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[jtcod] 27/5/2018 11:15

Sorry no chestnuts

[chestnuts] 27/5/2018 11:04

JTC
Have you got a chart on bonds, ie crashing bonds

[jtcod] 27/5/2018 10:48

That’s the big question chestnuts.
FWIW I think Mauldin is probably right to focus on the illiquidity of the bond markets. When you consider that article I posted earlier on Bear Stearns in Jun 2007 it was patently clear then to all Wall Street firms that they were passing around an unstable debt bomb with the potential of unseen destruction and yet even knowing that they still couldn’t extricate themselves given a 15 month standing start.

[chestnuts] 27/5/2018 10:37

JTC

I agree the fringe countries will effect the core , its the snow ball effect, but when will the snow ball effect hit the steep down ward curve.

[jtcod] 27/5/2018 10:33

I have not read him before Chestnuts but for me the difference now is rising interest rates and to a lesser degree energy prices against a backdrop of the exceptional indebtedness. As I watch the recent currency movements of Argentina and Turkey i think it's all part of the same liquidity contraction story.

[chestnuts] 27/5/2018 10:12

JTC

I agree with the fact that the Dow is going to fall big time but i started reading Maudling articles over 20 yrs ago and they make you think the world is coming to and end every day of the week , but the main gist of is articles is that debt kills the market in the end which he tries and put across, and the end is getting very close.

[jtcod] 27/5/2018 10:08

Could it be that a well known and notorious figure from ancient history with the initials PP is now running PR for Moody's? :-)hTTps://www.cnbc.com/2018/05/25/moodys-warns-of-particularly-large-wave-of-junk-bond-defaults.html

[jtcod] 27/5/2018 09:53

ChestnutsI find all data of this kind helpful in assessing the ongoing situation. Even if one doesn't necessarily agree with his views on the outcome, the data should be useful to anyone who cares about these issues I think.

[serratia] 27/5/2018 09:50

As Buffett so eloquently said “it’s not until the tide goes out that you find out who has been skinny dipping”

Those with shorts will be happy.

[jtcod] 27/5/2018 09:46

It’s strange reading an article from history covering a story that eventually had such profound implications:
Bear Stearns Staves Off Collapse of 2 Hedge Funds
June 21st 2007
The high-stakes game of brinksmanship began early yesterday on Wall Street, and continued throughout the day. Bankers traded telephone calls, frenetically negotiating the fate of two hedge funds.

All wanted to avoid a fire sale in the troubled mortgage-securities market, but at the same time, not get stuck with an exploding liability that could result in steep losses. The day ended with deals that appeared to have forestalled a meltdown. But questions remained about how successful they were and whether they had merely delayed the inevitable.

As the morning unfolded, lenders to two hedge funds at a unit of Bear Stearns, the investment bank, tried to ascertain what they could expect if they auctioned off mortgage securities with a face value of up to $2 billion. The solicitations were hastily withdrawn when investors reacted with little enthusiasm. But by the end of the day, some of the less-risky securities did change hands.

At the same time, several lenders, including JP Morgan Chase, Goldman Sachs and Bank of America, reached deals with Bear Stearns that forestalled a need to sell securities in the open market. It appeared that some lenders pulled back over concerns about the effect that a large liquidation would have on bond prices and investor confidence. While the securities involved represent a fraction of the market, a liquidation could have forced a bigger sell-off while setting a lower price.

One lender, Merrill Lynch & Company, moved ahead with plans to auction $850 million in collateral it had seized from the Bear funds, according to people briefed on the matter. And Deutsche Bank was said to be shopping $600 million in assets.

Continue reading the main story
Concern over the Bear funds, along with a drop in energy stocks and uptick in yields, helped drive down stocks yesterday. The Standard & Poor’s 500-stock index fell 20.86 points, to 1,512.84 , and the Dow Jones industrial average fell 146 points, to 13,489.42.

In the last week, escalating problems at the Bear Stearns High Grade Structured Credit Strategies Enhanced Leveraged Fund and a related fund have jarred investors into confronting systemic risks in the once booming market for bonds that are backed by mortgages to homeowners with weak, or subprime, credit. Last year, more than $483 billion of such bonds were issued, up 5 percent from 2005.
The deal that JP Morgan Chase reached with Bear Stearns Asset Management allowed it to sell $400 million collateral back to the hedge funds for cash, according to people briefed on the matter. It was not clear what price the two banks agreed to.
Goldman Sachs and Bank of America reached similar deals, though details remained unclear. Also unclear is what price the assets will eventually fetch for the Bear funds and what types of losses investors, who have been unable to redeem their investments since May, will face.
The securities causing the greatest concern within the Bear Stearns funds are known as collateralized debt obligations, or C.D.O.’s. Run by portfolio managers, these complex instrument are akin to mutual funds in that they buy stakes in a variety of bonds backed by mortgages.
They often invest in the riskiest portion of the bonds, usually with a hundreds of millions or billions in borrowed money. Some simply buy stakes in other C.D.O.’s. About $316 billion in C.D.O.’s specializing in mortgages were issued last year, up from $178 billion in 2005.
The leveraged fund at Bear Stearns, which is 10 months old, made a particularly big bet on these C.D.O.’s. But that strategy soured as more homeowners fell behind on loan payments and foreclosures surged. In many regions, home prices are falling and the number of properties for sale are growing.

