A timely tidbit from one of contributing BoomBustBlog traders, Eurocalypse, basically an extension of what was expoused last week in Timely Trading Tips For 8/5/2011,which I excerpt:

I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time.

...I'd recommend to take partial profits. Premiums have probably doubled or morewith the move and probable increase in vol. at this stage even the move is so violent we should have a very bad day at least until the opening of the US market today,waiting at least 1 hour after the opening seems wise.

I'd recommend to take some profits, after that because theta becomes expensive at this level especially with the weekend coming!

There are several ways to do it:

    1. Take off X% of the initial strategy to make it 0 cost,
    2. Delta hedge, and increase the delta hedge when market continues to sell off (thats the benefit of gamma) for naked options.
  1. If vol jumped already to stupid levels, sell some put spreads below the strong support levels indicated in the previous trade setups to make up for the initial premium with the increase of vol, you sell less options and you end up with a nice structure which can end in the money on both sides.

The probability of a total meltdown is here though so I'd keep some downside but no one ever lost booking some profits.

All subscribers are welcome to download this full document This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups. Since then, my armageddon put trade has come a long way...
 image044

You see, although I feel we still have a lot to go, and I don't feel I put enough at risk before the market crash - contrary to popular belief, Greed is NOT Good. It's stupid. There's still the European bank run scenario that has yet to play out. On that note, a timely update from Eurocalypse:

Hi readers,

Dont be a pig, if you have profits not taken now, I suggest one takes serious chips off the table. Hedge your gamma; better even resell options
people are bidding vol like crazy now.

That's the truth. Product is expensive as hell now, priced to the point where you can't make money!

There will be [other] opportunities. if the move down continues. Having profited from this downmove, you'll be among the few able to play for a violent bounce. Market is clearly oversold.

The risk/reward in being bearish AT THESE LEVELS and in the short term, is much much worse than when we opened the positions, so....make the rational choice and dont regret even if it continues. Being too greedy is bad.

We may know the end of the story, but even bear markets are not one-way...this has been a big run...

Actually, most of the big money in drastic bears such as 2008/9 came from single day collapses, with the balance being choppy trading, sideways action and rallies. It's difficult, but I believe that the key is to have exposure but to roll profits while continusouly feeding your coffer by removing gains, no less than 50% of the total, regularly and religously. Timing the market is fool's play, I don't care what anyone else says. Those that get it often are lucky, period! Luck runs out, guaranteed. It may seem that I'm prescient, but in reality I'm just objective and know how to count. In the end, it's still hard as hell for me to time this correctly, which is why there is now such a strong trading component in my fundamental and forensic analyses. As I write this, the rally in ES futures is fading from 17 to 7, as I anticipated. Still, curiosity didn't kill the cat. Greed did!

Coming up soon, more on European banks blowing up!!!!

What makes this so interesting from a subscriber perspective is that this bank is sitting under everybody's nose yet no one suspects it. KaBoom!!! Nuclear chain reaction thoughout Europe based on panic, greed, avarice and fear?

For those how haven't followed my bank run series...

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Observations Of French Markets From A Trader's Perspective
  9. On Your Mark, Get Set, (Bank) Run! The D…

And the progenitor of the fundamentally flawed, but virtually guaranteed attenpt at a contrived equity rally...

ECB As European Lender Of Last Resort = Institutional Purveryor Of A Pan-European Ponzi Scheme

Published in BoomBustBlog

As those who have been reading me for a while know, I have been crowing about sovereing debt default leading to a European bank collapse, causing global contagion for some time. For those who haven't, reference last years posts in the Pan-Europan Sovereign Debt Crisisseries, or The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! for something a little more recent. Early last week, I put one a trade in the US options markets to capitalize on what I saw as the European tipping point, Game Over For The European Ponzi Scheme? Monetizing Pan-European Sophisticated Ignorance Via US Options, Part 1 For Retail and Professional Realists (8/2/2011). I then updated said post with the results of said option trade, a full 260% return in 48 hours - Timely Trading Tips For 8/5/2011  as well as additional illustrative trades for blog subscribers as well as plenty of educational material for those that don't subscribe. That was last week.

