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Tyler Durden's picture



                      Cpn    Bid      Offer   Chg from Close  Factor

PrimeX.FRM.1   442    99-16  / 101-16      -2-060      0.47               
PrimeX.FRM.2   458    86-08  / 88-08       -4-020      0.49               
PrimeX.ARM.1   442    93-08  / 95-08       -3-280      0.41               
PrimeX.ARM.2   458    81-00  / 83-00       -4-040      0.44


Precisely a week ago, a fringe blog had the temerity to warn that PrimeX could very well be the next coming of Subprime (and make those who got on board early very, very rich). A week later, those who got in early may not be very, very rich... but they are richer (there is time for the very, very part), while PrimeX is the worst weekly performing fixed income product in the known universe. Today, following Jeff Gundlach's presentation to David Faber which agreed with the ZH outlook that PrimeX is substantially overpriced, the entire PrimeX rack has seen its biggest plunge yet. At this rate, by Monday even the most sturdy PrimeX FRM1 will be trading below par. At that point it is Sayonara, Sam. Oh, and for those who don't realize that European banks which are now entering asset liquidation mode, are substantially pregnant with exposure to both synthetic and unhedged cash product (recall which entities were stuck holding ABX on the wrong side of the trade back in 2007) we have one thing to say: "European banks which are now entering asset liquidation mode, are substantially pregnant with exposure to both synthetic and unhedged cash product." Have fun spinning that as a function of liquidity (which for some odd reason none of the structured and synthetic product "experts" out there appear to not realize that notional outstanding can and will soar overnight if there is sufficient client demand - a bank can write $10BN or $100BN of product in a second) when the bottom falls out. Lastly, once contagion spills out from the synthetic product to cash, have fun trying to ramp stocks to unch for the year on nothing but the most recent short covering spree. Oh, and remember: the basis trade is different this time...

The latest market blast:

                       Cpn    Bid      Offer   Chg from Close  Factor               

PrimeX.FRM.1   442    100-08 / 102-08     -1-140      0.47               
PrimeX.FRM.2   458    87-08  / 89-08       -3-020      0.49               
PrimeX.ARM.1   442    94-00  / 96-00       -3-040      0.41               
PrimeX.ARM.2   458    81-16  / 83-16       -3-200      0.44

And visually. Compare to October 7.






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Fri, 10/14/2011 - 13:49 | 1774506 Debtless
Debtless's picture

Forgive my ignorance here: Exactly WHO is losing the money/value on the other side of this X trade?

Fri, 10/14/2011 - 14:15 | 1774592 mirac
mirac's picture

From an earlier ZH article...


But you won't hear about it anywhere else, because if the market understands that in addition to a global solvency crisis, America has another Subprime contagion on its hands actually being expressed in the markets as we type, and potentially costing banks, pension funds and various asset managers billions in losses behind the scenes, that may well be the last straw.

Sat, 10/15/2011 - 02:57 | 1776464 Smithovsky
Smithovsky's picture

Tyler, how can we trade these PrimeX CDS thingamajigs?

Sat, 10/15/2011 - 05:47 | 1776573 jeff montanye
jeff montanye's picture

me too.  i'm only an mba, cfa with 15 years managing trust investment portfolios (out in '96) so much on this website is way over my head.  does the etf srs have a part to play?

Fri, 10/14/2011 - 14:16 | 1774597 Long-John-Silver
Long-John-Silver's picture

OT but this is important.

Obama sends 100 US troops to Uganda to help fight rebels

Fri, 10/14/2011 - 14:26 | 1774646 john39
john39's picture

No problem, the US can afford a few more wars, oh wait...

Fri, 10/14/2011 - 14:40 | 1774691 AustriAnnie
AustriAnnie's picture

"additional forces will deploy over the next month."

Of course!  

Fri, 10/14/2011 - 14:57 | 1774763 spartan117
spartan117's picture

Libyan rebels?  Wait, I thought they were on our side.

