fund managers, the same ones it vilified, billions and billions, so they don't pull the plug on Europe.

IFRE describes when the realization of "nuisance value" set in:

One head of rates trading at a major dealer noted several instances in the fourth quarter when second-tier European banks looked to sell portfolios of Greek government bonds in the €50m to €100m range, with one trade reportedly even exceeding this.

 

While playing down the likelihood of all of these trades closing, the rates trader noted leveraged accounts had succeeded in building up large holdings of Greek government bonds recently.

 

“We saw probably five big transactions in the fourth quarter, and some of them definitely closed because some hedge funds have been able to build reasonable positions [in GGBs] of a few hundred million. You cannot [build a decent position] by buying €1m pieces,” he said.

Blocking stakes defined:

If one party managed to accumulate between a quarter and a third of a given series it might be able to block a debt exchange, making it likely that investors would focus on particular bond maturities. Foreign-denominated Greek debt that is subject to English law is also thought to be particularly targeted by vulture funds.

Finally here is IFRE's 7 month delayed analysis of what Zero Hedge readers knew in the first half of 2011.

Further uncertainty has been added by what the European Central Bank, the third member of the Troika, plans to do with its estimated €40bn of Greek bonds picked up under the Securities and Markets Programme since June 2010.

 

This makes it the largest holder of Greek bonds. However, President Mario Draghi reiterated that it was not a party to the current negotiations between Greece and its private creditors.

 

If the take-up of the bond offer is unsuccessful and a deeper, more coercive restructuring is required, using retrospectively introduced collective action clauses, the ECB will face a dilemma.

 

If it continues to hold out, it will subordinate all other holders who will see their Greek holdings in effect wiped out. But this would have other consequences. Many are European banks that would have their capital compromised and so need to be supported by the ECB. It would also make the institution’s holdings in other sovereigns, namely Italy and Spain, senior too.

 

“If collective action clauses aren’t binding on the ECB it’s hard to see how they could be binding on others,” said the hedge fund manager. “If bonds bought by the ECB are de facto senior, it turns the SMP into a double-edged sword. For every Italian bond the ECB buys, that could be less Italian debt servicing power for everyone else.”

Which is what the real threat of a coercive Greek default is: not the triggering of Greek CDS - that event will have no actual cash flow impact whatsoever. What it will have an impact on, is the waterfall bifurcation of all sovereign debt bonds into a universe of "covenant-stripped" bonds, all of which will have special treatment with the ECB, with Repoclear for repo pledging purposes. Most importantly, it will further collapse bond demand as investors will no longer know if the bond they purchase will be the same bond tomorrow, or some metamorphozed monster trading at pennies on the dollar because of some hedge fund's activitist strategy.

 

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Mon, 01/16/2012 - 11:00 | 2068516 fonzannoon
fonzannoon's picture

What? I feel like all the answere are in there. But.....What? Man I hate being stupid.

Mon, 01/16/2012 - 11:09 | 2068537 HoofHearted
HoofHearted's picture

If you can be the fund that holds out longest, eventually they will have to pay your ransom. So you bought Greek debt at 25 cents on the drahcma. They'll pay you back at full par so that they don't trigger a CDS.

OR you could just decide to buy gold in drachmas...bitchez. Devaluation of the euro, the USD, and maybe even the yuan are coming. It is the only way to ever be able to "faithfully" pay off the debt that seovereings have incurred. Or they might just default on us.

Mon, 01/16/2012 - 11:36 | 2068596 MillionDollarBonus_
MillionDollarBonus_'s picture

Buyers of CDS are SUCKERS LOL! Smart credit derivatives desks have sold large quantities of sovereign CDS knowing that peripheral Euro states are simply TOO BIG TO FAIL. This means that CDS buyers are paying for a hedge that already exists in the form of liquidity backstops provided by vigilant central banks. Looks like ungrateful doomer shorts are going to learn the hard way that you do not bet against the global economy and world leaders.

Mon, 01/16/2012 - 12:18 | 2068681 Fastback
Fastback's picture

that you do not bet against the global economy and world leaders. DUMBEST comment I've read on this site EVER!

World leaders and the Global economy are working this plan exactly as they intended? Their plan: We're bored. Things are too stable. Let's see if we can let Greece, Spain and Italy, etc. all get pushed to the brink/insolvency/default.  Then we can try to rescue them. Yeah, Yeah, that's a great plan!

 

Mon, 01/16/2012 - 13:22 | 2068848 forexskin
forexskin's picture

you missed the implied /sarc, present in all MDB posts.

but, he has a point worth thinking about.

if there is never a credit event, no CDS ever gets tripped. just all these 'voluntary haircuts', which i now read as not applicable to the hedgies with a 'blocking stake'.

so they either force a payout at par, or a CDS trip.

the 'voluntary haircut' is for everyone else.

hence the bifurcation of the bond market, and doubt with subordination (which appears to be the same bet taken by the ECB)

brilliant really, except it cannot last as it is.

thus the subtle /sarc from MDB

Mon, 01/16/2012 - 13:49 | 2068943 hackettlad
hackettlad's picture

Oh.

Mon, 01/16/2012 - 16:58 | 2069293 forexskin
forexskin's picture

might also be interesting to learn whether these hedgies also hold any significant qty of CDS on the bonds they are buying. that would offer some clue as to their ability to call the bluff on this 'default or par-payoff' gambit, and also suggest with which counterparties exactly they might be negotiating (we can be sure there are conversations regarding division of the spoils on this). also, if other hedgies are loading up on CDS themselves, might point to their next bond issue targets... but i digress...

on the other hand, their ability to pull the pin on the CDS grenade being held by someone else and still cause huge damage may be sufficient threat. only question is just how prepared are they to play terminal chicken?

not sure whether their postion is stong enough to demand something between the par and the eventual haircut rate, or between the haircut rate and what they paid, but i'd surely appreciate some insight there...

Mon, 01/16/2012 - 12:20 | 2068683 LynRobison
LynRobison's picture

It's all so clear to me now... the global economy always goes up and world leaders always do the right thing. What a revelation!

Mon, 01/16/2012 - 12:20 | 2068685 mickeyman
mickeyman's picture

Buying some of these CDS's is like insuring your business against losses due to global thermonuclear war. Do you really think you will be able to collect?

Mon, 01/16/2012 - 13:44 | 2068929 Sandmann
Sandmann's picture

AIG has such deep pockets and every US taxpayer stands behind it

Mon, 01/16/2012 - 12:47 | 2068767 hackettlad
hackettlad's picture

You clearly have a short memory.  Cast your mind back to the sterling-ERM crisis in the early 1990s.  The BoE, a major central bank, desperately tried to defend its currency and was unable to do so under concerted attack by Soros and company.  It took years and a massive overhaul of the governance of the BoE before it regained its composure and it credibility.  There is a tipping point where even the market realises the Emperor has no clothes - watch out for it.

Mon, 01/16/2012 - 12:14 | 2068666 ToNYC
ToNYC's picture

Nothing more than Ben, Tim, Merkel, Monti, and Lagarde doing "Thelma and Louise" meet the "Night of the Living Dead". Where is Signore Fellini when we really need him? He went with Dali and Buñuel I am left to imagine.