Well, another week, another story. The very same armageddon trade is now up over 500%, and I believe it still has plenty to run. Athough we may be overdue for a snapback rally, the macro outlook AND the fundamentals are downright disgusting, and to be quite frank they have been since 1st quarter of 2009. Incessant bubble blowing by the global central planning cartel (the Fed, ECB, BOJ & Chinese government) have succeeded in convincing many an investor that bubbles blowing = economic growth. My dear friends, it simply does not. All you are doing by blowing bubbles is pulling/borrowing economic growth from future periods, and now its time to pay the full debt service (itnerest plus borrowed economic capital) back in spades! Reference Do Black Swans Really MatterNot As Much as ...,

Click to enlarge!

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We have also just released (this morning before the trading session) additional trade setups designed to take advantage of the recent US debt downgrade, see Trading the US Debt Rating Downgrade the…

 Update: Minutes afte typing this, the same put is Asked just under $48!!! If/once this option goes "in the money", the party will be just getting started!

Published in BoomBustBlog

This is an indepth piece that addresses my subcribers inquiries into trading the fundamental/forensic research I offer. The topic du jour is the US Treasury downgrade.

Attention subscribers: time sensitive, actionable research available at the end of this document.

Illustrative Trade Setups & Opinions For Retail Subscribers of BoomBustBlog

Instrument of choice for retails subscribers: The Proshare ETFs track the total return of an index on a daily basis with a x2 or x3 leverage. Professional and institutional subscribers would most likely trade the treasuries and futures markets directly.

image037_copy

The Basics

Targeting US Federal Government Fixed Income, there are 2 available indexes, one relating to 7-10yr treasuries (PST - seeks twice (200%) the inverse [opposite] of the daily performance of the Barclays Capital U.S. 7-10 Year Treasury Bond Index), one for 20yr+ treasuries (TBT - ProShares UltraShort 20+ Year Treasury seeks  twice (200%) the inverse [opposite] of the daily performance of the Barclays Capital U.S. 20+ Year Treasury Bond Index). Because 20Y treasuries have (much) more duration than shorter ones, they tend to move more in price terms as yields move about the same.

This is almost always true of fixed income, except in case of Greece’s current situation where the perception of imminent default causes all securities to converge to the same price, and yields simply to don’t follow the convention rules, ex. 8% of nothing is no less than 20% of nothing.

For an outright play (without options) TBT will be more volatile than PST, and has arguably more leverage embedded. However for an option play, the most volatile instrument is not of paramount importance, what’s most important is the return on the premium invested. A distinct, yet oft overlooked nuance.

Fundamentally Speaking…


From a fundamental play, our traders are not confident the market is ripe for THE BIG FIXED INCOME SELLOFF which would make the 10Y UST look like the Greeks. Actually there’s still a plausible case for 10Y UST moving sub-2% and to begin speaking Japanese ! (JGB yields currently 1% and have touched only a very few times and very briefly 2% in the last 10 years, averaging more 1.3%-1.4%...). Why? Because the FED like the BOJ could just monetize the debt and print money to put them on their balance sheet with a QE3, 4 etc....

The Greek scenario is a bank run scenario, which is possible (as we all know from informative postings such as On Your Mark, Get Set, (Bank) Run! The D…) but timing is everything and everything is difficult ot accomplish!!!

Caveat Emptor!

Even a guy(gal) who bought a 20Y JGB in 2003 at the lowest ever, 1% yield, if he held it through today, has made money despite the higher yield today.... The (BTFD -Buy The Fu@&ing Dip) mentality is truly firmly entrenched! To what should be no one’s surprise, the speculative longs are mostly the banks, "hedging" their ALM mismatch by buying bonds, assuming their deposits are stable.

The bank’s risk becomes a MTM risk, but accounting rules allow them to cope with that as long the deposits are there. For more strategically inclined banks (wink, wink), MtM losses would only affect their AFS (available for sale) reserves and capital (so not the net result of the bank).

Note: There is a potentially very profitable equity trade stemming from this habit, see The Mechanics Behind Setting Up A Potent… & European Bank Run Trading Supplement Ava…).

Of course because everybody is long, there are episodes of panic and risk reduction which are violent because it becomes a one-way market, but when everybody has reduced risk, it snaps back violently and a new cycle begins... so it has been.

The pain trade in FI for banks is lower yields, because high yields is how banks make easy money. Remember my comments on ZIRP killing the banks it was designed to help (reference the YouTube Video and scroll 13 minutes into the video).



On a short term basis, if anything our traders bet for higher FI prices and lower stocks again... and panic to resume.

