I think your arguments may be correct, but in the short term, fear and safety can overwhelm them.
If Greece devalues and depositors take big hits, then depositiors will sit with the dilemna
1) leave it here and hope it works out and i get to keep what i think i have
2) move it somewhere else just in case
that is the problem, leaving it in portugal doesn't give you any meaningful reward. you get a slightly higher rate for a few more months, so the benefit of keeping deposits in "at risk" countries is minimal
getting it wrong and being caught in a devaluation, that some say could be 50%, is horrible.
that is the decision that will drive some depositors out. Then stories of bank runs will drive more out.
The EU cannot afford to trigger that potential risk and with the situations in Spain, Italy, and Portugal still weak, they risk doing that.
Corporate Bond Chaos, HY ETFs, And JPM's 'Additional Losses' [View article]
he did speak about having to "economically" hedge the positions..
if my theory of how the trades played out - "JPM, just the facts "ma,am" then I think they would have been in the following situation:
long bonds/loans in AFS book and elsewhere in bank
short in HY CDS
long in IG CDS
i think they would go back to what was probably discussed earlier in year, just cutting the hy short position, and taking off the IG long position altogether...
for a variety of reasons, mostly though too big and noticeable, they might have take off their hy short selling some protection - would be unfortunate since has widened further. they may have some accounting games between accrual, available for sale, and mark to market books as well to play.
then on the IG side, maybe they neutralized the long to a large degree by shorting IG18. Not a perfect hedge by any stretch of the imagination, but could have offset a lot of what is being viewed as loss, so in ideal case (as opposed to worst case that is mostly thrown around).
the AFS unrealized gain drops from $7 billion to $5 billion or something because bonds have been weak, but since no one focused on the gain or that untapped piggy bank, not end of the world
The HY short, which was going against them, they kept most of it because 1) it was against the AFS book at least inpart, and 2) they figured their announcement would case a mess, so that has made several billion in the 5% decline since the highs.
The IG got largely neutralized. They hedged IG18 and possibly shorted names like MBIA and RDN, and although their IG9 tranches have taken a beating, the "convexity" has started to work in their favor, and the mix of convexity offset by "basis" has been more of a wash than people realize.
I can't say that they did this, but it seems very reasonable given everything we know, and not doing anything and letting the market pound on you some more because of fear of the regulators doesn't strike me as Mr. Dimon's style.
I may be horribly wrong, but none of the stories i have seen on big further losses focus on all 3 positions, tend to ignore tranhces, and seem to think they did nothing but analyze from april 30th until may 10th.
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Agree. I'm reasonably bullish but bid/offer in corporate bonds is getting worse. Looking at treasures in a fed controlled environment is missing the point I think
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Underwriters generally "over a lot" an issue. So they issue more than the float and have a big short. They use that to bid for stock. They typically actually get paid some amount by the company - for costs on covering this short. Part of deal expenses typically.
Corporate Bond Chaos, HY ETFs, And JPM's 'Additional Losses' [View article]
I think rescap may have had an impact on mbia and radian, and didn't look closely at the other high spread names.
I think 88-90 of the names in IG 9 and IG 18 are same, so if JPM is hedging with ig18 to hide their activity better it's not horrible - and I suspect they've been banging out shorts in single name CDS and bonds of the high beta names.
I would love to see exchanges and wish things were more transparent, but I do think JPM won't be as bad as the market is now expecting and I think it is a fairly unique trade and not done at each bank
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i think so, but think it is at least 3-6 months down the road. i also believe that the ecb has the easiest time helping. exchanging their exisitng bonds, bought via SMP for new PSI bonds would drop greece's current interest levels dramatically, and reduce a lot of the borrowing in the bailout which is just going to pay back the ECB at par.
I think we are a long way from an actual exit, because when presented with all the complexity and potential risks, both sides will fall back to the european pastime of kick the can.
less liquid markets, to me, means there is no fair value...people see price moves and have to react because there is serious doubt about where the next trade occurs. with bid/offer premiums higher too, new participants are reluctant to get involved, because you need to be very right to make money, and being slightly wrong has a big cost, so stop loss trading drives it even more than usual, and that reverses just as fast. so the volatility around fair value increases.
Especially since these aren't markets. there is no one place to check and find an executable price that reflects the "market".
i personally think the "weak" currency argument isn't exactly right for a country like germany with limited natural resources. most of the cost is from materials that strong currency offsets, selling costs in the foreign country, so again offset.
it is mainly internal labor, that cost is real, but what %. and if gas drops by 25% and food and other things they need, can the worker take a pay cut and be better off?
