|submitted by emadbably to OptionsInvestopedia [link] [comments]|
submitted by betterexs to USJobList [link] [comments]
submitted by 1-800-MADEA to AskReddit [link] [comments]
submitted by sabrewulf to business [link] [comments]
|submitted by secaa23 to economy [link] [comments]|
|submitted by secaa23 to politics [link] [comments]|
The Central Bank is a private institution with a monopoly over our money supply. At just a glance this institution seems to be under the thumb of congress and the public, but a brief look at their website states otherwise.https://www.investopedia.com/terms/c/centralbank.asp
“International experience shows that monetary policy tends to be more effective in supporting stable prices and strong employment when it is shielded from short-term political influence, which is one reason the Congress has given the Federal Reserve considerable operational independence to set policy.”https://www.federalreserve.gov/faqs/about_12798.htm
“Federal Open Market Committee (FOMC) meetings are not open to the public, so how do I know what the FOMC is doing?”Answer:
Information about the Federal Open Market Committee's (FOMC) deliberations and decisions can be found in:
- Policy statements released after each FOMC meeting;
- Detailed minutes of FOMC meetings, released three weeks after each regularly scheduled meeting;
- The Chair's press conferences;
- Quarterly publication of the economic projections of FOMC participants;
- Semiannual and other testimony by the Chair to the Congress on monetary policy;
- Weekly disclosure of the Federal Reserve's balance sheet and discount window lending.
submitted by rspix000 to news [link] [comments]
There's quite a few folks that are still on the edge about direct registering their shares. I hope to shed some light on the risks associated in keeping your assets in a (un)trusted custodian, like a bank or brokerage institution. In this post, I plan to cover the following topics:submitted by pewpewstonks420x69 to GMEJungle [link] [comments]
1. Why We Have FDIC Insurance TodayWe've all seen it - any bank out there has "member FDIC" written on all their signs and spoken in their commercials. The FDIC is an official government body (this is important) funded by the US government to insure all bank accounts up to $250,000 in case of a bank default. There is a similar institution in place for credit unions called the NCUA created in 1970 by congress.
The origin of the FDIC comes from way back during the Great Depression. In 1929 during the stock market crash, about 650 banks collapsed - another 650+ would fail the next year. Over the course of the Great Depression, 9,000 banks failed, losing depositors $7 billion dollars. That's about $195 billion dollars in today's money.
Congress rushed to implement a regulatory fix, and it was proposed in the Banking Act of 1933 - known as the Glass-Steagall Act. In this act, the FDIC was created to insure accounts up to $2,500, then $5,000, then kept being raised throughout the years until today's current limit of $250,000.
Another important aspect of the Glass-Steagall Act is that it limited the securities banks could purchase with deposits effectively to government Treasury Bonds, and nothing else:
This separation of commercial and investment banking was removed by the Financial Services Modernization Act of 1999, also called the Gramm-Leach-Bliley Act, effectively allowing banks to gamble consumer deposits on the stock market with equities, debt instruments, and risky derivatives again for the first time since 1933, as long as they kept some form of partial reserve. This act is widely blamed for causing the 2008 GFC - which prompted creation of the Dodd-Frank Act in 2010, which was supposed to reinstate some of the restrictions created in 1933. My opinion: the Dodd-Frank act was all just a big pony show to say "Hey look at us we're doing something!" There's hardly anything of concrete value in it.
2. Parallels with the Crypto World's Meltdown of CEXs, post FTXJust like FTX, BlockFi, and just about every other crypto exchange pre-FTX, stock brokerages have NEVER published their proof of reserves. There's not a shred of evidence out there that any brokerage owns the securities due their customers in full reserve. They could buy every stock 1:1, they could buy a 50% hedge and play with the rest, or they could just be taking all your money and playing hedge fund with it. There's of course, "regulation," where's the mayo Kenny?!? But NEVER!!! concrete evidence that a brokerage firm owns your assets. Even the regulators don't want to see evidence of positions (in this case by swap dealers).