Mon, 01/16/2012 - 13:39 | 2068909 pasttense
pasttense's picture

"If you can be the fund that holds out longest, eventually they will have to pay your ransom."

There is an old saying which goes way back: "You can't squeeze blood out of a turnip" Greece just doesn't have the money. So please explain how they can "pay your ransom".

Tue, 01/17/2012 - 00:22 | 2070148 jonjon831983
jonjon831983's picture

Parentheon?

Acropolis?

If not the actual physical, maybe 100 years worth of tourist revenue?

 

lol. terrible.

Mon, 01/16/2012 - 11:13 | 2068541 Sudden Debt
Sudden Debt's picture

Maybe some Yoda knowledge will help you out: Look not at what you see but look at what you do not see little padwan.

Mon, 01/16/2012 - 11:22 | 2068554 fonzannoon
fonzannoon's picture

I see people going broke and hungry and I see markets going up gently while the msm speak about the recovery. Europe they tell me is in bad bad shape but the good news is the 2nd half of the year when they have it all squared away we can refocus on the budding US economy. 

I have some scratch and a family to provide for and I don't believe the msm. I come here for the truth. I see no volume in the markets and the cracks getting bigger. The info on this site leads me to believe the markets are about to tank. The only question in my mind is how long it takes.

What is it that I don't see?  If Greece is completely broke and is not paying anyone back why should anyone care about a tug of war between the ECB and hedge funds on worthless bonds?

Mon, 01/16/2012 - 12:08 | 2068658 mtomato2
mtomato2's picture

I just looked to see, and discovered you are a super-noob, at just over a week.  Welcome.  Gird your loins.

I've been here well over two years and still only "get" about 20% of what the Tylers speak.  But it's not because I'm stupid.  It's because the fine mechanations designed into the matrix are supposed to baffle.  So we'll give up.  And be happy with what we have, albeit less and less as the days wear on.  Thank GOD for the Tylers who are patient enough to bring it to light for those of us busy trying to make a living, supporting our families, and contributing to our communities.

It sounds like you've got the fundamentals.  Protect you, yours, and as many others who will listen.  Understand that no matter WHAT the MSM and PTB say, 2+2 will ALWAYS equal 4, regardless of the microdata suggesting otherwise.  When they start preaching that the real answer is actually 5, and that they just don't have the time or patience to explain it, and for you to just sit back down and check what time Dancing With The Stars comes on...  ( be sure to watch it streaming on your iPad...  you DO have an iPad, don't you...  if you do not, one will be issued you...)

There's NOTHING datawise, macro or micro, that you don't see that actually matters.  It actually IS simple.  2+2=4.  Always.

Spread the word.

 

Mon, 01/16/2012 - 12:57 | 2068801 green888
green888's picture

2 + 2 = 4 = ?

Mon, 01/16/2012 - 14:45 | 2069079 Killer the Buzzard
Killer the Buzzard's picture

"THERE... ARE... FOUR... LIGHTS!"    -- Jean Luc Picard

Tue, 01/17/2012 - 00:37 | 2070169 jonjon831983
jonjon831983's picture

WRONG! AGAIN! HOW MANY LIGHTS ARE THERE! - Romulan Captor

Mon, 01/16/2012 - 13:08 | 2068827 SWRichmond
SWRichmond's picture

It's because the fine mechanations designed into the matrix are supposed to baffle.

...and to provide concealment (but not cover) for the real machinations that ARE going on behind the scenes.  You can rest assured that the big guys will trade on insider / govt information, get rules changed, and outright steal and stay "profitable," while the little guy will have what's left of his life's savings and future earnings stolen by the system.  There is nothing new under the sun.

"Cover" is provided by the executive, legislative and regulatory stooges in Washington DC.

IMO significant barriers to the outright seizure of private property in the name of "preserving the state" have been implemented since the crisis began, and have even survived court challenges.  There is no limit to what the system, and those who make up and rely on the system, are willing to do in order to preserve it.  We can call it "class warfare" but if it is, that war was declared and is being waged by the 0.1%, overtly.

The MFG rehypothecation scandal is only the latest indicator of this trend.  IMO the safety of 401(k)s and IRAs continues to diminish.  There will be some "concealment" story, but how will it really be until these assets are seized "to protect them"?

Mon, 01/16/2012 - 13:36 | 2068903 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I agree.  I think Mother Fuckin' Global was a false flag so that when the time comes the government will snatch IRAs and 401ks in the same of security, so 'MF Global doesn't happen to everyone'.

Mon, 01/16/2012 - 19:35 | 2069672 cranky-old-geezer
cranky-old-geezer's picture

 

 

Yes I believe MFG was some sort of test run for massive customer account looting.   They wanted to see how the sheep would react, and thus far the sheep have done nothing but whine and bitch about it, with a lawsuit here and there, which are meaningless when they're filed in court system owned by bankers.

so 'MF Global doesn't happen to everyone'.

Yes I believe 401ks and other retirement assets are the real prize they want, and "taking custody of them (confiscating them) to protect them" might just be the cover story. Hadn't really considered that angle, but it makes perfect sense.

Mon, 01/16/2012 - 12:08 | 2068659 Fastback
Fastback's picture

Fozzannoon It's all about maintaning the Status Quo by the TPTB. The Large Money Managers ( Blackrocks. American Funds, FED, CNBS) will not admit to anyone, let alone their own investors, they are all toast right now. It will take a trigger, like the Reserve Fund, breaking the buck in 2008, that causes a painic which will start the dominoes. It will happen this time. It's just waiting for the trigger.

Mon, 01/16/2012 - 14:27 | 2069015 economics1996
economics1996's picture

fonzannoon, here is the quick version.  The central bankers, financial geeks (ZHers), and politicians have inflated the money supply about 16 times what the real economy is.  Everyone did it based on some dead white guys economic model called Keynesian economics.  It is complete bull shit but politicians like it because they can justify spending huge amounts of money, central bankers like it because it justifies them printing huge amounts of money, and this has been done.  The problem is the law of physics, for every action there is a equal and opposite reaction.  Opps!!!

What you need to know is there is massive quantities of cash sitting parked in banks that can drive up inflation to levels not conceived of in the very near future, that is why all these bitchez are always saying grunt words like "gold" "silver" or the sophisticated ones say "gold bitchez" or "Au" and even "Ag."

What they mean is use your money to buy guns, food, water and Au or Ag. 

 

Mon, 01/16/2012 - 16:23 | 2069317 GernB
GernB's picture

The theory of the inflationists is that you can just jeep printing money to keep inflating the money supply, keep inflation at a reasonable pace (never mind it is making people's savings dwindle), until the debt is manageable. Common sense would tell you that if the money supply is inflated 16x beyond what the real economy is, then it can't just keep going up to 20x 25x 50x, it has to contract at some point and the bigger it becomes the more damaging the contraction will be.

