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User Info The $1 Billion Armageddon Trade Placed Against the United St in forum [General]
Thomasaquinas
Posts: 310
Incept: 2007-11-29
Green
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Any guesses?

http://www.marketoracle.co.uk/Article294....

Quote:
Jack Barnes writes : Someone dropped a bomb on the bond market Thursday - a $1 billion Armageddon trade betting the United States will lose its AAA credit rating.

In one moment, an invisible trader placed a single trade that moved the most liquid debt market in the world.

The massive trade wasn't placed in bonds themselves; it was placed in the futures market.

The trade was for block trades of 5,370 10-year Treasury futures executed at 124-03 and 3,100 Treasury bond futures executed at 125-01.

The value of the trade was about $850 million dollars. In simple terms, if that was a direct bond buy, no one would be talking about it.

However, with the use of futures, you have to have margin capacity behind the trade. That means with a single push of a button someone was willing to commit more than $1 billion of real capital to this trade with expectations of a 10-to-1 return ratio.

You only do this if you see an edge.

This means someone is confident that the United States is either going to default or is going to lose its AAA rating. That someone is willing to bet the proverbial farm that U.S. interest rates will be going up.

I believe what happened is a debt-ceiling deal was done in Washington and leaked to a major proprietary trader. Everyone knows the debt negotiations in Washington have been an extreme game of brinksmanship between political parties, but now someone knows how that game played out.

This had the hallmarks of one of the largest bond shops in the world knowing something the rest of the market didn't.

The number of shops or even central banks that can take on this level of market risk is extremely small. Some that come to mind are hedge fund manager John Paulson, Bill Gross's PIMCO, and the U.S. and Chinese central banks.

Paulson already scored big - about $6 billion big - on a similar trade years ago when he bet against subprime mortgages, the investments that helped bring down Lehman Bros. and many other investors.

Whoever was behind it wanted a trade on ASAP, and didn't care about the ripples they would cause.

Txin1880
Posts: 4735
Incept: 2009-02-25
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Texas
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Soros

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Realization - Rage - Resolve - Rifles - Rope - Recovery - Rinse - Repeat
Arpwatch
Posts: 3051
Incept: 2009-11-06
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Damn that was my guess too.

Well...maybe Bill Gross?

Fraudster
Posts: 4170
Incept: 2011-05-10
Silver
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HOW could we (the people) allow it to ever get to this? smiley

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"Let China sleep, for when she wakes, she will shake the world." - Napoleon Bonaparte

"Circulation ceases first at the outer edges [Europe and Japan]. It will take a while yet for the decay to reach the heart [America]." - Foundation & Empire by Isaac Asimov
Mo
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Goldman.

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Mayorquimby
Posts: 13907
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The Archaic Past
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Fraud-

inline

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Fraudster
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Silver
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Mayor - what is this a chart of?

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"Let China sleep, for when she wakes, she will shake the world." - Napoleon Bonaparte

"Circulation ceases first at the outer edges [Europe and Japan]. It will take a while yet for the decay to reach the heart [America]." - Foundation & Empire by Isaac Asimov
Scrood
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Anyone thinking of copying this "bet"?

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CTRL-GALT-DELETE
Fraudster
Posts: 4170
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Silver
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TBT?

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"Let China sleep, for when she wakes, she will shake the world." - Napoleon Bonaparte

"Circulation ceases first at the outer edges [Europe and Japan]. It will take a while yet for the decay to reach the heart [America]." - Foundation & Empire by Isaac Asimov
Arpwatch
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Scrood, if I knew how and had the resources I would give it a go. smiley
Shado
Posts: 414
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Quote:
Anyone thinking of copying this "bet"?


I was until I took it up the ass @ 10:46 (ET) this morning. That move out of nowhere was really frustrating. Not sure I want to get back in the water until this resolves and it starts trending one direction or the other.
Kylafoon
Posts: 2455
Incept: 2009-02-05
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Futes just popped a boner...

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"...But whenever we see things done wildly, but taken tamely, then the State is growing insane..." - Gilbert Keith Chesterton 1910

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Hotdrop
Posts: 522
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Its a pretty good bet especially if you can undwind your position into the panic you just stirred up.
Curbyourrisk
Posts: 3587
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Farmingdale, NY
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Jim Rogers... and he has more to bet too!!!

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Time is up.

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127001
Posts: 3516
Incept: 2008-05-21
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well, those kinda of dollars certainly provide an explanation for why the ratings agencies suddenly care. Perhaps the USA has alot of meat on her bones and has attracted unwanted attention?

As for speculating on Soros, Paulsen, Gross, etc. Why not look bigger?
What does Italy, Ireland, and Spain have to gain?
What about the ECB in general?
Bozonian
Posts: 19871
Incept: 2007-09-01
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Saratoga Springs, New York
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The Federal Reserve, to sucker in shorts (How dare you bet against the United States of America!)

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Everything I write is my opinion and not to be considered proven fact. Nothing I write should be considered financial advice.
Eaglewwit
Posts: 6054
Incept: 2007-11-30
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SoCal
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Boz +1
Patmcgroin
Posts: 8215
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Chicago
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5000? Who cares. 100K was bought in 10 minutes yesterday. Now THAT is what they should be talking about, not a couple of blocks that are approximately rounding errors in size.

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"I know a few arcane, obscure financial acronyms that the general public doesn't know and that's about it."
Pika-steph
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Incept: 2007-09-11
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100K?! I'm assuming that was not all from the same buyer.

Still, I'm guessing these somebody(s) are part of the TBTF gang. Seems to me one would be a whole lot more confidence in taking this risk if for some reason they thought they'd be sheltered from failure.

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Patmcgroin
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Chicago
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Why not? Any larger (large!) fixed income should could mobilize the $180MM of margin necessary for a new position. Or, using SPAN, much less... I'm not saying it WAS, but I bet a sizeable chunk of it was a single buyer. For comparison purposes:

http://www.cmegroup.com/clearing/trading....

Note similar size blocks today... Now look at that FAR more interesting straddle blocked 20K.

Oh - AND, for every buyer there's a seller so for somebody this a the "The [not] $1 Billion Armageddon Trade." Even though it's not $1BB.

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"I know a few arcane, obscure financial acronyms that the general public doesn't know and that's about it."

Jeffrey_thomason
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Is it really a "bet" at this point though? A downgrade is practically a sure thing at this point.

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Patmcgroin
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Chicago
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Look what happened to Japan...

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"I know a few arcane, obscure financial acronyms that the general public doesn't know and that's about it."
Corn1945
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Don't wait for the bond market to tell you anything.
Level9
Posts: 2796
Incept: 2007-10-28
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Circling the Drain
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Anyone relying on ratings agencies to determine national solvency at this point deserves to lose all of their money.

The real question is one I have not seen asked or answered among all of the fear mongering: is there any material impact due to a ratings downgrade? ie. forced selling, etc?
Patmcgroin
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The real risk implicit to Sov. Debt is currency risk not credit risk.

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"I know a few arcane, obscure financial acronyms that the general public doesn't know and that's about it."
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