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Nope. Hy and ig spreads can widen fast in flight to quality. Same issue with mub. Think LQD is worst positioned. Hyg doing poorly today as CDS done worse and big funds buying HY18 and shorting HYG
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nah, this is too direct. the only big lenders to greece are ecb and efsf. if it does fall apart, the fed will extend more swaps, primarily for french banks, who i think have the biggest residual exposure, but that is just a guess from what i'm hearing on the exposure front.
JPMorgan's Hedging Losses Invite A Political Response [View article]
if JPM announces they cut lending by $400 billion because they don't feel comfortable with total risk and volcker rule and the public won't let them hedge, so only choice it to reduce actual lending, does that make you happy?
Why Greece Won't Exit Yet; HYG And JNK Moves Explained [View article]
If Greece devalues and depositors take big hits, then depositiors will sit with the dilemna
1) leave it here and hope it works out and i get to keep what i think i have
2) move it somewhere else just in case
that is the problem, leaving it in portugal doesn't give you any meaningful reward. you get a slightly higher rate for a few more months, so the benefit of keeping deposits in "at risk" countries is minimal
getting it wrong and being caught in a devaluation, that some say could be 50%, is horrible.
that is the decision that will drive some depositors out. Then stories of bank runs will drive more out.
The EU cannot afford to trigger that potential risk and with the situations in Spain, Italy, and Portugal still weak, they risk doing that.
Corporate Bond Chaos, HY ETFs, And JPM's 'Additional Losses' [View article]
if my theory of how the trades played out - "JPM, just the facts "ma,am" then I think they would have been in the following situation:
long bonds/loans in AFS book and elsewhere in bank
short in HY CDS
long in IG CDS
i think they would go back to what was probably discussed earlier in year, just cutting the hy short position, and taking off the IG long position altogether...
for a variety of reasons, mostly though too big and noticeable, they might have take off their hy short selling some protection - would be unfortunate since has widened further. they may have some accounting games between accrual, available for sale, and mark to market books as well to play.
then on the IG side, maybe they neutralized the long to a large degree by shorting IG18. Not a perfect hedge by any stretch of the imagination, but could have offset a lot of what is being viewed as loss, so in ideal case (as opposed to worst case that is mostly thrown around).
the AFS unrealized gain drops from $7 billion to $5 billion or something because bonds have been weak, but since no one focused on the gain or that untapped piggy bank, not end of the world
The HY short, which was going against them, they kept most of it because 1) it was against the AFS book at least inpart, and 2) they figured their announcement would case a mess, so that has made several billion in the 5% decline since the highs.
The IG got largely neutralized. They hedged IG18 and possibly shorted names like MBIA and RDN, and although their IG9 tranches have taken a beating, the "convexity" has started to work in their favor, and the mix of convexity offset by "basis" has been more of a wash than people realize.
I can't say that they did this, but it seems very reasonable given everything we know, and not doing anything and letting the market pound on you some more because of fear of the regulators doesn't strike me as Mr. Dimon's style.
I may be horribly wrong, but none of the stories i have seen on big further losses focus on all 3 positions, tend to ignore tranhces, and seem to think they did nothing but analyze from april 30th until may 10th.
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I Told You So: Facebook's Ugly IPO Debut [View article]
Corporate Bond Chaos, HY ETFs, And JPM's 'Additional Losses' [View article]
I think 88-90 of the names in IG 9 and IG 18 are same, so if JPM is hedging with ig18 to hide their activity better it's not horrible - and I suspect they've been banging out shorts in single name CDS and bonds of the high beta names.
I would love to see exchanges and wish things were more transparent, but I do think JPM won't be as bad as the market is now expecting and I think it is a fairly unique trade and not done at each bank
Credit Markets: Transformers Vs. Decepticons [View article]
Why Greece Won't Exit Yet; HYG And JNK Moves Explained [View article]
Why Greece Won't Exit Yet; HYG And JNK Moves Explained [View article]
Especially since these aren't markets. there is no one place to check and find an executable price that reflects the "market".
Why Greece Won't Exit Yet; HYG And JNK Moves Explained [View article]
it is mainly internal labor, that cost is real, but what %. and if gas drops by 25% and food and other things they need, can the worker take a pay cut and be better off?
Credit Markets: Transformers Vs. Decepticons [View article]
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