Sat, 10/15/2011 - 05:52 | 1776576 jeff montanye
jeff montanye's picture

hey, lighten up on obama guys.  he said, explicitly, that he wasn't against wars, just against dumb wars (like irag).  apparently once he got the much better information flowing to a u.s. president, as opposed to that available to fringe bloggers, he found out how much smarter these new wars would be so he started them.

Fri, 10/14/2011 - 14:21 | 1774619 porrannor
porrannor's picture

How would one trade it? is there any ETF representing this trade? SRS does not seem to reflect this deep... 

Fri, 10/14/2011 - 14:37 | 1774682 slaughterer
slaughterer's picture

SRS is 2X inverse a portfolio that makes up the Dow Jones Real Estate Index (9% SPG, 8% NLY, etc.).  You are not going to get much direct exposure to PrimeX. 

Fri, 10/14/2011 - 15:00 | 1774784 porrannor
porrannor's picture

Thanks, So, how would you trade it?

Fri, 10/14/2011 - 16:36 | 1775192 GittyUP
GittyUP's picture

get a bloomberg terminal.  Or find a broker willing to put the trade in for you.  prob need a few million minimum to get that kind of broker access. 

Fri, 10/14/2011 - 14:24 | 1774637 TheGameIsRigged
TheGameIsRigged's picture

I agree w/ Debtless....HOW DO WE TRADE IT???  I apologize for my ignorance.  I thought this was a site of mutual advancement ??  Please help the huddled masses....

Fri, 10/14/2011 - 15:59 | 1775024 Scarlo
Scarlo's picture

This is a site of REAL financial news. You need to figure out how to play it. I don't think anyone wants to hold your fishing rod for you whilst you snooze in a hammock drinking tequilas.

Sat, 10/15/2011 - 05:57 | 1776582 jeff montanye
jeff montanye's picture

you can snooze or you can drink tequila.  not even you can do both at the same time.

Fri, 10/14/2011 - 17:36 | 1775421 kaiserhoff
kaiserhoff's picture

Short the banks who are most exposed, but I would only do it with options.  The volatility in this market scares the shit out of me, and that will get worse before it gets better.  Follow Reggie Middleton and try to ignore the grammar;)

Fri, 10/14/2011 - 14:26 | 1774642 Roark_4_Prez
Roark_4_Prez's picture

anyone who took the other side of the short the main b/d's put on. even if b/d's need to mark down their books, they don't care because they are partially hedged here and it is not a complete 1:1 mark down cash:synthetic.

Fri, 10/14/2011 - 14:27 | 1774649 Roark_4_Prez
Roark_4_Prez's picture

or short the mtge reits to play

Fri, 10/14/2011 - 14:50 | 1774724 J 457
J 457's picture


Fri, 10/14/2011 - 16:22 | 1775116 hambone
hambone's picture

Perhaps the destruction of SRS / DRV (nearing all time lows again) is simply a 2nd derivative play on the impending bailouts of the REIT's???  Short CRE / REIT's is definitely not working out so far (down 99%+ over past 3 years).

Sat, 10/15/2011 - 06:41 | 1776608 jeff montanye
jeff montanye's picture

looks pretty good since late july.  the fifty day moving average just crossed the 200 day from below on significantly higher volume.  the weekly chart looks instructive as well.  recently had a reverse split.  see what you think:$INDU  (except enter srs and update) 

there are probably worse times to buy an asset than when it is "down 99%+ over past 3 years" and the fundamental case (slowing growth, increased solvency pressure on financial sector, central banks leverage starting to round to 100 rather than zero, etc.) appears to be turning.  oh and it looks increasingly like the credit cycle really did end in 2008 and all this since then seems more and more like a bear market rally (of epic proportion, admittedly).  when the bullish case is endless central bank bailouts, the bullish case is weak.