For this, we can only equip our tinfoil and hypothesize about the potential risk and outcome. What convinced me of the worst was when Robinhood was issued a $3 billion margin call during the Jan '21 GME run-up. So either 1 of 2 things happened:
At least the top banks are willing to admit they're leveraged upwards of 30 to 1 with a grand total of $200 trillion worth of derivatives liabilities on their balance sheets (Page 18, Table 13)
JPow salivating thinking about all the bailouts he's gonna give
3. The SIPC is (kind of) AIG part 2 - Electric BoogalooA quick history on AIG - they were, in the 2008 GFC, one of the providers of Credit Default Swaps. They essentially sold insurance for Collateralized Debt Obligations (CDOs, the infamous dog shit wrapped in cat shit mortgage bonds), providing a payout in case the CDOs went under. Shocker, they did, and guess who couldn't pay up? You guessed it, the insurance provider who didn't have the reserves they promised.
You may have noticed that financial institutions like brokerages have "SIPC Insured" plastered all over them like the banks have FDIC. "Your funds are insured!" they say. But to what extent? The US retirement market alone accounts for $37.2 Trillion, $7.3 Trillion of which comes directly from 401ks alone. Almost all of these funds would be held through brokerages. The SIPC should be absolutely loaded to insure these institutions. Right?
They have $5 billion in cash equivalents and another $2.5 billion on tap through an LOC. Yes, this is with a B, and the above retirement accounts are with a T. And to boot, they're not backed by the US Government, meaning they don't get access to that lovely money printer via the Fed's Infinite QE purchasing treasury bonds.
They're short of their obligations by somewhere between 3 TO 5 ORDERS OF MAGNITUDE. This is the Wall Street way of saying "Sorry pal, here's 5 bucks for your troubles." The moment "dumb money" gets wise to the scam, the bank run that will ensue will DWARF the losses (recall: $195 billion in today's money) suffered from the bank defaults in the Great Depression. Also recall, we have not a shred of evidence they're holding any security for any of their clients.
4. FDIC Insured Deposit Sweeps (by Fidelity)This is what got me going down this rabbit hole today. I love the convenience of doing my banking in the same place as most of my investments (sans my DRS'd beloved stonk), so I decided to see if my funds, held in Fidelity's FDIC insured deposit sweep, were actually held in my name. After all, during MOASS, it's likely that every brokerage in the US will go bankrupt, so I wanted to ensure that my FDIC cash accounts were not subject to their bankruptcy proceedings. So I decided to read the fine print for the FDIC insured deposit sweep program and, surprised Pikachu face:
Note: NFS is National Financial Services, a subsidiary company of Fidelity
Mmmmm tasty custodianship
Wrinkles required. I'm taking these legal processes to include bankruptcy proceedings, beyond just account freezes or criminal confiscations
Long story short, Fidelity owns your bank accounts too (held via the FDIC sweep program). All subject to confiscation and redistribution by the bankruptcy court.
5. Well Thanks for Spiking my Blood Pressure Bro. Now What Do I Do?Most of the general public will be quick to yell "but muh regulashunnn!" When this giant pile of burning feces comes rocketing toward the markets, as they watch their pensions, 401ks, and other vehicles of life savings evaporate before their eyes.
The problem here is that there's human freakin' beings shoved into every nook and cranny of the markets' processes - which allows for corruption on a grand scale. This includes the numerous
So how do you protect yourself, since nobody elseSEC, CFTC, DTCC, FINRA, NCSS, OCC will do it for you? (shocker, right?)
Get your assets where someone else can't touch 'em.
DRS YOUR DAMN SHARES!This applies to ALL companies you hold in a brokerage account! Anything left registered in your broker's name (which is everything you think you own) will be subject to forfeiture upon a brokerage default, let alone if they're even holding it at all.....
But most importantly, DRS our most beloved stonk, $GME.
DRS holds shares of a company under YOU DIRECTLY, rather than in "street name" registration for your broker under Cede & Co. Nobody has a damn clue (nor do they care) that you think you own those shares, unless you hold them your very self via DRS.
BUY, HODL, DRS.