Note how the 121 strike on the SPY were well chosen (reference subscription document SPY option strategies in violent down moves). We’ve come through, and as the market continues to sell off, you could continue to adjust your delta buying back (and locking actual profits because even if the market doesn’t move anymore your puts are in the money) when the market sells off and when it bounces towards 121 again, you can unload it. We saw 116 at the lows... gamma is how you make a killing with options.

With the aforementioned limitations, caveats and market behaviors in mind, I'm pleased to present to BoomBustBlog subscribers the following detailed, illustrative trade setups...

Published in BoomBustBlog
Friday, 05 August 2011 01:33

Timely Trading Tips For 8/5/2011

Sixty points down on the S&P with most world markets following suit! What a day, what a day. This is what those Armageddon puts discussed Yesterday morning looked like by the end of yesterday's trading session, up 265% in profit!

image027

The SPX/e-mini options are admittedely a pain in the ass to trade for many retail investors, so I posted a useful illustrative guide on a lower cost (out of pocket) alternative - Game Over For The European Ponzi Scheme? Monetizing Pan-European Sophisticated Ignorance Via US Options, Part 1 For Retail and Professional Realists.

Things were moving so fast that the market was breaking literally as I was posting it. Long story, short - if you believe that the Circle of Economic Life is about to come back to the forefront, you should still be stocking up of volatility. If not, then hedge up and sell of for full profit.

As excerpted from the afore-linked post:

What It Takes To Actually Make Money

ATM (annualized) vol (125) is around 24% on Aug, 23% on Sep, 22% on Oct and 21.5% on Nov. (these are approximations, rule of thumb: the implied daily move (in %) is (annual) volatility / sqrt (250) if we count 250 biz days every year). So 24% is roughly a 1.5% move a day. More adequately speaking, roughly, an options trader who is delta hedged and long options, needs the mkt to move more than 1.5% a day to make money. As implied is, because of risk premia, often 10% or 15% more than (expected) realized vol you see vol is not cheap against recent history, but compared to 2009 early 2010 it is quite cheap. So if you are of the mindset of our last few posts (see list at end of this article), there is upside there.

image025_copy

Any reversion to bank collapse volatility makes even today's option prices look cheap. You have to be careful, though. The global financial planning cartel has other plans.

Reference Do Black Swans Really Matter? Not As Much as ...

...

image017_copy

All subscribers are welcome to download this full document file icon This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups.

The following is a quick note from Eurocalypse on the topic...

Hi Reggie

This is terribly impressive, and I am in admiration with the timing of your call.

He is referring to the timing/macro/fundamantel call - I recommended he put together a vega trade via SPX/SPY opition setups last week, but a day or two delay combined with a rapid plunged gave scant time to take advantage of it

I deeply hope your readers and yourself have benefited from the options strategies, market has been so quick; I dont know if it could be published in time.

...I'd recommend to take partial profits. Premiums have probably doubled or morewith the move and probable increase in vol. at this stage even the move is so violent we should have a very bad day at least until the opening of the US market today,waiting at least 1 hour after the opening seems wise.

I'd recommend to take some profits, after that because theta becomes expensive at this level especially with the weekend coming!

There are several ways to do it:

  1. Take off X% of the initial strategy to make it 0 cost,
  2. Delta hedge, and increase the delta hedge when market continues to sell off (thats the benefit of gamma) for naked options.
  3. If vol jumped already to stupid levels, sell some put spreads below the strong support levels indicated in the previous trade setups to make up for the initial premium with the increase of vol, you sell less options and you end up with a nice structure which can end in the money on both sides.

The probability of a total meltdown is here though so I'd keep some downside but no one ever lost booking some profits.

I'm actually quite confident it's going to happen, the issue is timing is everything, hence OTM longer dated puts.

Longer term down the road im even more pessimistic than you are.USSR 1989, EURO 2012 and put US, UK and Japan with it probably as well.

Beyond that chaos anarchy wars? I hope not but terra incognita!

The decision of BNY Mellon to tax big deposits is a prelude to financial repression, freezing accounts to prevent a bank run.

See BNY Mellon imposes fee on rapidly growing deposits, in short, the bank will punish anyone who does not invest their money in risk assets of some sorts. That's right, a bank that is trying to discourage you from saving in cash. What the hell??? This is probably just the beginning as the TPTB attempt to force capital into the Ponzi pool in order to keep the facade of value on devalued assets...

... having a max of money "voluntiraly" invested into debt instruments which wont be repaid...
What things like this will do is ensure the reverse will happen. The smart money will exit first en masse which will make sure they end up NEEDING to freeze these accounts.