Fri, 10/14/2011 - 19:30 | 1775730 Yamaha
Yamaha's picture

I have done some research - thanks Tyler - I now get it. Very important.

Fri, 10/14/2011 - 13:49 | 1774508 RobotTrader
RobotTrader's picture


Does this mean "Risk Off" implosion is coming soon?

And are investors about to dump everything and flee back into Treasuries and the Mighty, Mighty, U.S. Dollar?

Are we going to hear Tom Keene squeal on Bloomberg Surveillance about how the "10-year is now the new 90-day T-Bill?", and Ken Prewitt sit there in slack-jawed amazement?

Fri, 10/14/2011 - 13:54 | 1774529 LawsofPhysics
LawsofPhysics's picture

Tune in Oct. 26th-28th to find out.  Especially you goldbugs.

Fri, 10/14/2011 - 14:04 | 1774556 tmosley
tmosley's picture

Why?  What is happening then, other than the usual OpEx smash?

Fri, 10/14/2011 - 14:16 | 1774599 macholatte
macholatte's picture


I thought October 15 was "End of the World Day". Has it been moved? Did I miss something?

Fri, 10/14/2011 - 14:22 | 1774626 tekhneek
tekhneek's picture

Oh do tell.

I love predictions.

Fri, 10/14/2011 - 14:03 | 1774554 slaughterer
slaughterer's picture

3 rhetorical questions from Robo-trader, obviously.

Fri, 10/14/2011 - 14:07 | 1774568 oddjob
oddjob's picture

How does this affect your Netflix?

Fri, 10/14/2011 - 13:51 | 1774509 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

PrimeX is going down faster than a protester punched at the Wall St rally:

Seriously, when are the citizenry going to say enough is enough, USA is turning into the soviet union daily.

Fri, 10/14/2011 - 13:54 | 1774531 Mike2756
Mike2756's picture

Right in front of a bazillion cameras, too. Not wise to do that in the middle of a crowd.

Fri, 10/14/2011 - 13:57 | 1774536 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

We both know there will be no justice and the filth will get promotion.

Fri, 10/14/2011 - 14:25 | 1774635 Dr. Richard Head
Dr. Richard Head's picture

The sad thing I hear from the Mainstream right and their devoted followers is that the "Police should open the hoses on those damned hippies."  Fucking retarded comments. Bunch of inmates cheering for their own continued life in a fiat cage and they don't even know it.  I pity and loathe them at the same time - the people cheering for the repression of the 1st amendment that is.

Fri, 10/14/2011 - 14:27 | 1774650 Dr. Richard Head
Dr. Richard Head's picture

At least now the masses of people are gathering for something of importance rather than an iPhone or some shit.....wait what?  Ohhh, people were doing gathering for that too?  Priorities, priorities.

Fri, 10/14/2011 - 13:58 | 1774538 TuesdayBen
TuesdayBen's picture

If we're going Soviet, let's hope that comes with thinner women.

Fri, 10/14/2011 - 14:10 | 1774577 SheepDog-One
SheepDog-One's picture

The women will soon be thinner, but less of them...lets just hope our soviet USSA also has free rotgut vodka to numb the senses.

Fri, 10/14/2011 - 14:22 | 1774623 Ivanovich
Ivanovich's picture

I'll settle for the women of today's Russian Federation.

Fri, 10/14/2011 - 14:12 | 1774583 DosZap
DosZap's picture


Seriously, when are the citizenry going to say enough is enough, USA is turning into the soviet union daily.

When the people that are punched,send the SOB to the hospital.

No way a cop punches a citizen(unless he's being punched/kicked/bitten,physically violated).

Fri, 10/14/2011 - 14:18 | 1774605 scatterbrains
scatterbrains's picture

That cop was probably being called a lazy fat pig banker goon when he went off swinging... I'm surprised how docile the crowd was.

Fri, 10/14/2011 - 15:02 | 1774785 Executioner
Executioner's picture

Soon we will know what people fear the most?