NOT YOUR NAME, NOT YOUR STONK
NOT YOUR STASH, NOT YOUR CASH
NOT YOUR KEYS, NOT YOUR CRYPTO
NO PILE O' SHINY, IT'S YOUR HINEY
submitted by TheKidd to reddit.com [link] [comments]
https://news.gamestop.com/node/11011/html#204submitted by alwayssadbuttruthful to Superstonk [link] [comments]
2006 gamestop PROSPECTUS
it states You should refer to the prospectus supplement relating a particular series of debt securities for a description of the following terms of the debt securities offered thereby and by this prospectus:(and then way down it also has ):
if the debt securities will be issued in whole or in part in the form of a book-entry security as described in the section of this prospectus captioned “—Book-Entry Securities,” the depository we appointed or its nominee with respect to the debt securities and the circumstances under which the book-entry security may be registered for transfer or exchange or authenticated and delivered in the name of a person other than the depository or its nominee; and
so then of course i went through after turdfurg23 showed me this, and found in section "Book-Entry Securities"
it's kinda long.. but i'll paste it the relevant few paragraphs here..
if the dtc changes from equity securities depository, gme withdraws book entry shares, and then debt security certificates are then printed and delivered..
So my questions are, say they were going to kung pow the market implosion by going to blockchain,what other entity would be the equity securities depository?alsoIs this technically fully in effect even thought the prospectus was issued 2006?
I'm thinking mortgage-backed-securities carried through swaps were coming due and they were the risk to the debt security depository?
EDIT:** wrinkles must be gotten. 2 investopedia links for you, this is to add context to the ending questions, and to present my thinking on things.. https://www.investopedia.com/terms/d/debtsecurity.asp
"Examples of debt securities include a government bond, corporate bond, certificate of deposit (CD), municipal bond, or preferred stock. Debt securities can also come in the form of collateralized securities, such as collateralized debt obligations (CDOs), collateralized mortgage obligations (CMOs), mortgage-backed securities issued by the Government National Mortgage Association (GNMA), and zero-coupon securities."
https://www.investopedia.com/ask/answers/040815/are-all-mortgage-backed-securities-mbs-also-collateralized-debt-obligations-cdo.asp investopedia notes :
" All CDOs are derivatives: Their value is derived from another underlying asset. These assets become the collateral if the loan defaults. One variation of CDO that can offer extremely high yields (but higher risk) to investors is the synthetic CDO. Unlike other CDOs, which typically invest in regular debt products such as bonds, mortgages, and loans, the synthetics generate income by investing in noncash derivatives such as credit default swaps (CDSs), options, and other contracts.
I arrived at the questions of if the dtc stopped providing services, who would it be, and WHY would that come about, which reminded me of the change to swaps from 2000 and then that reminded me of the 2003 and 2002 wamu and BofA positions I found last year. They were from 2003 , and they were tied to fed funds."
please try to read those 2 links. It's slightly complciated, but realized both of these instruments are under the DTC as depository for secuities.
okay. heres my thinking.
We know they have futures on the treasuries, as disclosed in the everything short. So, technically, the huge economic issues at the time of 2006, were the credit defualt swaps, then mortgage backed securities(commercial backed too) that I can remember.
Citigroup showed up in almost all "m3mestonks" and xrt in 06/2013,along with kenny being there by 12/2013.
If there was a 5 y swap agreement covering the MBS and if they covered those swaps at the end with another10y swap agreement.. then we got 2023.
i think our whole shindig is to cover the CDS and MBS bundled together. that would mean the bailout never closed those, they put them onto the treasuries, and shorted the stocks to create $ to cover the schemes of the MBS that places citgroup 2008 on treasuries, citigroup on our meme stocks and xrt 2013, and explains the time frame of 2023 being big boom
citigroup was directly into enron through these instruments, and credit default swaps were issued from citigroup in that endeavor.
I'm greatly trying to learn. I apprecaite all your inputs.
POWER THE PLAYERS
submitted by Ok-Ingenuity4838 to amcstock [link] [comments]
The headline is the TLDR. You'll have to read this one. Sorry not sorry.