Anyway, its a pleasure contributing to your blog

thanks


Published in BoomBustBlog

The following are illustrative setups based on SPY options with some actual plays based upon my European Bank Run Research (see list at the bottom of this article). This was written yesterday evening, French time, as the S&P was at 124.60, trending downward. (Note: the market has literally collapsed since then).

The SPY is an ETF (trust) that tracks the S&P 500. I will be focusing on the FIRE sector in both Europe and the US, but the broad market will (is) probably fall first. These trades are presented to give some illustrative guidance to retail subscribers and more advanced setups to Pro subscribers.

The Tech Outlook

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Regarding the tech outlook, I've turned actively bearish on the broad market a few days before the guys that I use to assist in the volatility setups, hence my collecting of the armageddon put above. Siince we broke major support, everybody is now on board. The issue is the fundamentals and the macro outlook are leading the technicals in bearish outlook, then again, they have been doing so for two years now - for what its worth, despite the fact the market has shot up nearly 100%!

As you can guess after such a move, vol went quite a bit up, but chances are there's much more room for vol expansion, if we just reverse to 2010 levels (that and because were breaking a 2 year long trend line). I fully expect the downtrade to be quite violent, like what were seeing in CAC as of late (reference Observations Of French Markets From A Trader's Perspective) with but a small respite and or the requisite short squeezes - which should be fewer and farther between since fundamental shorts have been beaten up and driven out of the markets.

My Vehical Of Choice For BoomBustBlog Retail Subscribers Looking To Capture Volatility Moves In The Broad Market

The SPY is an ETF which quotes 1/10 of the SPX index. I find it ideal for retail investors who don't have the capital to commit to the larger blocks required of the e-miini and can be easier to get out of considering the homicide spreads forced upon SPX option buyers who don't have the inside Squid track.

The vols are directly comparable as both indexes are just proportional.

First thing, looking at ATM vols on the 4 next expiries (Aug, Sep, Oct, Nov), the structure is slightly inverted (vol on aug > vol on sep > vol on oct > vol on nov) cause the mkt expects move to be shortlived and/or decreasing in intensity. I don't necessarily agree, which is what makes a market.

What It Takes To Actually Make Money

ATM (annualized) vol (125) is around 24% on Aug, 23% on Sep, 22% on Oct and 21.5% on Nov. (these are approximations, rule of thumb: the implied daily move (in %) is (annual) volatility / sqrt (250) if we count 250 biz days every year). So 24% is roughly a 1.5% move a day. More adequately speaking, roughly, an options trader who is delta hedged and long options, needs the mkt to move more than 1.5% a day to make money. As implied is, because of risk premia, often 10% or 15% more than (expected) realized vol you see vol is not cheap against recent history, but compared to 2009 early 2010 it is quite cheap. So if you are of the mindset of our last few posts (see list at end of this article), there is upside there.

image025_copy

Any reversion to bank collapse volatility makes even today's option prices look cheap. You have to be careful, though. The global financial planning cartel has other plans.

Reference Do Black Swans Really Matter? Not As Much as ...

I have always been of the contention that the 2008 market crash was cut short by the global machinations of a cadre of central bankers intent on somehow rewriting the rules of economics, investment physics and global finance. They became the buyers of last resort, then consequently the buyers of only resort while at the same time flooding the world with liquidity and guarantees. These central bankers and the countries they allegedly strive to serve took on the debt and nigh worthless assets of the private sector who threw prudence through the window during the “Peak” phase of the circle of economic life, and engaged in rampant speculation. Click to enlarge to print quality…

The result of this “Great Global Macro Experiment” is a market crash that never completed. BoomBustBlog subscribers should reference File Icon The Inevitability of Another Bank Crisis while non-subscribers should see Is Another Banking Crisis Inevitable? as well as The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance.

Spreads on these contracts are tradable through my broker but liquidity on SPY options is palapable, so let's keep it simple and just buy naked puts, even after this market selloff.

To Achieve This End, We Are Illustrating 2 Strategies For Subscribers: Gamma and Vega play

A gamma play attempts to benefit from a quick and violent move. Short term expiries are favoured. As the break of the trendline is fresh, we have to bet on a quick move, so the options to most fit to employ are...

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All subscribers are welcome to download this full document file icon This is the introductory post to a series of trade setups for European Bank at Risk, complete with sample trade setups. Professional and institutional subscribers can access additional volatility strategies over the next 72 hours as well as a more indepth view of the new faux pax we discovered in our Bank Run At Risk subject. Basically, they're replicating Lehman Brothers more now than ever. Now, that's not a good idea, is it?