Traders and industry executives who saw lists of C.D.O.’s on offer from the Bear Stearns funds say that even as the manager of the funds, Ralph Cioffi, bought some protection against a deteriorating housing market, on balance his investments seem to be based on a belief that the subprime market would not crumble, or at least not soon.
“This is some of the more aggressive stuff that has been issued in the last couple of years and is not indicative of what most people have been invested in,” said a portfolio manager who did not want to speak for attribution because his firm may make bids on some of the assets.
He said it would take time — perhaps several days — for potential buyers to drill down into some of the more complex securities in order to value them before any bids could be prepared. From 33 to 45 percent of the $2 billion in C.D.O.’s on offer by the funds early yesterday were investments in other C.D.O.’s, according to officials who have seen the bid lists.

One worry about the possible unwinding of the Bear funds is that it will cascade into larger liquidations by other investors who hold similar securities at far higher prices. Accounting rules require investment banks to mark the value of the investments to the price of similar assets trading in the market. Many mortgage-related securities, and C.D.O.’s in particular, do not trade frequently, making them hard to value.
“I think people are nervous and trying to figure out what the best course of action is here,” said Jeffrey Gundlach, chief investment officer at the TCW Group, an investment management company with $85 billion in mortgage- and asset-backed securities. “Do you want to be the first one out and perhaps cause the lows to be hit in the market, or do you want to wait and see how this all plays out?”
In fact, rather than aggressively selling the assets it has seized, Merrill is quietly showing it to a small group of potential buyers, according to a person briefed on the process.
Such an approach helps to keep the pricing of the securities under wraps, allowing Wall Street firms to avoid marking down their own stakes. Keeping the sales price quiet also means that the firms may not have to add collateral immediately to shore up their portfolios.
At the end of the day, Merrill sold only a small portion of the $850 million in assets it had seized from the Bear funds as collateral. Traders said what did sell was the less risky, well-collateralized securities and that those sold near or at par in many cases. It is unclear whether Merrill intends to hold onto the remaining securities or whether it will try to sell them again down the road.
Yet another emerging worry is that the big investment banks that until now have generously lent billions of dollars on good terms to traders and portfolio managers are pulling back or demanding stricter terms.
One industry executive, who asked not to be named because of the delicacy of the subject, said the banks involved in the Bear funds could collectively lose $1 billion on their lendings to the Bear funds. While the amount is not itself significant given the size of these banks, it suggests the potential for bigger losses down the road.
“We have heard that lenders have already reduced the amount that they are willing to lend against C.D.O.’s,” said Timothy Rowe, a portfolio manager at Smith Breeden Associates.
Still, analysts note that credit remains easy by historical standards and the market seems to be weathering the current storm well.
“Yes, there was too much leverage in the market. Yes, there was too much appetite for risk and yes, that risk was underpriced,” said Mark Adelson, a senior analyst at Nomura Securities in New York. “But there has not been a lick of spillover of this situation in the corporate bond market or stock markets so I don’t think people need to start hoarding food, water and ammunition because the end is coming.”

[mroalan] 27/5/2018 09:31

yes and the beach will have a large crowd.

[chestnuts] 27/5/2018 09:23

Hi Jtc

Those Maudlin write ups are quite compelling but he as been writing these type of articles for 20 yrs and as we know he is probably getting close to being correct

[jtcod] 27/5/2018 08:31

Loan documents that allow this are effectively debtors Ponzi schemes imo.......Some covenant-lite loans let the borrower repay with freshly issued debt-in essence, printing their own money. Others allow them to borrow even more money, perhaps pledging assets that should have gone to the company, in order to let the firm's initial private equity investors pull out equity. This effectively transfers additional risk to bondholders.

[jtcod] 27/5/2018 08:26

From High Yield Train Wreck. The following makes me wonder who the hell would invest hard earned money into such bonds. Certainly not anyone with skin in the game. It will likely be the savings of pensioners.......McNellis also highlights something important from the bond disclosures.WeWork neither signs nor guarantees its own leases; rather, for each lease it signs, it creates a single purpose entity [SPE] with very limited capitalization; i.e. its leases carry almost no financial exposure to the parent company. These entities are known as SPE's ("Screwing Probably Expected").

[jtcod] 27/5/2018 08:22

High Yield Train WreckhTTps://www.mauldineconomics.com/frontlinethoughts/high-yield-train-wreck

[jtcod] 26/5/2018 11:37

Thanks Serratia I'll check it out later today. In the meantime I have some gardening to do.

[jtcod] 26/5/2018 11:18

Song for the Day: Etta James - I'd Rather Go BlindhTTps://m.youtube.com/watch?v=u9sq3ME0JHQ

[jtcod] 26/5/2018 11:11

Mr RoperThanks for the link. What I am not sure about is why anyone would choose Aeroponic farming over either hydroponics or aquaponics. If you are incurring the same expense of housing the facility in then the investment would on the face of it be better spent on methods which return 20-22x that of traditional farming. I can only think that aeroponics doesn't have the expense of artificial light of perhaps has yet to hone the discipline and has headroom to improve production significantly further over time........or maybe I have missed something obvious. Which wouldn't be the first time. :-)

[jtcod] 26/5/2018 10:58

That is one reason why I favour Silver chestnuts.Thanks btw

[chestnuts] 26/5/2018 10:57

One thing i have learned is especially on commodoty stocks is the 3rd wave top as alot attributes to it which rhyme ie 1886 total movement and 43.428 yrs

[jtcod] 26/5/2018 10:56

Yes sithuk your memory is right. Hornblower is definitely a log scale advocate.

[sithuk] 26/5/2018 09:58

Matt and chestnuts: interesting discussion, thank you. I recall hornblower mentioned it's better to use log scale over longer time frames?

[11_percent] 26/5/2018 09:51

Great discussion on gold and charts.


Matt, post 943, is spot on.

I always assumed that gold declined as interest rates rise, I just did because people all said this.

But when you look at it "gold statistically rises during periods of rising interest rates." is true, but still most people believe exactly the opposite.