What Kensesian's miss is that to keep inflating the money supply you need demand for the money you are pumping out. Individuals and corporations have already started curtailing their borrowing (though that is changing because politicians and media they trust are telling them it's getting better). Investors would borrow forever, but they are already paying significantly more than historic price to earnings. Price to earnings has only been as high as it currently is for the last 20 years, which represent the end of the credit bubble. It's the same pattern that played out prior to the great depression. Go look at a chart of historic P/E goijng back to 1900 and ignore anyone that only shows you a chart of the last 25 years. Sooner or later it will dawn on invesrores that the corporations they are investing in have falling earnings potential (due to individuals and corporations scaling back on spending) and the fundamentals wont' support the inflated prices.

Investors could shift to government debt but governments are careening towards default. We are seeing in Greece what happens when government debt overwhelms the ability of the people to pay. There is no answer in Greece that does not involve defaulting and they are just desprately trying to avoid coming to the obvious conclusion. Greeces debt is 140% of GDP. US debt is not that far off at 94% of GDP, and our debt has grown 30% in only 3 years. The problem with this Keynesian model is that it has strapped governments so they won't have any monitary resources to call upon when the real contraction starts. It's a house of cards and it's amazing to watch so many supposedly smart people delude themselves into believing that it couldn't happen here, or that more money printing in the form of QE3 is what is called for to save us all.

Mon, 01/16/2012 - 19:13 | 2069645 Think for yourself
Think for yourself's picture

It's a house of cards and it's amazing to watch so many supposedly smart people delude themselves into believing that it couldn't happen here, or that more money printing in the form of QE3 is what is called for to save us all.

Indeed. And when you realize that these are smart people, then the whole circus does not make sense unless if it isn't a mistake. And believe me, this is not the product of stupidity - ask anybody around here if they really think the world leaders with armies of thinktanks and top analysts are stupid, even though we often call them dumb out of frustration.

By now, even the sheer improbability of everything still holding up against its own obvious destruction is a sign that it was intended to be held up that long. This requires lots of skill and planning. So you might start wondering what for?


Welcome to the rabbit hole. If you want to go down, make sure to bring supplies, because it goes deep

Mon, 01/16/2012 - 19:54 | 2069697 cranky-old-geezer
cranky-old-geezer's picture

 

 

So you might start wondering what for?

It's very simple. They're slowly looting everybody's wealth.   The longer they can keep the currency-printing-to-fund-more-sovereign-debt game going, the more of people's wealth they can loot via currency debasement.

And no, they can't keep that currency out of the general money supply.  Governments borrow freshly printed currency and spend it right into the economy, directly debasing the currency.

The real reason they keep the sovereign debt ponzi scheme going is to loot more of people's wealth.

Mon, 01/16/2012 - 20:30 | 2069732 mtomato2
mtomato2's picture

Are you, by any chance, of GERN BLANSDEN fame?

If so, do you get ... small?

Mon, 01/16/2012 - 23:57 | 2070081 ebworthen
ebworthen's picture

fonzannoon,

Welcome.

Don't sweat it.

We have seen these things before in world history but never under these conditions.

Fiat currencies backed by central banks backed by binary database currencies that can be flashed from one end of the globe to the other in milliseconds make history somewhat moot, but reference "Tulip Mania" and "South Seas Bubble".

We have in many respects separated the physical world from the world of:  economic theory, speculation, equivocation, leverage (gambling), and numbers separated from physical constraints. 

This is dangerous in a way the world has never faced.  Not only are our banking and financial markets disconnected from the physical reality of precious metals and paper and coin currency, much of the population is physically disconnected from the land that our ancestors had to relate with on a daily basis little more than 100 years ago (four generations based upon current life expectancy).

The failures, bankruptcies, and claw-backs that should have happened post the 2008 malfeasance and skullduggery of the equivocators and money changers were soothed and pasted over by enabling mother governments, quiescent law enforcement, and an uneducated and seemingly somnolent public.

Who knows when the debt on the backs of regular people for the sake of bankers and politicians will end.

Of course, they will say they did it for our sake, but if you have half-a-brain you know that is a bald-faced lie.

Go to cash if you don't know what to do.  Pay off debt and keep what cash you have left.  Don't rely on the police or politicians or the establishment because they are the last ones to come to your aid when the SHTF.

The markets are full of Great White Sharks and Killer Whales.  Your mutual fund, portfolio advisor, or pension fund are the anchovies, cod, and seals of the ocean - you can't trust their advice.

Keep your chin up, and keep educating yourself.

Mon, 01/16/2012 - 11:38 | 2068602 Alex Kintner
Alex Kintner's picture

I DO NOT SEE a way out of this Effing Mess. ... Oh riiiight.... ugh.

Mon, 01/16/2012 - 11:58 | 2068615 The Limerick King
The Limerick King's picture

 

 

Our financial alchemy reeks

The Ponzi is reaching new peaks

As much as we try

Our system will die

The crash will begin with the Greeks

Mon, 01/16/2012 - 12:08 | 2068655 Calmyourself
Calmyourself's picture

Instant classic..

Mon, 01/16/2012 - 13:25 | 2068871 Saro
Saro's picture

Yoda = Bastiat?

Mon, 01/16/2012 - 11:21 | 2068553 nowhereman
nowhereman's picture

I know how you feel, I truly do, but, what I just can't get my head around is how the non-elected heads of the EU can remove the heads of democratically elected governments.

Despite all else that is happening, this, I'm afraid, is the thin wedge that leads to our downfall.

Mon, 01/16/2012 - 11:39 | 2068603 Schmuck Raker
Schmuck Raker's picture

Be sure to read the links provided in this article for deeper understanding.

Mon, 01/16/2012 - 13:28 | 2068881 mattu13048
mattu13048's picture

I've heard that writing options is like collecting coins in front of a steamroller. Are these guys real: http://bit.ly/jmgPLz 

Mon, 01/16/2012 - 13:46 | 2068936 RiverRoad
RiverRoad's picture

You can bet whatever happens over there somebody's gonna make a Big Fat Greek Profit off it.

Mon, 01/16/2012 - 23:30 | 2070079 Buck Johnson
Buck Johnson's picture

Because once there is a credit event with Greece all Greece's bonds are considered bad.  And on top of that any country that is in the PIIGS and/or have the same or worse financial situation there bonds would be considered bad also.  A cascade of bond defaults.

Mon, 01/16/2012 - 11:03 | 2068518 Jefferson
Jefferson's picture

Only solution is for Germany and France to pay 100 cents on the dollar to all holders of Greek debt. We wouldn't want any uncertainty. Reminds me of the good old days when Bazooka Paulson agreed to pay Goldman off with no discussion of any discounts.

Mon, 01/16/2012 - 13:43 | 2068926 Sandmann
Sandmann's picture

You are really clueless !

Mon, 01/16/2012 - 15:50 | 2069259 falak pema
falak pema's picture

it won't probably happen, they will find a legal eagle way around it; trust me. They are sovereigns and don't take no shit from HFs whoever they may be. That's their spiel, will it fly? Time will tell. Paulson was on the side of the thiefs. Not here. Its Eurozone vs US HF mavericks. 

Mon, 01/16/2012 - 11:02 | 2068519 misterc
misterc's picture

Looking at pigbonds.info (yields) makes me feel like Mario Printi sacrifices both Greece and Portugal.