The macro/fundamental outlook as Reggie sees it:

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Observations Of French Markets From A Trader's Perspective
  9. On Your Mark, Get Set, (Bank) Run! The D…

Update as written by Eurocalypse:

game over, everything sold off, gold soaring... system is imploding

USSR 1989, EURO 2012, and i think we might well add US & Japan to the list as well.

even though in the short term time frame, i think if tomorrow CAC sells off a bit more (BNP as well) it makes sense to take partial profits (selling options or delta hedge), as its 2010 lows was the target and were oversold in daily.

seems to be big govt intervention now. weve seen BOJ on the ccy markets. ZH headlines about cancelling auctions in Italy, short selling might be soon suspended etc... caution there advised.

on the other hand SP has way more to go and yday bounce @close was the last for a while i think, it was there to test the patience of bears...and buy those SP puts timely ! mkt hammered immediately tells it all i think

Now it gets truly interesting. We're in Pan-European, pandemic, bank run territory boys and girls, and I believe I may have caught the number bank run subject lying about thier position risk, ala Lehman and Bear. Yes, outright lying. I will give an update to Pro and Instititional subscribers when its ready. In the meantime, refresh your memories. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such

Published in BoomBustBlog

Here are condensed notes from my conversation with some of the trading community of BoomBustBlog along with my own thoughts centered around the fundamentals and the forensics. I have a little more to explore in the European banking system, then we parse the ugly situation that will be real estate (unbelievably, the thing that is nearly guaranteed to sink most sinkable banks has yet to get much media attention). At the same time, it will be time to revisit the US and the ponzi scheme bear market rally in treasuries and equities, particularly our FIRE sector institutions. Oh, what a workload do we have ahead of us.

Unsurprisingly CAC had a plunge yesterday, one of the worst performers in all of the European markets - exactly as we have warned, reference Observations Of French Markets From A Trader's Perspective and excerpts from European Bank Run Trading Supplement Available for Download:

The Monthly chart, with only one more trading day left tomorrow [Friday] shows we are breaking the monthly trendline at 3910 THIS month (July), even though on a weekly basis, there were a few weeks this month where it was below already.

image009_copy
That’s a quite NEGATIVE new development, with the 1st natural target being around 3600 (high above the trendline was 4200, break point  3900 - so a 300 point range) that 3600 level is the Nov10 low.

Leading the way down were the institutions that we explicitly warned about in the European bank run series subscriber docs (see the historical links below). It appears some of our heavier hitting subscribers are taking advantage of the systemic contangion trade.

When one reads about DB drastically cutting its BTP exposure and French banks having done [relatively] NOTHING its quite scary. Subscribers, simply referenceThe Inevitability of Another Bank Crisis for reasons to be concerned! I believe this time (as so loquaciously espoused by late the brother Gil Scott-Heron, "The Revolution Will Not Be Televised". As a matter of fact, it may move so quickly, it probably won't be webcast or blogged about in time either. Non-believers, I strongly suggest you reference the writing not commonly found on the web or mainstream media outlets - The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!.

FT reports DB would have sold its entire 8bn holdings of Italian govt debt: Deutsche Bank hedges Italian risk

Deutsche Bank cut its net exposure to Italian government debt by 88 per cent in the first six months of the year in a dramatic sign of international investors backing away from the eurozone’s third-largest economy.

Germany’s biggest lender disclosed with its second-quarter results that it had cut its net Italian sovereign exposure from €8bn at the end of 2010 to €997m by the start of July. Its overall exposure to what it called the “PIIGS” – Portugal, Ireland, Italy, Greece and Spain – fell 70 per cent to €3.7bn over the same period.

... Stefan Krause, Deutsche’s chief financial officer, linked the dramatic reduction in Italy to the first-time consolidation in December of Postbank, a German retail bank that had large Italian holdings. He added that Deutsche had bought credit default swaps – a form of insurance for investors – to hedge its Italian exposure in its trading book.

We went through this scenario for subscribers in detail, last year. Reference

The Deutsche Bank drop was foretold by one of the members of BoomBustBlog's trading community who quite accurately parsed the Deutsche Bank CEO's sanskrypt warnings quite well, posting gains with a strategy shared with BoomBustBlog subscribers (More On Trading with BoomBustBlog Research and the results after the face, BoomBustBlog Traders Armed With BoomBustBlog Research Caught ~10% Deutsche Bank Fall).

