Sorry, it's just what I'm Reading and of course some 30+ years of watching what and HOW the ""PIMPS"" of Wall Street have been given a ""FREE Ride"" with Other People's Money!!!!!!!!!!!
Confirmed: Fed Bailed Out Hedge Funds Facing Basis Trade Disaster by Tyler Durden ZeroHedge
Back in December, when the world was still confused about what exactly happened before (and after) the September repocalypse - which has since exploded thousand-fold resulting in the Fed now doing daily $1 Trillion repo operations - we said that in addition to the implicit bailout of JPM (which we described here first, and subsequently others), by restarting its repo operations the Fed was also bailing out dozens of hedge funds engaging in highly levered trades involving a relative value compression trade in the Treasury cash/swap basis... almost identical to what LTCM was doing ahead of its 1998 bailout, which is also why we titled the article "The Fed Was Suddenly Facing Multiple LTCMs."
In a nutshell, the article explained why and how the return of the Fed's repo ops was nothing more than the Fed preemptively bailing out all those hedge funds that would have imploded had basis trades gone haywire. Below is a key excerpt from that post:
One increasingly popular hedge fund strategy involves buying US Treasuries while selling equivalent derivatives contracts, such as interest rate futures, and pocketing the arb, or difference in price between the two. While on its own this trade is not very profitable, given the close relationship in price between the two sides of the trade. But as LTCM knows too well, that's what leverage is for. Lots and lots and lots of leverage.
We also said that "hedge funds such as Millennium, Citadel and Point 72 are not only active in the repo market, they are also the most heavily leveraged multi-strat funds in the world, taking something like $20-$30 billion in net AUM and levering it up to $200 billion. They achieve said leverage using repo."
cont...................
Before Fed Acted, Leverage Burned Hedge Funds in Treasury Market By Sonali Basak , Liz McCormick , Donal Griffin , and Hema Parmar March 19, 2020, 9:19 AM PDT Updated on March 19, 2020, 2:47 PM PDT
* Basis traders were borrowing as much as 50 times their wagers
* ExodusPoint, LMR Partners among the losers in popular trade
When coronavirus panic kicked off unprecedented turmoil in Treasuries last week, hedge fund leverage was lurking.
The firms use borrowed money from the repurchase market for the popular basis trade, which exploits price differences between cash Treasuries and futures. Though individual firms’ borrowing is a closely guarded metric, people familiar with the transactions said some of them levered up as much as 50 times their own wagers. Leveraged funds’ exposure to the basis strategy could be as much as $650 billion, JPMorgan Chase & Co. strategists said.
Investors seeking safety rushed into Treasury futures on March 12, and hedge funds got hammered. A difficulty in completing trades ensued, and was a contributing factor to the Federal Reserve’s decision to pledge $5 trillion to keep markets running smoothly.
High leverage amplifies profits and losses and can be responsible for forced liquidations -- and market fluctuations. This week, a sell-off in Treasury futures tied to margin calls pushed outstanding contracts to their lowest level since 2018. Many firms also get funding from money markets, whose problems have prompted the Fed to provide emergency funding.
Hedge funds’ excessive leverage has contributed in the past to congestion in the typically smooth Treasury market, according to a December report from the Bank of International Settlements, and bank traders have blamed hedge funds in the basis trade for continued issues in repo markets, especially after lending rates spiked in September to 10% from about 2%.
Treasuries Downdraft
“Too big to fail is back, and this time it’s not the banks, it’s levered financial institutions,” said Mark Yusko, the chief executive officer of Morgan Creek Capital. Yusko said he supported the Fed’s stepping in, but added that hedge fund firms have gotten too big by borrowing too much. “It’s a bailout,” Yusko said of the Fed’s actions.
Smaller firms got caught in the Treasuries downdraft.
ExodusPoint Capital Management lost 4% this month through March 13, on pace for its worst month ever, according to people familiar with the situation. It was unclear how much the basis trade contributed to the loss.
