Comments on: Another Hedge Fund Casualty: Japanese Banks via "Floaters" http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html Sun, 22 Nov 2009 06:06:33 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Anonymous http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22339 Anonymous Sun, 19 Oct 2008 23:12:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22339 floaters trade as distressed assets though they are govt bonds. there are other examples in Japan (inflation bonds) or elsewhere. everybody knows theyre cheap, and way under fair value, but some people just need to sell, and nobody has ammo to buy. it just shows also how Japanese banks have been hurt in their capital ratios (otherwise theyd just accumulate those), and that (domestic) demand for JGBs is weak: there is only "short term trading" demand: banks want to buy when there is momentum for a short term profit and be able to get out, but its notpossible with floaters now.<br/>Japan has a huge debt problem. now supply / demand is obviously getting worse, and long term yields might jump a lot now despite worsening economic prospects. Japan's cycle is 15years in advance of whats going in other Western countries, and any sovereign debt problem now could give an idea of the panic awaiting us, or even spread it immediately. floaters trade as distressed assets though they are govt bonds. there are other examples in Japan (inflation bonds) or elsewhere. everybody knows theyre cheap, and way under fair value, but some people just need to sell, and nobody has ammo to buy. it just shows also how Japanese banks have been hurt in their capital ratios (otherwise theyd just accumulate those), and that (domestic) demand for JGBs is weak: there is only “short term trading” demand: banks want to buy when there is momentum for a short term profit and be able to get out, but its notpossible with floaters now.
Japan has a huge debt problem. now supply / demand is obviously getting worse, and long term yields might jump a lot now despite worsening economic prospects. Japan’s cycle is 15years in advance of whats going in other Western countries, and any sovereign debt problem now could give an idea of the panic awaiting us, or even spread it immediately.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22332 Anonymous Sun, 19 Oct 2008 21:03:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22332 You may want to look at The UK yield Curve.<br/><br/>http://www.bloomberg.com/markets/rates/uk.html You may want to look at The UK yield Curve.

http://www.bloomberg.com/markets/rates/uk.html

]]> By: future value http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22331 future value Sun, 19 Oct 2008 20:58:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22331 The floaters are related to my latest fantasy:<br/><br/><br/>Re: "Clearly, if the level of the spot yield is significantly different from the defined notional coupon, or if the slope of the yield curve differs significantly from zero, the conversion factors defined by the exchange will not equate the net delivery costs of all eligible deliverable issues." The floaters are related to my latest fantasy:

Re: “Clearly, if the level of the spot yield is significantly different from the defined notional coupon, or if the slope of the yield curve differs significantly from zero, the conversion factors defined by the exchange will not equate the net delivery costs of all eligible deliverable issues.”

]]> By: Sitting-Bull http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22330 Sitting-Bull Sun, 19 Oct 2008 20:55:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22330 Japan is Zombie-land regarding bonds and derivatives: <br/><br/>"As with many derivatives deals, Morgan Stanley employees debate who gets credit for the complex idea that allowed Japanese institutions to recognize billions of dollars of false profits. I certainly don't claim any credit for it, nor do I want credit. The idea predated my arrival at the firm, anyway, so it can't be blamed on me. Whoever invented the trade, one thing is clear: They gave it a horrible acronym." <br/><br/>http://www.opednews.com/maxwrite/print_friendly.php?ok=y&p=9178 Japan is Zombie-land regarding bonds and derivatives:

"As with many derivatives deals, Morgan Stanley employees debate who gets credit for the complex idea that allowed Japanese institutions to recognize billions of dollars of false profits. I certainly don't claim any credit for it, nor do I want credit. The idea predated my arrival at the firm, anyway, so it can't be blamed on me. Whoever invented the trade, one thing is clear: They gave it a horrible acronym."

http://www.opednews.com/maxwrite/print_friendly.php?ok=y&p=9178

]]> By: FairEconomist http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22312 FairEconomist Sun, 19 Oct 2008 17:59:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22312 Seems like a staggering arbitrage opportunity for the Japanese government. Can't they issue other bonds to buy these floating bonds back en masse? I thought I saw they were selling for 88% of book value, which means they could make 50 billion dollars buying that 432 billion back. That would justify some fairly steep bond premiums. Seems like a staggering arbitrage opportunity for the Japanese government. Can’t they issue other bonds to buy these floating bonds back en masse? I thought I saw they were selling for 88% of book value, which means they could make 50 billion dollars buying that 432 billion back. That would justify some fairly steep bond premiums.

]]> By: tyaresun http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22298 tyaresun Sun, 19 Oct 2008 15:16:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22298 Maybe we can replace mark to market by Waiting for Godot marking. Maybe we can replace mark to market by Waiting for Godot marking.

]]> By: CarlJung http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22290 CarlJung Sun, 19 Oct 2008 12:51:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22290 A late night post about "floaters" which goes on to describe various "dumping" mechanisms, "downdrafts", liquidity issues "wiping them out"....<br/><br/>Freud would have a field day with this. A late night post about “floaters” which goes on to describe various “dumping” mechanisms, “downdrafts”, liquidity issues “wiping them out”….

Freud would have a field day with this.

]]> By: Sergei http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22282 Sergei Sun, 19 Oct 2008 12:16:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22282 Marking to market in this case might not make a whole lot of sense, though, if you consider that that bonds are issued by the sovereign and supposedly risk-free. If there is no default risk, is it absolutely necessary to mark the floaters to market? In this case, marking to market is just a timing adjustment, ie. you book losses today, but make up for the losses in future years through higher interest income. If there is no risk of default, does it make sense for the bank to mark down their regulatory capital? Marking to market in this case might not make a whole lot of sense, though, if you consider that that bonds are issued by the sovereign and supposedly risk-free. If there is no default risk, is it absolutely necessary to mark the floaters to market? In this case, marking to market is just a timing adjustment, ie. you book losses today, but make up for the losses in future years through higher interest income. If there is no risk of default, does it make sense for the bank to mark down their regulatory capital?

]]> By: Timothy http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22272 Timothy Sun, 19 Oct 2008 09:47:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22272 Hi Yves, strangely enough my partner & I were talking about this on Friday night. She believes ( and is in a position to have a good idea) that hedge fund hold around 90% of these issues. All the selling flow is hedge funds & as yet so is the buying. Hi Yves, strangely enough my partner & I were talking about this on Friday night. She believes ( and is in a position to have a good idea) that hedge fund hold around 90% of these issues. All the selling flow is hedge funds & as yet so is the buying.

]]> By: wintermute http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese.html#comment-22271 wintermute Sun, 19 Oct 2008 09:46:00 +0000 http://www.nakedcapitalism.com/2008/10/another-hedge-fund-casualty-japanese-banks-via-floaters/#comment-22271 The Japanese are masters of NOT marking-to-market and have proven it for decades. So they will take this in their stride and grimly hold on waiting for their assets to "come good". <br/>Watch this space because the complaints against mark-to-market (like the witchhunt against shortsellers) may result in the West copying the Japanese experience to a T. Doh! The Japanese are masters of NOT marking-to-market and have proven it for decades. So they will take this in their stride and grimly hold on waiting for their assets to “come good”.
Watch this space because the complaints against mark-to-market (like the witchhunt against shortsellers) may result in the West copying the Japanese experience to a T. Doh!

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