... 10Y Italy over 6% with the spread to Bunds & CDS at all time highs.... The potential situation there really (really) sucks and politicians are on holidays...
Many Europeans and BoomBustBloggers think they should wake up and see whats happening!!! Unless, of course, they have all given up and just pretend to have meetings when they KNOW its going to be over anyway. Hopefully, that's not the case.

French bonds, however are trading slightly down in yield at 2011 lowest yields (highest prices) but still underperforming bunds on this move. A member of our trading community still thinks there is a chance for a short squeeze from here but if not, it can go down quickly...

Related links:

  1. On Your Mark, Get Set, (Bank) Run! The D…

  2. The Mechanics Behind Setting Up A Potential European Bank Run Trade

  3. What Happens When That Juggler Gets Clumsy?
  4. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  5. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  6. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  7. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  8. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  9. Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!!
Published in BoomBustBlog

As excerpted from European Bank Run Trading Supplement Available for Download, here is the first of several observations of European markets from a trader's perspective...

The Monthly chart, with only one more trading day left tomorrow [Friday] shows we are breaking the monthly trendline at 3910 THIS month (July), even though on a weekly basis, there were a few weeks this month where it was below already.

image009_copy
That’s a quite NEGATIVE new development, with the 1st natural target being around 3600 (high above the trendline was 4200, break point  3900 - so a 300 point range) that 3600 level is the Nov10 low. A more serious target behind is the 2010s low in the 3300-3375 range. Beyond that, we need more negative news (which of course is likely to happen) but also we need the technicals to deteriorate more.
After all we’ve seen markets in levitation with bad news, so after 900 points from the highs and so much money printing it could well hold, right?

Then a 3300-3900 range would be in play and remove 100 points each side for most of the action for say 6 months if this scenario holds.

The intra-month attempt to stay above 3900 failed in a week time (1st week of July), and the rebound in the 3rd week was capped by the 10wk MA at 3870, just 1% below the monthly trendline.  This is a very bad setting.

Of note some big chip names have seen big drops very recently, like automaker PEUGEOT, which revised down its earnings. The worst performers this year in the index have NOT been financials.

image007

CDS in the French markets are also on the rise. Its safe to assume that some of the bigger credit players are drawing conclusions similar to those espoused in the BoomBustBlog subscription documents regarding Italy and the path of contagion.

Posts of relevance:

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!!
Published in BoomBustBlog

bankatrisktradeThe first Bank At Risk trading supplement is available for download to professional and instiutional subscribers. See File Icon This is the introductory post to a series of trade setups for the European bank we feel is at risk of a bank run. There will be plenty more to come over the next few days.

Published in BoomBustBlog

This is the introductory post to a series of trade setups for the Bank At Risk featured in the subscription document Italy Exposure Producing Bank Risk. These trade setups are for professional and institutional subscribers only, for they are relatively advanced. Those who have not been following the European bank research and opinion of the past 30 days should reference the following in reverse chronological order.

  1. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  2. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  3. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  4. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  5. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  6. Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!! 

Below are the thoughts of one of the BoomBustBlog resident European traders, annotated. The following post (within 24 hours) will contain charts and option position setups for susbscribers.

Setting Up A Potential European Bank Run Trade

20110725_-_CAC_Monthly

Interestingly enough, and sounding a bit different from BOOMBUSTBLOG fundamental analysis, it is really difficult to find clear TECHNICAL evidence in the short term for the Subject Bank at Risk.

The longer trend lines have being violated. The violent down move, has been broken in 2010, the uptrend from the 2009 (by a significant amount of euros !!) low seems over as well.

So we have to look at the more recent past and 60 now looks as the big resistance level, it was 2010 (Q1) high and 2011 YTD (Q1) high as well. On the downside, 2010 lows held as well, and I drew on the graph 2 lines @42 and 46 which look significant.
We have not reversed all of the down move last week, which seems to indicate that the market doesn’t want to call it over and squeeze all the shorts quickly.

It’s very tough to make a short term call.

However, THE SUBJECT BANK traded off the highs on Friday to close just below it.

In my personal view, THE SUBJECT BANK is more a systemic risk play because though I’m negative on the industry's future earnings, THE SUBJECT BANK doesn’t seem to have a particular short term problem and
banks accounting bag of tricks is not empty yet.

I have addressed this in this post, in detail. It is not a straightforward topic.

