Does Santa Take Side Bets?

December 21, 2014

Coal in some stockings, treats in others, but who’s been naughty and who’s been nice? In the world of big-time financial side bets (Credit Default Swaps), it isn’t exactly clear.

When I heard about the unusual happenings that kept Radio Shack open for at least one more Christmas season, my thoughts went to the decision process for the traders on each side of a massive CDS trade. Making money is the primary reason they play, but there is something else going on.

Senior people on Wall Street have their own version of Black Friday – the day after Thanksgiving that some retailers need to push their full year into the black. It’s not the same day at every Street firm or hedge fund, but it’s just as manic as the mall scenes with people trampling each other to get enormous televisions. On one day each year, everybody gets their “number” – their bonus for the year.

This year, as every year, people are trying their best to book big profits while the bosses are deciding who gets how much of the bonus pool.

From the glossary of Finance Monsters, here’s the definition of the Bonus Pool:  Read the rest of this entry »


A Baby Step

October 25, 2012

Transparency in the mortgage bond market just got a baby step in the right direction.

Yesterday the SEC approved FINRA’s plan to tell the world where some Agency MBS and small business loan (SBA only) bonds are trading.  FINRA is the brokerage industry’s self-regulator, so the fact that it’s only a baby step is no surprise.

I’m reminded of the scene five years ago, when short sellers and CDS “insurance” buyers used complicit or ignorant reporters and the opacity of the structured securities markets to turbo charge their profits.

In fact, they made the mortgage meltdown worse through their actions. Read the rest of this entry »

Look Away from the Pressure Point

September 18, 2012

Where will the QE3 spending make the most difference in asset prices?

As soon at the Fed announced its open-ended commitment to buy MBS at the rate of $40 billion a month, the market sold off the dollar, bought stocks and bought investment grade corporates and junk bonds, sold Treasury Long Bonds, bought non-dollar currencies, and bought just enough MBS to keep prices almost flat (up 2 basis points in yield for the day).

Think about that for a minute — the Fed says they’ll buy MBS, and the price of almost everything else moves more than the price of the MBS.

So the thing to think about is what else might happen as the Fed steps in like the Duke brothers to buy the market (and some day, to sell).

Read the rest of this entry »

Biggest Loser and Biggest Winner

December 6, 2011

As promised, I will describe my biggest mistake of the year.  As a balance, I’ll include the biggest winner.

First the bad news.

This is bad mostly because it was supposed to be a safe place to “park” some bucks for a couple of months until I needed them later in the year.  Instead, it morphed into a position that will take a year or more to climb back into the black, if ever.

It was also a harsh reminder that the game is often rigged against the unwashed retail investors. Read the rest of this entry »

Blog to Bookmark

October 2, 2011

Tomorrow is the first Monday in October.

That means we have to get ready for more new laws from the most radical Supreme Court in a century.  I remember well calling my buddy George when the Citizen’s United case was given a “do over” with a broad hint that the corporate plaintiffs should ask for more than they did in the first hearing.

Since when does any lawyer ask for too little in their pleadings?  When even the loawyers know that the Constitution would be stretched to the breaking point if they asked for more, that’s when.  But the Roberts court was in a mood to make sure human citizens have no rights at all compared to the non-human (and often non-American) corporate golems that five members of that court want to crown as permanent dictators over humanity.

For that reason, I’m going to begin my daily visit to Scotusblog, and put it onto the blogroll of links in the right hand column.  Those five jurists can change our lives, forever, and they don’t have to worry about annoying elections or citizens when they decide to keep shredding our hundreds of years of Constitutional democracy to maximize profits for their owners.

It will be worth checking on them every day.

They can be impeached (hint, hint).


Hello, world

October 14, 2009

Show me a cash flow, and I’ll build you a bond. That was my mantra when I was an early practitioner of the art I called “financial engineering.” Basically, I thought of ways to cut up cash flows so they could be customized for clients like banks, insurance companies and pension funds.

It all started with mortgages, and the earliest “engineered” bonds were simple sequential CMO’s (Collateralized Mortgage Obligations). We called a deal A,B,C,D when the principle from the mortgage borrowers first paid off class A, then B, then C and then D.

Read the rest of this entry »