Honest description in German about current state of affairs in Italy, boots on the ground, use Google Translate
http://www.dasgelbeforum.de.org/forum_entry.php?id=245757

Executive summary: wages down, price of living sky high, VAT soon at 23%, people wonder how to survive (literally).

Mon, 01/16/2012 - 11:48 | 2068616 Caviar Emptor
Caviar Emptor's picture

Biflation to the max

Wed, 01/25/2012 - 19:38 | 2098127 Silver Bug
Silver Bug's picture

Wow, very nice.

 

Pandora Style Beads

Mon, 01/16/2012 - 11:04 | 2068523 gojam
gojam's picture

This is all going to get very messy indeed.

 

Mon, 01/16/2012 - 11:05 | 2068527 Xibalba
Xibalba's picture

Russell Simmons just tweeted :  "I'll be at the Fed Reserve Bank in NYC (Liberty & B'way) today at 11:30AM for rally -- join us and let's "

 

 

 

 

Mon, 01/16/2012 - 11:33 | 2068591 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

KRS-One toured for Ron Paul last year.

Mon, 01/16/2012 - 11:40 | 2068600 gohp
gohp's picture

Tell Richard Simmons not today.

Mon, 01/16/2012 - 11:06 | 2068529 smb12321
smb12321's picture

Incredibly good summary of the rotten ins and outs of the "real" situation.   You gotta hand it to the hedge funds, treading where no one dared to go.  Thanks again for an explanation that we will most likely read in the MSM in a few weeks.

Mon, 01/16/2012 - 11:09 | 2068538 The Deleuzian
The Deleuzian's picture

Wow...Biting the hand that feeds you...I guess they weren't feeding them that well...

Mon, 01/16/2012 - 11:23 | 2068557 Steve in Greensboro
Steve in Greensboro's picture

Hedgies making money by outsmarting bureaucrats? Why work when you can make the easy money?

Mon, 01/16/2012 - 11:32 | 2068589 BandGap
BandGap's picture

Outsmarting? Look, the powers that be had Greece by the short hairs because they just don't get the notion that life's not free.  So the "vultures", those clairvoyant enough to see the obvious and take advantage, move in.  This is so contrived, with examples of it happeneing before, that it is laughable. Now the bad guys are those with the dollars to buy up the mess and then demand payment on the fairy tale.

The bad guys won't "do what is right" but expect to be paid what was agreed to. And all these brilliant bureaucrats, especially the ones getting the fix in Greece, never see it coming.  I don't know whether to laugh or cry.

Mon, 01/16/2012 - 13:17 | 2068845 Confused
Confused's picture

They ALWAYS see it coming. They are part of the club. And these are all handouts to their friends. At the expense of all the people, who are told to fear/hate one another.

 

Story as old as time.

Mon, 01/16/2012 - 11:28 | 2068568 fonzannoon
fonzannoon's picture

I see European markets rallying. I feel like in 2008 there was chatter of what was to come and people at least had a clue. This time around it feels like either nothing is coming or people are going to get completely blindsided.

Mon, 01/16/2012 - 11:42 | 2068608 The Deleuzian
The Deleuzian's picture

Tough to know what to do when the Dow could/should be up/down 300 points on any news...Whole new ball game...Feel sorry for people retiring presently...Your alternative is 3% or less on gov. bonds and really sticking your neck out for yield of anything else!!!

Mon, 01/16/2012 - 11:54 | 2068631 Caviar Emptor
Caviar Emptor's picture

3%? Ten yer yielding 1.86. AND retirees never put their money in long-dated maturities. Almost always T-bills (1 year yield 0.1%, 2 year 0.22%). Those yields are negative in real terms, meaning the "interest" gets totally swallowed up by price inflation and then some. So they lose out on the deal. Big

Mon, 01/16/2012 - 12:38 | 2068736 TheSilverJournal
TheSilverJournal's picture

The absolute safest investment I can think of is physical nickels. Nickels now have a melt value of over $.05, so it's a great inflation protection and the value can never drop below $.05. 

Add a tad more risk and a huge amount more reward and gold is the next safest investment. Just a tad more risk than that and likely about 5 X more reward than gold when all is said and done makes physical silver is the best combination of risk and reward.

TheSilverJournal.com

Mon, 01/16/2012 - 13:19 | 2068854 Confused
Confused's picture

The problem is extracting that value. If I'm not mistaken (and I'm lazy, so I'm not googling it) there is a law to prohibit the melting down of coins.

 

Of course there are ways around it.

Mon, 01/16/2012 - 13:51 | 2068947 TheSilverJournal
TheSilverJournal's picture

Coins don't have to be melted to be traded for the value of the metal they contain. Actually, not melting coins is often preferable for ease of identifying the value of the metal in the coin. This is exactly how silver is traded today. "Junk" silver coins are traded for the value of the silver that they contain.

Besides, if I'm not mistaken, once the coin is taken out of circulation, then the coin can be melted down. Soon, inflation will wipe out the need for nickels.

TheSilverJournal.com

Mon, 01/16/2012 - 14:00 | 2068963 RiverRoad
RiverRoad's picture

Something tells me before this is over we'll be back to those 15% money market rates we had in the 70's.

Mon, 01/16/2012 - 14:22 | 2068999 TheSilverJournal
TheSilverJournal's picture

Those high rates in the 1970's and 1980's were a result of the ultra low rates in the 1950's and 1960's brought about from a fed funds rate that got down to about 3%. Rates will go much higher now than the 1970's as a result of the ultra low 3% fed funds rate in 1993 and 0% fed funds rate + QE now. 

Remember, the high inflation in the 1970's wasn't seen until rates started to be RAISED because it uncovered all of the bad investments. So whoever thinks simply raising rates will immediately kill inflation better think again.

Once the inflation genie is out of the bottle he's out to play for good until rates are raised enough to get ahead of inflation. Of course, raising rates to even 5% will lead to an imminent default of the US, much less the 20% plus rates that are needed.

TheSilverJournal.com

Mon, 01/16/2012 - 17:56 | 2069505 RiverRoad
RiverRoad's picture

Exactly.  And remember that interesting year of '87 with the Fed raising rates every month right along with the markets climb; then along came October and kaboom. 

Mon, 01/16/2012 - 20:10 | 2069722 cranky-old-geezer
cranky-old-geezer's picture

 

 

Rates will go much higher now ...

No they won't.  ZIRP is with us till the end of the dollar.

As you correctly point out, raising interest rates would collapse the whole sovereign debt ponzi scheme.

It will not be allowed to collapse, meaning rates will not be raished.

ZIRP and ongoing inflation is the game plan.

Mon, 01/16/2012 - 20:30 | 2069733 TheSilverJournal
TheSilverJournal's picture

I basically agree with you. My guess is they'll hold rates down as long as possible until they are simply no longer able to. There will still be ZIRP, but interest rates will shoot to the moon as the dollar dies. Minor details.