A punch in the face or letting the evil-doers plunder his house, families and rest of their lives?

Fri, 10/14/2011 - 13:50 | 1774512 Mike2756
Mike2756's picture

Euro jumping, must be bullish.

Fri, 10/14/2011 - 14:01 | 1774526 hambone
hambone's picture

Still think it's interesting that the PrimeX plunge coincided w/ the generational lowest mortgage rates...almost like every ARM, every refi, every home purchase will only get more expensive while home prices fall in the face of this sad reality. 

No more levers, no more games, no more stimulative tax policies.  That is Game.Set.Match. for housing.

Fri, 10/14/2011 - 13:59 | 1774541 mynhair
mynhair's picture

PrimeX is contained.  Timmah has it under control.

Fri, 10/14/2011 - 14:22 | 1774622 EscapeKey
EscapeKey's picture

And the US will avoid a recession.

Fri, 10/14/2011 - 14:01 | 1774547 Iam Rich
Iam Rich's picture

..and this story perfectly times a late day "sshhhwing" in the RUT.  Must be some good news coming out of the G20 this weekend!  BTFR!

Fri, 10/14/2011 - 14:08 | 1774573 slaughterer
slaughterer's picture

When does the PrimeX plunge get so bad that some IB has to call a fire sale on its jumbo MBSs?

Fri, 10/14/2011 - 14:14 | 1774586 Manipulism
Manipulism's picture

WTF is Primex???

Fri, 10/14/2011 - 14:18 | 1774604 haskelslocal
haskelslocal's picture

A tutorial link aken to Cliff Notes would be ideal for this site Tyler

Fri, 10/14/2011 - 18:54 | 1775627 Shirley Wilfahrt
Shirley Wilfahrt's picture

It's called "Google" ferfuksakes....


If you are too stupid to search....well bless your little heart....


Fri, 10/14/2011 - 14:43 | 1774695 Fazzie
Fazzie's picture

 Thanks, but douchebaggery was not necessary.

Fri, 10/14/2011 - 18:57 | 1775634 Shirley Wilfahrt
Shirley Wilfahrt's picture

What hot steaming bowl of douchebaggery doesn't go down better with a nice cup of STFU....

Fri, 10/14/2011 - 19:51 | 1775782 Fazzie
Fazzie's picture

 Im suprised there are only 9 card carrying douche bags circling the wagons!

Fri, 10/14/2011 - 14:29 | 1774655 Unprepared
Unprepared's picture

A new porn channel that the SEC is about to add to its watch list. Prime time bitchezzzzzzzz

Fri, 10/14/2011 - 14:34 | 1774669 Mike2756
Mike2756's picture

As long as it has trannies.

Fri, 10/14/2011 - 19:55 | 1775788 trav7777
trav7777's picture

synthetic tradeable RMBS index that references prime mortgages...not a huge product in terms of notional outstanding.  Nothingburger IMO

Fri, 10/14/2011 - 14:14 | 1774587 slaughterer
slaughterer's picture

Advice to bears:

wait until after AAPL earnings

wait until EUR/USD 1.40

wait until the fumes from G20 settle


Fri, 10/14/2011 - 14:15 | 1774595 mynhair
mynhair's picture

In other words; wait for TZA under 35.  On it.

Fri, 10/14/2011 - 14:28 | 1774652 tekhneek
tekhneek's picture

FAZ baby.

Fri, 10/14/2011 - 14:35 | 1774675 Mike2756
Mike2756's picture

I'm not so sure it'll get down that far.

Fri, 10/14/2011 - 14:51 | 1774727 Fazzie
Fazzie's picture

 Sage advice. Ive seen this play before. A lot of gloomy news hits the wires and even cnbc dosent hyper spin it. Everyone and their dog shorts everything expecting one more leg down. Then the rug is pulled out during a couple weeks or so when data is light and the EU has rumors out in order to stall for time.