No, that headline is not pilot idea for a new TLC spin-off. Despite its slightly deceiving moniker that for some would drum up memories of guilty-pleasure television starring the likes of Matt Burch and Sonia Pizzaro, the repurchase market plays a vital role in our financial markets, as it is used for liquidity.
In this DD, we will endeavour to identify some rationale behind the reason for the massive gains the repo market has experienced of late.
Now, about that high score.
The NY Fed reported a record $2,044,658,000,000 in reverse repo transactions yesterday; a trend I would expect to continue.
Over the last year, the repo market has seen exponential growth in the overnight repo market, specifically. On May 21, 2021, the Fed reported reverse repo transactions of $369,046,000,000; which represents an increase of $1, 675,612,000,000, or 454.04% percent influx to the market.
For perspective, the below chart illustrates the steady incline seen by the reverse repo market over the past calendar year.
Something I find rather interesting about the surge in reverse repo numbers is the timing of repo market policy. In March of last year, a NY Fed policy implementation saw the daily per-counterparty limit jump $50 billion from $30 billion to $80 billion.
Something else I find rather interesting about the surge in repo numbers is the timing of repo market policy.
In March of last year, a NY Fed policy implementation saw the daily per-counterparty limit jump a staggering $50 billion, from $30 billion to $80 billion.
What is more interesting still is that just some 6 months later, 189 days to be exact, the NY Fed would go ahead and amend repo market policy yet again.
On September of last year, policy implementation saw the daily per-counterparty limit increase by an astronomical amount of $80 billion.
Now, you might be reading this and wondering what this market does and why this matters, so, without further ado, "let's dive in".
Let's review. What is a repurchase agreement?
Operated by the New York Fed's Open Market Trading Desk (aka "The Desk") and authorized by the Federal Open Market Committee, Repurchase Agreements--or as they have come to be lovingly known--"Repos", are a transaction that takes place between a primary dealer and counter-parties such as banks, money market funds, and government sponsored enterprises, such as the Fed.
In repo transactions, The New York Fed's Open Market Trading Desk purchases Treasury, debt or mortgage-backed securities (MSB's) from one of the aforementioned counter-parties, with the understanding that the underlying securities will be resold at a later date. In its simplest form, a repurchase agreement is essentially a loan.
What is an overnight reverse repurchase agreement?
Overnight Reverse Repurchase Agreements ("Reverse Repos", or "RRP) have been conducted daily overnight since 2013. The purpose of this overnight repo system is to help prevent fund rates from falling below a set target. This overnight repo system also serves as a supplement to The Fed's primary monetary policy for depository institutions in an effort to regulate short term interest rates.
Overnight Reverse Repo operations are generally conducted daily from 12:45 p.m. to 1:15 p.m. (Eastern Time). For each RRP, a counterparty is allowed to submit one proposition in a size not to exceed $160 billion.
Now, you may be reading this and also wondering what in the world a counterparty is, and that would be a reasonable line of thinking. As stated on the Federal Reserve Board of New York's website, the Role of Reverse Repo counterparties can be seen below.
So, what do people even buy in this repo market, anyway?
Participants of the repo market exchange government treasuries (bonds) or mortgage-backed securities (MBS's) for cash.
But don't just take my word for it. What does the Depository Trust & Clearing Corporation (DTCC) have to say about repos? Before answering this, let's first discuss who the DTCC is and what they do. Established in 1999 to combine the functions of the Depository Trust Company (DTC) and the National Securities Clearing Corporation (NSCC)--a subsidiary of the DTCC--the DTCC provides clearing and settlement services for the financial markets, processing trillions of dollars in securities-based transactions on a daily basis.
Now that we know who DTCC is and the role they play in our financial markets, what do they say about the repo market?