Of important note, as well, the 10Y BTP, which I called for a quick 5.40-5.50 move and actually traded over 6, came back below that 5.50 level. It was indeed overextended in the short term as it exceeded my level. We’ve seen the low 5.20s on Friday but it bounced back then, almost as anybody could have expected...

Because as we know 10Y BTPs broke the 5% level decisively, and I explained to you my view of why I could only see getting it worse, if only for VAR reasons, absent massive intervention in the market by governments (active BTP buying, short selling banned in CDS AND bonds...which need to push 10Y BTP below 4.5% and on its way to 4% to declare victory). That’s not my main scenario.

So in such a context, we can expect banks to trade down, even if on the chart they seem resilient. The  resistance having worked in Q1, and selling on strength worked this year (when we hit Bollinger highs) can give "optimism" to a short position. I say "optimism" because alas if this happens, it probably means our system is one step closer to its destruction.

Risk Reward selling in the middle of the 2010/2011 range is not a 100% proof recipe for success.

On the CAC40 monthly chart, the uptrend line could have been clearly broken if we stayed last week at the lows, but the bounce near that trendline leaves all possibilities open, with next week being important to me. Similarly SPX is holding well and could go up to 2007 highs above 1500. Problem is Nasdaq is already there... so is Nasdaq breaking thru resistance and leading at least a test higher for indices ? But that would look bullish for equities...

Clearly I’m not bearish (yet) on equities, at least not on a chart point of view, and equities are still the BEST hedge against inflation (save for the indebted and overleveraged firms, which is a whole lot of them.). Firms with no debt, like AAPL ARE a hedge to inflation.

So how can we play downside for THE SUBJECT BANK?

Well the prudent investor, can just opt for a "BETA trade" sell THE SUBJECT BANK against CAC40 beta-adjusted.

Buy put/put spreads to play for the systemic risk especially given the dire situation on the PIIGS debt markets who can be once again, showing the lead to the equity markets.

Disclosure: Eurocalypse has no positions in the stocks referenced above, doesnt trade CDS, and doesnt intend to take positions in those financial instruments"
"Eurocalypse actually owns a small quantity of Italian (inflation-linked) bonds at its own risk. Please do your own due diligence and trade at your own risk

Published in BoomBustBlog
Wednesday, 27 July 2011 11:32

What Happens When That Juggler Gets Clumsy?

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It has been hard for true fundamental investors to reliably make money since the bear market rally of this generation (c. 2nd quarter 2009) due to the fact that global market central planners world wide (read as central bankers and their cohorts) have been distorting price discovery and realistic valuations to an unprecedented extent. Counting the money just doesn't work when no one truly respects and valued money but you. In essence, central bankers world wide (starting here in the US, with our central bank) have disrupted and disrespected the economic circle of life. For a detailed explanation of this happenstance, see Do Black Swans Really Matter? Not As Much as the Circle of Life, The Circle Purposely Disrupted By Multiple Central Banks Worldwide!!! But..... Those very same central bankers/central planners have to juggle many, too many, balls in order to keep this charade afloat. Yes, sink this charade will - and when it does, it will probably look very ugly. Now, its a timing game. As the title inquires...

What Happens When That Juggler Gets Clumsy?

In continuing with the conversation with Eurocalypse concerning ALM and liquidity management, a bank that we previously warned about and whom our other resident trader set up a lovely trade on - Deutsche Bank - reported a couple of days ago. This is what it looks like: Associated Press: Deutsche Bank writes down Greek bonds in Q2

FRANKFURT, Germany -- Deutsche Bank's second-quarter earnings underperformed market expectations as it wrote down the value of its Greek assets in the wake of last week's agreement to bailout the country for the second time. The euro155 million ($224 million) writedown on bonds issued by Greece was one reason why the bank's earnings faltered.

Those who have been following our European research know that we had several observations on Deutsche Bank. First reference More On Trading with BoomBustBlog Research in which we read through the bank CEO sanskrit and found the translation:

    • GERMAN-BANK-CHIEF - AM VERY GLAD THAT WE ARE WITH GREAT CHANCE TO BE COUNTING SIFIs
    • GERMAN-BANK-CHIEF - ASSUME THAT INDUSTRY FIRST BEFORE TAXES FROM 16 TO ROE 19VH SEE IS ABOUT THE TIME AGAIN 25VH
    • GERMAN-BANK-CHIEF - BY REGULATORY CHANGES WILL RETURN ON THE BANKS GO DOWN TEMPORARILY
    • GERMAN-BANK-CHIEF - GREATER EQUITY LOANS ARE NOT FOR ALL EASY TO OBTAIN EUROPEAN BANKS START OF LOWER OUTPUT BASE
    • GERMAN-BANK-CHIEF DBKGn.DE ACKERMANN - EQUITY CAPITAL AFTER THE CRISIS IS STILL MORE TO critically important competitive factor, POSITIVE AND NEGATIVE
    • GERMAN-BANK-CHIEF DBKGn.DE ACKERMANN - BANKS OF REVENUE FROM OPERATING BUSINESS LIKELY TO REMAIN HUMBLE foreseeable future
    • GERMAN-BANK-CHIEF DBKGn.DE ACKERMANN - ROME IS CURRENTLY WITH BANKS AND EU ON PARTICIPATION OF PRIVATE CREDITORS TO GREECE RESCUE DISCUSSED

One might consider this in bad faith as a hidden profit warning. Or what would like to say the Deutsche Bank? I'm short since the 39,50 level. The German bank leaves key support zones straight down. The critical 40 level has not kept the 39 and nobody seems to buy the Pavilion. There are now potential short term losses to be expected in the area of ​​37.50/38. Under these Levels shares will lost ground to the November support the low of around 36 €.

Shortly thereafter, we posted BoomBustBlog Traders Armed With BoomBustBlog Research Caught ~10% Deutsche Bank Fall, and it went a little something like this:

Deutsche Bank looks downright UGLY! Our new Forensic Analysis/Technical Trade combo called this one out about 2 weeks ago with impressive precission. Kudos to all who contributed.

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...

This is the update (dated 6/29) to the trade setup illustrated above, which I haven't even published yet due to material grammar and translation snafus, but the cat is out of the bag now...

Update:

The fact is that Greece is like a smoldering fire. Sometimes Rest, then fire again, and you never really know when the next outbreak comes. This situation is unfortunately still get us some time.

Even New York's new proposal interpreted with some relief. The just enough to avoid the worst and the default is sufficient for today made to continue the tedious summer of consolidation. Again, as long as the S & P 500 above 1,250 and the Dow Jones is the defending 11.900, the technical picture is solid enough. Even the Wall Street optimists surprise with positive approaches. Eight days ago, it was just the opposite. A survey of Intelligence, "CNN Money" is: The number of optimists is increasing. Such surveys are always provided with a question mark, but still.

The banks respond to the new proposals for Basel III surprising positive, not the stock market. The deductions for COMMERZBANK and DEUTSCHE BANK may be an exaggeration, but the technical situation is both hard hit. It looks better with the Americans, according to these rules and regulations for the core capital ratio, all of which are on the safe side. We take this note, but I do not respond to U.S. banks.

COMMERZBANK is not to hold at the moment. € 2.70, of course, are fundamentally extremely low, however: The Greece-positions of around € 2.6 billion in the subsidiary EUROHYPO are in the current situation a mad speculative fears. It can stop each, depending on your taste. It would be good if COMMERZBANK not only keeps silent, but say something constructive. There is nothing worse than uncertainty. COMMERZBANK would announce today that these positions at half Price were sold, representing the market value, then they would have € 1.3 billion actually lost.

And one should expect values to get much worse from here!!!

More precisely, the daughter EUROHYPO. Whether this with, this amount by proposing to the consolidated financial statements is an open question. In any case, would then this disgusting toad swallowed. It is a courage to ask. The GERMAN BANK fighting for every technical resistance. This is all very scarce and an assessment is not possible while also here the Greeks topic the determined mood. Breaks through the price of the 39 € sustainably, everything is up to 36 € open. Then there is the real technical test, because under 36 € there is no resistance more on the inspiration to the actors. Probably not. I expect the continuation of the sideways trend in the range of 36-48 € but the €36 are to fill!

On that note, here is the latest (released yesterday) European bank and sovereign debt exposure research recalculated to show contagion paths:File Icon European Bank's Greece exposure

Additional French bank solvency analysis will be out shortly.

Please read this in the expansive context provided by the conversational post with Eurocalypse posted this morning -Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such. Although lengthy, this is a very important post that leads directly into the second of our European bank trade setups based upon BoomBustBlog forensic analysis.

Kudos to BoomBustblogger Glen Bradford (he posted a link on Seeking Alpha, which interestingly enough no longer published my work) for his title idea. Quite apt, if I must say so myself.

Published in BoomBustBlog