  Sure, its only good for a couple weeks, but shorts are squeezed without mercy for more points than anyone thinks.

Fri, 10/14/2011 - 14:19 | 1774608 SilverIsKing
SilverIsKing's picture

What happened to the Student Debt article?  I was getting ready to dig in and it disappeared when I refreshed my browser.

Fri, 10/14/2011 - 14:42 | 1774693 Motley Fool
Motley Fool's picture

err. scroll down. >.>

Fri, 10/14/2011 - 14:53 | 1774746 SilverIsKing
SilverIsKing's picture

Page 2...thx

Fri, 10/14/2011 - 14:23 | 1774633 Northeaster
Northeaster's picture

This isn't my area, but I've been following the threads on this issue. Could someone in a more detailed laymen terms describe what I'm looking at here. I get that it appears bad for housing, from the comments on other threads, especially for Jumbo mortgages, but why?

Thanks in advance.

Fri, 10/14/2011 - 14:43 | 1774671 Deadpool
Deadpool's picture

because all Fannie and Freddie debt is bad and the world's banks, pension plans, insurance companies, endowments, sovereign funds, money markets and treasuries are stuffed full to the gills with them. down is bad (unless you're short Goldman/Paulson '07 style). Nobody read "Liar's Poker" and heeded the securatized mortgage debt warnings or reviewed Orange County California's bankruptcy filing. to be clearer: pooled mortgage debts should not be investment grade bonds. In a depression they go bad. They've been held at par everywhere, but they are not worth 100 cents on the dollar. big, Big, BIG write downs/write offs to come soon.

Fri, 10/14/2011 - 14:40 | 1774685 slackrabbit
slackrabbit's picture

Basically think of the sub-prime disaster that happened to poorer people or lower class, now its happening to the middle class and perhaps not only is the roof on fire in the housng market, the walls are as well......



Fri, 10/14/2011 - 14:45 | 1774701 Unprepared
Unprepared's picture

For his defense, isn't this what Roubini was saying since the beginning (circa 2007) ?

Fri, 10/14/2011 - 14:48 | 1774714 Ruffcut
Ruffcut's picture

Subprime was not the main issue. Many loans were stoopid option arms and reverse amorization, but with prime borrowers. The banks merely created level three assets to run a enron off the balance sheet at full value. The worst stuff was pushed back on freaky and flabby mae, which timmy fully back on a christmas eve.

Lehman, goldass, merrill, packaged this shit up and sold their "shitty deals" all over the planet. Ratings agency were all good with rating shitty deals. The traunches were leveraged so heavy that one bad apple spoiled the whole bunch, girl.  Every thing that is invested in this toxic waste has no idea what the true market value is of the investment. The same property might be in multiple traunches. YOu thought robo signing was a cute criminal operation. All these CDO and MBS have big turds in them. Intentional investment bank acts of law breaking and outright fraud. Obibble knows this. Congress knows and deflecting as far away as possible.

Primewx is just another ponzi pile of dogshit, and damn near every investor knows it. You can hide the pile, but can't hide the smell.

Fri, 10/14/2011 - 14:52 | 1774741 Deadpool
Deadpool's picture

like I said with less potty talk.

Fri, 10/14/2011 - 14:53 | 1774748 graymnzrc
graymnzrc's picture
The Markit PrimeX is a synthetic CDS index referencing a basket of prime mortgage-backed securities.   Product summary:  

The Markit PrimeX index is scheduled to launch on April 28th, 2010. The intent of the index is to create a liquid, tradeable tool allowing investors to take positions on prime mortgage-backed securities via CDS contracts. Its liquidity and standardization will allow investors to accurately gauge market sentiment around the asset-class, and to take short or long positions accordingly.

***My first post here***

Fri, 10/14/2011 - 15:13 | 1774848 Ruffcut
Ruffcut's picture

Same shitty deals, with a new name. Mark to myth. A rinse and repeat of fraud.