"Reverse repurchase agreements are used by institutions to earn income on their excess cash reserves. When the securities are sold, the sellers simultaneously agree to repurchase the securities on a specified day at a given price, including interest calculated using a rate agreed upon at the time the sale takes place. The portion of the repo transaction when the security is sold is referred to as the 'start' leg, while the subsequent repurchase is called the 'close leg. The borrower, and therefore the person providing the collateral, is called the 'repo dealer'; the cash provider is called the 'reverse dealer' or 'lender.' Except for a forward start repo, the 'start leg' of the typical repo will settle as a normal transaction. The 'close leg' will be part of the netting process on the respective settlement date". (https://www.dtcc.com/clearing-services/ficc-gov/repo)
Now, a little about treasuries...
Treasury debt, or debt instruments, are government issued securities used to raise capital. Highly sought after, as they are considered "risk-free"--inasmuch as they are backed by the government--treasury debt can either be
And this brings us to our next topic; short selling
On the surface, the repo market seems innocent enough; a marketplace of buyer and seller, meeting daily to exchange goods and services. What's the harm in that, right? However, upon closer investigation of this economic machine--and its sometimes seedy underbelly--the intent of the repo market disguises what to some would be considered nefarious or malicious intent.
Wait! So we're talking about short selling now? Yes, briefly.
Short selling is an investment strategy "that speculates on the decline in a stock or other security's price", per Investopedia.
Investopedia goes on to say,
"In short selling, a position is opened by borrowing shares of a stock or other asset that the investor believes will decrease in value. The investor then sells these borrowed shares to buyers willing to pay the market price. Before the borrowed shares must be returned, the trader is betting that the price will continue to decline and they can purchase them at a lower cost. The risk of loss on a short sale is theoretically unlimited since the price of any asset can climb to infinity".
Put simply, short selling is taking a bet that a stock's price will go down.
This investment strategy is not without its risks, however. Because a short sale comes with establishing a position to the downside, the risk of loss is unlimited, in theory, because no one knows how high a stock's price can climb.
You've made it this far, now let's quickly recap
Okay, so why short selling? Great question
Let's take a look at the 2021 financial statement of an institution; a hedge fund to be more specific.
As we can see by the highlighted text, this particular fund uses the repo and reverse repo market to acquire securities to cover short positions and settle other obligations.
In the process of covering a short, an entity--a hedge fund, for example--goes to the open market to buy back the same stock [ticker] that they sold short into the market on their speculation of the stock's price dropping, in order to close out a short position at a profit or loss; depending on the movement of the stock's price. When a short position is closed out, the borrower--the hedge fund, in our example--returns the borrowed shares to the lender. If they stock does down, they made money. Stock goes up, lose money. Seems simple enough, right?
Not always. When a short sale goes wrong, it can go very wrong. For many institutions, funds, or even retail investors, these short positions are established through the trading of derivative instruments--specifically, options--and often with massive leverage; be it 10:1, 100:1, 1000:1.
A derivative instrument is a contract between parties wherein the value of the contract is based upon--or derived from--the value of the underlying financial asset such as a security (a particular stock). Popular derivative instruments are calls and puts, which give the owner the right, not obligation, to buy or sell 100 shares of the underlying stock; a call would be buying, and a put selling, respectively. The difference of the two being a call option is taking a bullish position, where a put is bearish.
"Because short selling consists essentially of selling stocks that are borrowed and not owned, there are strict margin requirements. Margin is important, as the money is used for collateral on the short sale to better ensure that the borrowed shares will be returned to the lender in the future", says Investopedia.
Speaking of collateral, when we revisit the aforementioned 2021 financial statement of a hedge fund, we see that some $71.33 billion (yes, I said billion) has been pledged as collateral to counterparties to be sold or repledged to others.
And that's just one hedge fund. In 2021, Investopedia estimated the U.S. has some 3,635 hedge funds. I would expect this number have only increased since then.
(I do want to add that some funds are small, with only a few million in assets under management, while larger funds--like that from our financial statement--manages tens of billions in assets).
Looking further into the Collateralized Transactions section of this financial statement mentioned earlier, we get more insight; "the Company has rights of rehypothecation--the process of using assets that have been posted as collateral by clients for their own purposes--with respect to the securities collateral received under reverse repurchase agreements and the underlying securities received under securities borrowed transactions".