TheSilverJournal.com

Mon, 01/16/2012 - 11:28 | 2068570 Bud Denton
Bud Denton's picture

Somebody needs to take a swipe at the maggot-filled pinata, Europe.  As long as these fools are officially still "alive," our politicians will continue to shovel money at them.  Maybe once the story breaks that all the billions, trillions in bailouts is going to rich hedge guys who outsmarted the dolts running the sovreigns, maybe then the money flow from the US will stop.  But I doubt it.  Obama is lawn jockey to Goldman Sachs, and Romney IS Goldman Sachs.

Tue, 01/17/2012 - 03:07 | 2070338 the tower
the tower's picture

Without socialism, crony capitalism cannot florish... Thanks to all those socialist countries the US has been living on borrowed wealth for so long. As Thatcher put it: " ...and Socialist governments traditionally do make a financial mess.They [socialists] always run out of other people's money. It's quite a characteristic of them. "... well, yeah, and that's why she loved them so much, because she and her banking buddies could create all that money out of nothing. The running out part of the quote says it all though: they all knew it was going to end sooner or later...

Tue, 01/17/2012 - 06:13 | 2070425 falak pema
falak pema's picture

what you call socialism is the closed club of uber elites, the corporate oligarchy. Its not the socialism of 'we the people'...Kings were socialists according to your definition, they were always fighting wars with other people's money. So when a king is labelled a 'socialist' 'cos he's self serving, thinking first about himself, it makes that label meanigless. Your label of socialism = feudalism with divine rights!

Mon, 01/16/2012 - 11:32 | 2068588 lynnybee
lynnybee's picture

L.O.L.    I remember the days when I couldn't even write a check & now I'm reading articles on ZEROHEDGE; try as hard as I may, this article was beyond me.      I am in utter  amazement at the Tylers  &  those who run this website.    

Mon, 01/16/2012 - 11:40 | 2068605 BandGap
BandGap's picture

Hang in there, it's an acquired taste.  You'll catch on.

Mon, 01/16/2012 - 11:44 | 2068612 Schmuck Raker
Schmuck Raker's picture

Good for you lynybee, keep reading and you'll understand more with time. Also, keep your sense of humor because the more you understand the more you'll need it. :)

Mon, 01/16/2012 - 11:51 | 2068623 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I'm still not sure how any of this is a smart move by Hedge Funds.  They can have claim on the subordinate bonds, but they are going to have to go all in when the yields keep climbing month after month.  At which point would they stop buying?  And as with any bond buying right now, if yields are rising, the point for buying is for a revenue stream because holding to maturity is only going to get someone their investment minus inflation back, and with inflation rising....

The bond issuance on last Thursday was a massive one.  The biggest of the year for total Euro debt issuance.  Thus why the ratings downgrade came on Friday- the cordination still exists in the Race to the Bottom.  But now yields will rise further, until next months huge sale, and the next's.  So when do the Hedge Funds step out?  Or do they think they can play chicken with the Central Banks?

Mon, 01/16/2012 - 16:20 | 2069307 forexskin
forexskin's picture

maybe they hope to have their resolution before yields rise. there are loads (IIRC) of greek bonds maturing in early march.

they only have to chase yield on their issues if they bought with leverage.

but the bigger picture is how this is likely to totally f**k up future issuance.

i can't wait to see what TPTB have as a trump card on all this. probably some kind of a cut, done behind yet another smoke and mirrors public explanation.

Mon, 01/16/2012 - 13:40 | 2068913 falak pema
falak pema's picture

pari passu : equal treatment clause in a contract. So those HFs get paid not on a second rank basis but on prorated basis if pari passu is deemed applicable. The Romans knew their LEx. 

http://en.wikipedia.org/wiki/Pari_passu

Mon, 01/16/2012 - 16:23 | 2069312 forexskin
forexskin's picture

i quit making investment decisions or analyzing any of this assuming consistent application of the rule of law a long time ago...

Mon, 01/16/2012 - 11:41 | 2068607 NervousRex
NervousRex's picture

Everyone seems to be playing chicken here, ECB with the bond holders, bond holders with other bond holders, Everyone with the ratings agencies, FED to Europe, FED to Congress, Congress to the people.

Every incremental decision, game-theorized to infinity causes another incremental grain of civilization to fall down the side of the mountain.

Someone is going to get slaughtered here, this being a bacon and egg breakfast that would be the pig paying the high price.

Mon, 01/16/2012 - 11:50 | 2068622 BandGap
BandGap's picture

It's a game where we know what the outcome is right now. Once the fate of these countries is deteremined to be otherwise there will be a lot less posturing and it will be every man for himself.  Just waiting for the powers to be to see that the emporer has no clothes.

Mon, 01/16/2012 - 11:53 | 2068629 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

+1

Playing chicken....

Mon, 01/16/2012 - 16:02 | 2069281 The trend is yo...
The trend is your friend's picture

if only the citizens could play chicken with TAXES in a cooridinated manner against their governments lke these clever hedge funds. We would win very quickly and the bullshit all comes to an end.  Unfortunately the citizens are like trained labratory animals and would never want the shock for misbehaving

Mon, 01/16/2012 - 12:12 | 2068632 mtomato2
mtomato2's picture

@fonzannoon;

You and me both.  I hate being stupid, but that, among other things, is presumably why we come to ZH.  To get less stupid.

I have absolutely NO IDEA what was said in this article, but I intend to find out, because I care.

More people caring is the only way we will ever rebuild our way out of this, after the worst has passed.

Onward.  Nobody said this was going to be easy.

Mon, 01/16/2012 - 12:10 | 2068663 Straw Dog
Straw Dog's picture

Isn't there the possibility that the Greek government just rewrites the securities law so that all bondholders are paid at the rate tht the MAJORITY of holders accept. In this case don't the hedge funds loose? Or have I failed to grasp the stuation correctly

Mon, 01/16/2012 - 13:22 | 2068863 Jefferson
Jefferson's picture

The point is that the hedge funds are betting that Germany and France won't allow the terms of the Greek bonds to be arbitrarily rewritten because, in addition to a flurry of lawsuits, it would mean going forward the legal terms set forth in the bonds of other countries, i.e. Italy, Spain, Portugal and France might also be subject to change and no investors would be willing to purchase their bonds going forward given the legal uncertainty.

Mon, 01/16/2012 - 12:13 | 2068664 Caviar Emptor
Caviar Emptor's picture

We'll be living in the shadow of Friday the 13th for a long time. It was the sharp dividing line separating "before" and "after" the injection of a dose of reality into the drunken Ponzi circus. Now the throbbing hangover is setting in. Just like last year after the US downgrade, only much worse because Europe is much more brittle. 

Whether or not hedgies profit from their "blocking" positions in PIIGS bonds, they are upping the bets at the poker table. ECB, EU, IMF and the governments of the core countries will have to make decisions with major repercussions that will cast a long shadow. In essence they'll have to chose who to throw under the bus: Greece or bond holders. And a decision either way is lose lose for the ECB which has to carry the burdens of unsustainable debt, insolvent banks, and central bank credibility. 

I'll go out on a limb once again and say they'll nationalize key large banks. 