An LMR Partners’ fund fell 12.5% in the first two weeks of this month and spurred the firm to raise new capital.
Capula Investment Management’s Global Relative Value Fund dropped 5.2%, people said, and Field Street Capital Management’s fixed-income relative-value flagship fund, in which the basis trade is substantial, sank 14.5% and had to reduce the size of its positions.
The firms declined to comment.
If the declines appear meager compared with losses in stocks and oil, to name two assets with historic plunges, consider that for years, the basis trade earned such steady gains that traders mocked it as lazy.
Perfect Paradise
“We’ve had 10 years of a perfect paradise and so people have been picking up pennies thinking there’s no risk in holding strategies like the basis trade,” said Kathryn Kaminski, chief research strategist and portfolio manager at AlphaSimplex Group. “A lot of the strategies, like the basis, that hedge funds tend to use don’t work when markets aren’t stable. You’ll see more of these types of blowouts.”
Other firms fared better, according to people familiar with their operations. The market unwind had a relatively small impact on multi-strategy funds Citadel and Millennium Management, the people said, though Millennium is closing several “trading pods” after weathering a 2.7% slump this month through March 12. Millennium was down 1.9% for the year. The firms declined to comment.
Multi-strategy funds sold their positions after they sustained small losses last week, according to a person familiar with the market who was speaking generally and not specifically about particular hedge funds. That led to steeper deficits for firms more focused on the basis trade, the person said.
JPMorgan, Goldman Sachs Group Inc., Barclays Plc and BNP Paribas SA are among the world’s top repurchase lenders, according to regulatory data. The banks declined to comment.
BlueCrest Shrinks From Relative-Value Trades Amid Losses, Exits
Raymond Wang of BlueCrest Capital Management was dismissed March 9 after he couldn’t find a buyer for the investment firm’s losing positions in the basis trade. They were paper losses, according to a person familiar with the situation, because the futures contract hadn’t reached the expiration date before which Wang might have sold the position and made money. If BlueCrest were able to hang on to the future contract it’s possible the firm could’ve come out ahead on the trade, the person said. The firm declined to comment.
*****The next expiration date for some Treasury futures is March 31.
GOLD People...........BUY All You CAN.....When YOU Can!!!!!!!!!!!!
DOW 18,000 NEXT WEEK...............THEN it's a RIDE to 15,000 for the Earnings Cycle leading UP to the April Employment Report. My Bottom is DOW 12,000..................
Boeing Suspends Buybacks And Dividends; CEO Will Work For Free Until End Of The Year by Tyler Durden ZeroHedge
Boeing thought it could be tricky - again - and after it repurchased tens of billions in stock in the past 7 years...
... and making its shareholders extremely rich by sending its price to all time highs, at least until the recent collapse, the company came begging, demanding a $60 billion taxpayer bailout largely to offset the consequences of the above massive debt load, with a warning that if no bailout materialized, the company may, oops, just have to fire thousands of people. And politicians wouldn't want that, so best give Boeing the money.
Meanwhile, we learned that even as it was making such bailout demands and implicit threats - which prompted Nikki Haley to resign in disgust at the company's pathetic panhandling - Boeing had not yet even decided to suspend a dividend to its shareholders, nor halt the buybacks that brought it to this catastrophic place.
Then, on Thursday, the plan appeared to derail when we learned that lawmakers were pushing back against a Boeing bailout - comparing it to AIG, which also required a rescue to save the company from the consequences of its own greedy, idiotic decisions.
So, in a desperate attempt to mollify legislators and to avoid further antagonizing the American population which has every right to ask why Boeing should be bailed out instead of forced to raise cash by selling its stock - you know, buybacks in reverse - the company issued a press release in which it "announced several decisions to support the company as it navigates through the COVID-19 pandemic while ensuring the company is positioned for the industry's recovery." These include:
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