Okay, home stretch, here...
Institutions, funds, and individuals can establish a short position, often with leverage. In the case of hedge funds, based on information provided in their own financial statement, we know that these short positions are facilitated by way of derivative instruments. To mitigate credit risk, a hedge fund may enter into collateral arrangements with other counterparties such that, should another counterparty go bankrupt or fail to pay/perform, the hedge fund can essentially seize the collateral of that counterparty. (Pretty advantageous, if I say so, myself). We also know that hedge funds have billions set aside as collateral, and that through a process of using their client's pledged collateral as their own "with respect to.....reverse repurchase agreements", they participate in market activity.
To bring this all full circle, we know--again, based on a hedge fund's own financial statement--that they enter into repurchase and reverse repurchase agreements to cover short positions.
In short--no pun intended--a common practice is for hedge funds, with either millions or billions in assets under management to enter into short positions, where they based on their own speculation, bet against a particular stock; often with heavy leverage. When done to scale, this process requires large amounts of collateral "to ensure the borrowed shares will be returned to the lender."
However, in the event where a hedge fund (or institution) has established a short position that they now need to cover, the reverse repurchase market plays a key role, as it is used as a vehicle to create liquidity to "buy back" the shares previously borrowed to return.
And where does that liquidity come from? Treasuries (or bonds).
The below chart features the US Government Securities Liquidity Index. As government security liquidity dries up, the treasury market as a whole becomes more and more susceptible to volatility, or big shifts. This index measures the average yield error for notes and bonds maturing in at least a year.
On May 6 of this year, this very index saw its highest point of the year, to date; 1.65. The index is currently at 1.59
U.S. Government Liquidity Index
So, what does this mean? Tightening!
According to a May 4, 2022 press release from the Fed, we see that, pursuant to the Principles for Reducing the Size of the Federal Reserve's Balance Sheet that were issued in January 2022,
In short, the Fed's mountain of treasuries will be greatly reduced.
Okay, so what does all of this mean?
In short--again, not to be punny--the measures being taken by the FOMC to curb inflation--quantitative tightening, or balance sheet normalization--will affect the reverse repo market. Because institutions and funds use the repo market to trade government securities (or bonds), their ability to cover short positions may be (severely) impacted, as this can greatly reduce their collateral and increase risk to their positions.
Should bonds be impacted enough, those institutions and funds currently betting against the stock market, bond market, housing market, and just about any other market possible... they're ability to continue doing so will be greatly reduced and/or hindered, if not snuffed out completely.
Reverse Repo is the key.
*Obligatory: I am not a financial advisor, and this is not financial advice. I have suffered at least 3 significant head injuries in my lifetime. Some of the information I am going to provide is speculative in nature but backed by data.submitted by Freadom6 to Superstonk [link] [comments]
I have done my best to break this information down to a snot bubble blowing education level, but I needed to learn a lot of information to put this all together. Most items you may be unfamiliar with will have an ELI5 within the post to the best of my ability. *Long Post Warning
The Collateralized Loan Obligation (CLO) market exploded with activity this year, as has Citadel's (Shitadel) exposure as an obligor (debtoborrower) in the CLO market. CLOs are a form of Collateralized Debt Obligation (CDO). You know, the bad things from 2008. The banks are divvying up Shitadel’s leveraged loans (among many other corporate loans) and selling them to CLO Managers whose investors (other banks, hedge funds, insurance companies, mutual funds, ETFs, private funds, pension funds, etc.) invest in the loans through securitization. Securitization regarding a CLO is the pooling of 150-200 leveraged corporate loans into a single Asset Backed Security (ABS). This process reduces exposure to the banks who initiated the loan and allows them to remove most of the loan from their balance sheet… Good for them. Better yet, Banks aren’t even required to report their CLO information. Mutual funds, pension funds, and ETFs also are directly investing in portions of the loans themselves through syndication as well. Syndication is a loan being arranged by a group of lenders instead of one single lender.