Mon, 01/16/2012 - 12:56 | 2068794 falak pema
falak pema's picture

they already have behind the curtain in France, Germany and Italy. This is now a concerted national effort in the core Euro countries. They want to "chill" the market, decouple their sovereign from the HFs and US lending market, apart from those PDs who are too deeply in already. It has the making of an all out US-Euro financial war, beyond currency war, US mavericks operating from City against ECB/Merkozy front. Whoever blinks first loses. Anyways, further down the road, the West as a whole comes out much weakened who-ever wins the Euro dog fight. 

Thats why the Cameron play earlier on  in December was the key move that drew the line in the sand. 

Mon, 01/16/2012 - 12:16 | 2068676 Hephasteus
Hephasteus's picture

Rehypothecation subordination.

The people with the biggest and most guns and violence get to sell things then take them back.

Mon, 01/16/2012 - 12:20 | 2068688 GOSPLAN HERO
GOSPLAN HERO's picture

RINO Romney -- a pawn of Goldman Sachs.

Mon, 01/16/2012 - 12:27 | 2068698 gohp
gohp's picture

What would Chrylser do?

Mon, 01/16/2012 - 21:10 | 2069809 StychoKiller
StychoKiller's picture

Umm, make more Fiat(s)?

Mon, 01/16/2012 - 12:29 | 2068705 Orpheus
Orpheus's picture

Back in July I visited a friend of mine who was an analyst at Marathon in his office. It was around 11:00 PM on a Thursday and a couple analysts were staying up for a conference call with some Europeans at 3:00 AM. They've been on this thing for a while.

Mon, 01/16/2012 - 12:43 | 2068753 Judge Arrow
Judge Arrow's picture

The hedge funds go toe to toe with the CB's. Either the funds get paid or the Ponzi gets revealed like the emperor's new clothes. But, if they get paid to keep the Ponzi going, the CB's have to devalue - ergo, they have painted themselves into a corner. Hello Weimar inflation. And if GOD comes in and says the hedge fund vultures (love that term) won't get paid except at such and such a rate, the Ponzi falls apart - and probably forever - no one will buy a sovereign bond ever again. This is lose, lose and lose. This is three guys standing on a table with revolvers and they begin to shoot. This is much like my courtroom became after I ordered a case of Evan Williams delivered and they idiot came through the front door - people get damned grabby - even the bailiff. Helluva thing.

Mon, 01/16/2012 - 12:46 | 2068760 hackettlad
hackettlad's picture

,

Mon, 01/16/2012 - 12:55 | 2068769 FunkyOldGeezer
FunkyOldGeezer's picture

Guns and bombs crush hedge funds, remember?

Sovereigns could tell the hedge funds to go play in the traffic...ultimately, what could the hedgies do, in that game of call my bluff???? I see no Hedge Fund private armies and even if they did get angry and thought to call the sovereigns' collective bluff, their few billions wouldn't be enough to do anything of consequence (in traditional terms).

...and yet, they currently hold sovereigns to ransom. Politicians need to grow some cojones and take 'em on. The world would be a better place without the vultures.

 

Mon, 01/16/2012 - 13:19 | 2068851 BandGap
BandGap's picture

They won't buy the bonds in the first place. The music stops upstream.

Don't blame the hedge funds, they are just doing their part.

Mon, 01/16/2012 - 13:40 | 2068914 Wipeout2097
Wipeout2097's picture

I suggest a dirty bomb in the City of London

Mon, 01/16/2012 - 12:51 | 2068782 sudzee
sudzee's picture

Long Greek barbers.

Mon, 01/16/2012 - 13:32 | 2068793 AssFire
AssFire's picture

Off topic, but shouldn't MLK day be the one day a year they actually do work??

Don't they need to show they are equal at some point (even for a day) so that they will be treated equal?

That was MLK's dream; that they be treated equal.

http://www.occidentaldissent.com/

 

Mon, 01/16/2012 - 13:02 | 2068815 FunkyOldGeezer
FunkyOldGeezer's picture

Hedge funds are doing the dirty work for Uncle Sam, eh? Downgrades aren't political, no way. SARC OFF

Mon, 01/16/2012 - 13:13 | 2068838 reutersanalyst
reutersanalyst's picture

http://capital3x.com/featured/performance-for-week-13-jan-2012-1064-pips...

 

Capital3x continues to surge with performance to match the best hedge fund out there. 94% success ratio is rarely matched. 

Mon, 01/16/2012 - 13:24 | 2068856 slewie the pi-rat
slewie the pi-rat's picture

 

tyler has been consistent re the EU

  • this won't work, and here's why
  • that won't work, and here's why
  • when they realize this and that, they will see it won't work, and here's why

i'ver been throwin stuff against the wall for a coupla hours abt this and reading the comments and the "don't give up!  keep trying!"  seems most apropos for slewie here, too

coupla things that stuck to the wall:

>>>(from this) "apparently nobody in Europe grasped at the time, except for the hedge funds who now control the entire process and can demand anything to keep the Eurozone from falling apart. Unfortunately, it is now likely too late - with everyone finally figuring out what subordination means,"

it isn't that the hedgies can get ammo or a carrier, but more that the EU & the ECB can't call the shots. w/ the hedgies completely blocking the goal, TPTB may not even try a shot

>>>(from the S&P link): Following our placement of the ratings on the eurozone sovereigns on CreditWatch in December, we also placed a number of supranational entities on CreditWatch with negative implications. These included, among others, the European Financial Stability Fund (EFSF), the European Investment Bank (EIB), and the European Union's own funding program. We are currently assessing the credit implications of today's eurozone sovereign downgrades on those institutions and will publish our updated credit view in the coming days.

so maybe the "markets" won't continue to respond so positively to "good news from the EU"

then i have this thought:  remember the GM bondholders?  the hedgies may have some "legal" place to stand, especially if the bonds they hold fall under UK law;  and the haircuts are "voluntary and agreed-to".  but if the hedgies can block the haircuts, don't we have a situ where they better watch out for a political move?  if the "participants" say F*U to the new hairdo, what will TPTB doo-doo?

what would the chairsatan do?  what would timmah want to see here?  how does this look from The City?  does anybody or group in europa have the political power to clean this up? what does the 0'BamaDoctrine suggest?

invading iran and starting WWIIII seems to have been taken off the table, atho it may re-emerge as the answer to everything...

...what will S&P say abt the "supraNational 'titties?" 

my guess is that it will depend upon how drunk they are

 

Mon, 01/16/2012 - 13:31 | 2068889 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The PTB beta test everything they do.  They moved Iran off of the table but put it on the floor for the dog to eat.

Mon, 01/16/2012 - 13:56 | 2068954 slewie the pi-rat
slewie the pi-rat's picture

i thought all that sabre-rattling was destined to become nothing but dog-shit from the git-go.  WWIII est fini.   WWIIII tba?

now prez0 will run on "the strong dollar" and that he brought the troops home after they and we gave our all re-establishing a stable balance that would safeguard our national inerests post 9-11.  you heard it here, first!  no, this isn't "Ripley's", believe it or not...

w/ the 49ers playing NY @ home for the stuporBowl tix, anything can happen!