Double layered ponzi just not cutting it, so we have the triple decker, supersized and turbo jumbo turds de jour.

Fri, 10/14/2011 - 15:37 | 1774931 IveBeenHad
IveBeenHad's picture

Someone stirring the pot? 

I am not an expert but from FT 


" four indices together had $10.9bn gross notional outstanding, a net figure of $4.0bn and a total of just 711 contracts. Leaving FT Alphaville to wonder if you should even cough in the general direction of these. A year ago, the amounts were $6.7bn gross, $3.4bn net, and 444 contracts." 


Doesnt sound like a lot of exposure and remember the synthetic market is a function of supply and demand and that can get away from underlying funde's.  The underlying product in this case is apparently rather neglible amounts.  There is no non-agency liquid RMBS market anymore and its HTM on banks that do hold them so I dunno about all this hysteria. 


Read this article.

Fri, 10/14/2011 - 15:52 | 1774991 Yardstick of Ci...
Yardstick of Civilization's picture

Again, the most basic question: How can average Joe investor get short PrimeX?  Is this one of those things where guys on Wall Street with Bloomberg terminals can make easy money but little guys (like the ones protesting in NYC right now) are locked out?

Fri, 10/14/2011 - 16:05 | 1775043 mrcmmm
mrcmmm's picture


Fri, 10/14/2011 - 16:25 | 1775127 RoadKill
RoadKill's picture

Is their a way to play this with the same up/down/leverage combo Paulson got on subprime?

Ive moved from "all-iin" UMDD to about half-in SMDD.  FAZ below 50 and TZA below 35 also look good.  But are their better payoff bets to make?

Also SPX finished at 1,225 - does breaking 1,220 make any more difference then breaking 1,120 did?  I mean we went to 1,099 and then ripped.  I don't really care if we go to 1,250 before the collapse - but 1,350 would hurt.

Fri, 10/14/2011 - 18:04 | 1775499 Panafrican Funk...
Fri, 10/14/2011 - 18:05 | 1775501 Panafrican Funk...
Panafrican Funktron Robot's picture

"PrimeX standard terms require one counterparty to each trade to be a licensed dealer of the index."

Fri, 10/14/2011 - 18:09 | 1775513 Panafrican Funk...
Panafrican Funktron Robot's picture

The way I'm looking at this, this is actually a mechanism to uncover the reality of these holdings, ie., nobody's shit is going to blow up specifically over the PrimeX trades, but the weakness in the underlying that the PrimeX trade exposes is the real story here.  Ie., we all know this shit is garbage, but "official" deniability is looking like it's officially coming off the table.

Fri, 10/14/2011 - 20:00 | 1775793 trav7777
trav7777's picture

this is at least one theory, yes.  That prime RMBS, like FICOs > 730 or something, are starting to blow up.  If that is actually the case, then hell breaks loose because these underpin the senior tranches that are the only things left holding any value in the CDO binge.  The CDS counterparties would have sold protection very cheap because these tranches were expected to hold up until short of apocalypse.

Fri, 10/14/2011 - 18:11 | 1775519 Panafrican Funk...
Panafrican Funktron Robot's picture

And given that we know the underlying is mega-levered, a point drop this severe in what is essentially a "mark to market" mechanism portends the upcoming Bank Crash o' the 21 Century:  The Next Episode.

Fri, 10/14/2011 - 20:43 | 1775886 Atomizer
Atomizer's picture

He said "Let me in, Let me in, little serf or I'll huff and I'll puff and I'll blow your PrimeX down!"

Sat, 10/15/2011 - 09:05 | 1776704 Grand Supercycle
Grand Supercycle's picture

SP500 / DOW daily charts remain choppy but bullish.

A reminder that SP500 / DOW weekly indicators now give bullish warning. If confirmed, it suggests significant equity rally this year.

Importantly, monthly charts remain bearish.

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yang46's picture

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