 

Mon, 01/16/2012 - 14:42 | 2069064 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Go 'Niners!

I've been a 'Niners fan since '87, and now due to the fact that football games have no impact on my notion of reality I could care less....sigh.

Slewz, you think the market will hold up all year?  Are you serial?

Mon, 01/16/2012 - 16:42 | 2069334 slewie the pi-rat
slewie the pi-rat's picture

i just listen on the radio if i'm home; i enjoy the local announcers.  at least 1/2 hour after they beat N0, one of the guys sez:  "this is weird.  i hate the NYGiants, but if they can win..."

i have no idea what the market(s) will do, but i've been a bear since i first studied graham&dodd, which was before samuelson won the nobel in 1970

L0L!!!

i didn't think they'd hold up last year!  and Robo is afoot!  Gaaaahhh!  even if they don't hold "up" here, they will "be" at some level, and prez0 will have the 'strong dollar and peace' for his campaign, which is almost as incredible as nixonianism getting re-elected.  if he stays outa the solyndra loop (what are revolving-doors-for-the Chiefs-0'-Staff for?)...oh, the humanity!

so i'm hoping you and i and the others hold up and keep trying to think & write about what's going down w/out too much prop-wash (as in propaganda & spam).  we have all these computers and brains looking at them + tyler&zH + freedom = higher education, BiCheZ!

to me, this is much like the 1st-half of the '70s, in that a heluva lotta people are absolutely convinced the wheels are comin off and she's gonna crash, and how are we gonna survive w/out the electric can opener and townieWater?  and toilet paper!!!  [including moi!]

but i don't know what's gonna happen.  we look way back and there is the fuking Depression.  but in the seventies, all we had to do was get away from the gold standard, start printing, and show up for work!  now, maybe, from my limited understanding, the debt problems may be "insoluble" in that whatever "future" we hallucinate, we can't even pay the damned interest w/out borrowing more!  really!  the present value of theFuture = too small, even discounted @ "zirp"!  apparently we've spent too much and can't pay it back.  in the long run...the debt gets rolled over and we get rolled under, finally to participate in green shoots...

...and here we'd almost finished paying for the civilWar when bubba took down glassSteagall and the supremes appointed bushII...missed it by that much! 

the EU, the US, china, japan, and others can't stop issuing debt and must stop issuing debt and can't pay the existing debt and must pay, and so on...

but i think we have a "paradigm"~~ the problems are systemic and must be approached thru consolidation~~and we are all, like, huh?   wtf?  ever hear of a budget that works and the will to stick to it? 

unfortunately, ...even the superCongo had not...

Mon, 01/16/2012 - 16:36 | 2069345 MrBinkeyWhat
MrBinkeyWhat's picture

...Are you FERAL?  There fixed it for you.

My brother watches "football". He is a retired engineer. Bright guy. I don't get it.  I have been brushing up on 128 bit digital encryption.

Tylers...You da Bomb!!!

Silver Bitchez! BTFD NOW!

Mon, 01/16/2012 - 13:30 | 2068885 vegas
vegas's picture

I guess the term "Voluntary" for the ECB, is like how the IRS uses the term in the US when it comes to income taxes. WTF.

 

http://vegasxau.blogspot.com 

Mon, 01/16/2012 - 13:42 | 2068922 Sandmann
Sandmann's picture

Just how much did Hedge Funds profit when General Motors was nationalised ?

Appaloosa Management, Aurelius Capital Management, Elliott Management Corp. and Fortress Investment Group LLC

 

Certainly not the 112 hedge funds which hold GM stock on expectations the government, the Fed and GETCO would never let "that company" plunge this far.

Mon, 01/16/2012 - 13:44 | 2068928 falak pema
falak pema's picture

ECB and Merkel's brain trust team turn out to be dumber and dumber...

Mon, 01/16/2012 - 13:45 | 2068930 FunkyOldGeezer
FunkyOldGeezer's picture

Or the sovereigns put pressure on the low tax/no tax (very, very small, under-armed) sovereigns to freeze all bank accounts and tell the (vulture) hedge funds to leave Dodge City by sundown. The (vulture) hedge funds can't play without having somewhere to call home, not even in the cyber world we live in.

Casino closes for a while, Billions of wealth confiscated and then (due to increased pressure from the big boy Sovereigns) redistributed. Simples.

Let's face it, the sovereigns could make life far more difficult for the vulture hedge funds than vice versa. Sovereigns go under. Within a short time they would have to balance their books and get on with things. People would manage, somehow, even if that meant ploughing the earth and growing their own food. On the other hand, kill off a few (vulture) hedge funds and in the whole scheme of things, no-one would even blink, except the unlucky blighters who had invested with them. If they were the 'money people', the '0.1%' would the world miss them??? Would new money come into play to take their place? Eventually.

Mon, 01/16/2012 - 16:35 | 2069330 forexskin
forexskin's picture

and the political class over the sovereigns would have a world of hurt, cause it would be de-facto austerity with the borrowing spigot turned hard off. heads have rolled in the past for less.

and that is to say nothing about the hedgies counterparties, CDS holdings, and any downstream cascading crap this would unleash.

'first they came for the hedge funds, but i said nothing, because i am not a hedge fund...'

Mon, 01/16/2012 - 13:56 | 2068957 AchtungAffen
AchtungAffen's picture

So, the activist sovereign hedge fund is now the one who forces austerity on the serfs in Europe... With activism like this, who needs to be taxed on their frst learjet...

Mon, 01/16/2012 - 14:00 | 2068966 ebworthen
ebworthen's picture

So we have re-rehypothecated subordinate tranches of shadow debt bonds?

I'd be the FED is gearing up to bail out the Hedge funds.

 

Mon, 01/16/2012 - 14:09 | 2068983 slewie the pi-rat
slewie the pi-rat's picture

it's crazy, isn't it, eb?

i was "thinking" earlier that the best thing would be that the hedge funds are forced to take over the banks, by being forced to swap their bonds for banks' stock, totally diluted-when-issued! 

then, they would still be stuck w/ the bonds, too!  L0L!!!

nationalMonkeyHammerDay!

Mon, 01/16/2012 - 14:41 | 2069068 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

How are Luke and Bo gonna get out of this one?

Mon, 01/16/2012 - 15:27 | 2069195 ebworthen
ebworthen's picture

I don't know, I just hope Daisy's involved.

Mon, 01/16/2012 - 16:32 | 2069337 forexskin
forexskin's picture

i was "thinking" earlier that the best thing would be that the hedge funds are forced to take over the banks, by being forced to swap their bonds for banks' stock, totally diluted-when-issued! 

i can't think of another possible outcome without straining myself... but the hedgies would probably be forced to accept no changes to the bank's board or management. what fun! rinse and repeat.

Mon, 01/16/2012 - 17:36 | 2069462 slewie the pi-rat
slewie the pi-rat's picture

Haha!  investing made eZ!

have i got a hedge fund for you!

Mon, 01/16/2012 - 16:42 | 2069356 MrBinkeyWhat
MrBinkeyWhat's picture

You really need to be careful with that "thinking" stuff. I'll try to have a smiley face cap on at the FEMA camp. See you soon.

Mon, 01/16/2012 - 14:11 | 2068986 GCT
GCT's picture

Sometimes I come here and get more confused.  I would think soverign governments would make a play like our president did with GM and tell them to take a hike and keep the money.  Afterall in the end heads of state trump the legal system as was seen with GM.  I may be looking at this wrong.  I know the system is all fucked up and would not invest a dime in the EU. 

 

Mon, 01/16/2012 - 16:46 | 2069367 MrBinkeyWhat
MrBinkeyWhat's picture

To realize confusion (delusion) is an essential step towards enlightenment. Google "Ox Herding pictures".

Regards,

MBW

Mon, 01/16/2012 - 20:14 | 2069718 ebworthen
ebworthen's picture

Think J.P. Morgue and WaMu.

J.P. Morgue got the goodies, rescinded bondholder rights, got free money from the FED backdoor and used it to remodel/build a bunch of new branches and run commercials about how great they were and how much they cared and give Jamie Dimon and his cronies millions in bonuses.

Hedge Funds are buying up crappy Greek bonds from insolvent European banks so that when SHTF they will be first in line, or equal status, of nationalized banks; ultimately making money off the backs of the taxpayers of EU countries that are desperate to do anything to keep their debt markets (financial heroin) flowing.

It's like the Firefighter who is an arsonist and starts fires because it gives them job security, and pleasure.

Mon, 01/16/2012 - 14:37 | 2069057 Spigot
Spigot's picture

I can imagine that any sufficiently huge financial entity that is psychotic enough to think it can be the ultimate profiteer by scuttling the entire fleet of sovereigns will try to do so, just to say they did, as well as to be wealthy beyond the dreams of Croesus.

Mon, 01/16/2012 - 15:09 | 2069148 Sandmann
Sandmann's picture

Hedge Funds are not run by Martians but by people carrying a passport of some sovereign entity. Ultimately. like bin Laden they are not immune from retribution

Mon, 01/16/2012 - 15:58 | 2069272 Spigot
Spigot's picture

True, however it seems that "governments" are indeed subservient to wealth (has it ever been otherwise?) and a sufficiently well connected and backed financial machine has no real worries about persecution. As we have seen raping the US taxpayer has indeed not been prosecuted to even 1/10th of a percent of what is called for.

Mon, 01/16/2012 - 14:59 | 2069119 onlooker
onlooker's picture

Why cant the Greek Government create law to void the troublesome bond transactions and issue warrants for the arrest of the financial "terrorists", locking down the hedge fund hoes. Maybe the UN could get involved, or are they in on the deal?

 

Hopefully, Tyler will continue the information feed and maybe subset it so that us “kinda get it” can follow along. This is certainly more riveting than any fiction stories.

Mon, 01/16/2012 - 15:11 | 2069153 Comrade de Chaos
Comrade de Chaos's picture

A decision tree or similar to explain the above article, would be helpful ) 

So pretty much if you are a hedge fund, you selectively buy those trenches that allow you to block the decision by bondholders to voluntarily cut face value. Bondholders (banks that fear asset deterioration, which they posted for collateral, etc) panic, you buy even more at fire sale prices and bargain with EU to get a better deal or else.

The question is, what maturities do you buy and how do you hedge your exposure if EU calls your bluff or one of the pigs decides to default? Hold, since you do not need a naked CDS since you do have exposure, you could hedge through those. (Not sure if 'EU' allows trading of naked CDS anymore, not my area of expertise.) How else do yo hedge your exposure, or since it's the client's money some care less about 'alpha' and more about going all in.    

Mon, 01/16/2012 - 15:21 | 2069178 Sandmann
Sandmann's picture

We really need to ask John Meriwether....he and his boys at LTCM had this strategy all figured out in 1998 with Russia and Brazil

Mon, 01/16/2012 - 15:23 | 2069184 ayanni
ayanni's picture

I also wondered if these HF's buying up the greek bonds for pennies on the dollar were hedged is anyway, say CDS?  Or is it simply the knowledge that decisionmakers won't / can't let CDS be triggered by default and so they will make activist hold out bondholders whole?  How big a position must one have in a specific tranche to be considered worthy?  Are there rules?  Fascinating indeed.  Many thanks Tyler!

Mon, 01/16/2012 - 16:48 | 2069371 MrBinkeyWhat
MrBinkeyWhat's picture

Get to work there Comrade! Hail Victory!!

Mon, 01/16/2012 - 22:31 | 2069991 Comrade de Chaos
Comrade de Chaos's picture

Had a cool convo with a hedge fund dude the other week, i like those guys when they are small and hungry (not politicaly connected.) Some of their funds were frozen at MoFo Global, really f. up their performance and risk appetite.

Capitalism is all about competition and when all play by the same rules, and compete for their dime the way those guys do, it creates a good incentive within fin & economy. However when they use 'pro networks & friends will be friends' to make their profits, it's a totally different & very sickening story.  

Just look at those that blacklist hedge funds the most - politicians, FAT lazy CEO's , gov officials... why?  Because they, fat & lazy  must continue status quo or else. It was the hedge fund crowed that spoke about the RE bubble , credit bubble and related moral hazard the first. So if someone is able to make some $ on the stupidity of governments around the globe, I hope it will be them - hallelujah. Else, it will be only the connected few and the rest, we all will be back in the USSR. 

Mon, 01/16/2012 - 15:45 | 2069251 gwar5
gwar5's picture

The bankers and hedge fund investors are just fighting over the rights to future debt slave income and the strip mining of sovereign resources, the ultimate source of  future payoffs.

The more capital controls and financial repression that the Technocrats can put in place now, the more their people are worth. The sheep are being penned up ready to be sheared. Run sheep, run!

 

 

 

 

 

 

Tue, 01/17/2012 - 00:07 | 2070121 jonjon831983
jonjon831983's picture

Really? Only 7K reads on this one?

 

Wow.  This one seems pretty important...

For some reason post-reading this article I went and watched a bunch of old Hugh Hendry interviews.

Tue, 01/17/2012 - 02:47 | 2070321 ucsbcanuck
ucsbcanuck's picture

So let me see if I have this right, and please correct me if I'm wrong:

- Hedge funds have bought up Greek government bonds ultra-cheap and don't want to agree to a voluntary restructuring

- Greek government wants to retrospectively introduce collective action clauses, meaning that if x% of the private creditors agree to restructuring, restructuring is forced on all

- However, restructuring is not forced on the ECB, even though it holds the same bonds

- Effectively that means that the bonds held by the private creditors are subordinated, even though they started out as the same bonds

If all this is true - then this might explain why Portuguese bonds dropped like a rock today. Who would want to hold this junk? Add that to the fact that they've removed credibility from the CDS market - why would anyone ever want to buy these bonds again?

Tue, 01/17/2012 - 02:48 | 2070325 ucsbcanuck
ucsbcanuck's picture

Add that to the fact that English judges are likely to not listen to the EU - this is hilarious! Worth the price of admission...

Tue, 01/17/2012 - 03:09 | 2070339 swani
swani's picture

Maui Waui.

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