So, the money that you, your mom, wife’s boyfriend, or retirement plan put into the effected mutual fund or ETF will be at risk to Shitadel’s loan defaults. “In 2020, an estimated 102.5 million individual investors owned mutual funds—and at year-end 2020, these investors held 89 percent of total mutual fund assets, directly or through retirement accounts.” [SOURCE]
We can only speculate at which funds hold CLOs containing Shitadel’s loans, BUT this post will include proof of how Shitadel’s loans are ending up directly in mutual funds and ETFs through syndication.
It appears the now nearly $1T CLO market, did not fare well during the mini market crash in March 2020. I wonder how it will do during the next financial crisis.
COLLATERALIZED LOAN OBLIGATIONSMember wen Collateralized Debt Obligations (CDO) were responsible for a large part of the Great Recession? Now it’s time to investigate CDO’s ugly cousin, Collateralized Loan Obligations (CLO) and how Shitadel’s loans are involved in the market. CLOs are a type of CDO, but instead of all-encompassing debt or mortgage debt, they are composed primarily of leveraged corporate loans, usually for troubled businesses... “Despite their obvious resemblance to the villain of the last crash, CLOs have been praised by Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin for moving the risk of leveraged loans outside the banking system... So, what sort of debt do you find in a CLO? Fitch Ratings has estimated that as of April (2020), more than 67 percent of the 1,745 borrowers in its leveraged-loan database had a B rating. That might not sound bad, but B-rated debt is lousy debt.” The Looming Bank Collapse (Highly recommend reading this article, the author might have been early, but he won't be wrong)
Alex, give me “things that will fail” for $200, please: You can wrap a large amount (150-200) of leveraged BBB/BB/B rated corporate loans up into a single security and call it an investment-grade security because the chance of default of a large portion of loans is slim, unless you know, something happened to the market’s overall generally positive direction and loans started to default. Sound familiar? It should, because that’s what was happening with Mortgaged Backed Securities (MBS) prior to the crash in 2008. CLO Structure
Shitadel is currently given a BBB- credit rating by S&P Global Ratings. Some of their loans are being labeled as junk loans and securitized into a collateralized loan obligation where; insurance companies, banks, hedge funds, mutual funds, pension funds, private funds, ETFs, etc. invest in them. This typically happens because a company has maxed out their borrowing and can no longer sell bonds directly to investors, they no longer qualify for a traditional bank loan, or they are taking part in a leveraged buyout of a company through mergers and acquisitions. So, these loans are labeled as “leveraged loans” which carries a higher interest rate for the borrowedebtor and makes them enticing prospects for CLO managers because of the higher interest yield.
The same entities listed above also directly invest in Shitadel’s leveraged loans by becoming a syndicate of the loan. This is where a group of lenders get together to finance a loan. Instead of one financer of the loan, you have many, with each taking on a chunk of the loan. Later in this post I will include some NPORT filings for Mutual Funds and ETFs containing these loans. Do Shitadel’s lenders not want these shitty loans on their books?
The positive piece for the banks regarding Shitadel’s loans being pushed into the CLO market is that even though the banks are the entities that initiated the loans, they have removed a lot of exposure to these loans when they fail because quite a bit of that exposure has been passed along to the CLO investors through the securitization process and through the syndication of the loans.
The question I continue to come back to is, what purpose does this derivative market serve? If the banks are the entities initiating the loan and the loan pays them well, why don't they want it?... IMO The reason this market exists and is exploding is because the banks have created a way to spread out the disaster when the market comes tumbling down... AGAIN. These securities are dog shit wrapped cat shit. It's a bunch of B/BB/BBB grade leveraged corporate loans lumped together to make a sausage of dog shit wrapped cat shit and call it an investment grade security, or individual bites in the case of syndicated loans. Stares at JPM:
CLO MARKET SIZE & CONDITIONCLO and Loan Market Review & Outlook: 3Q21 (voya.com)
The CLO market took a pretty significant dive in new issuances in Q1-2020, which is to be expected with the mini market crash in March, 2020, but it has rebounded to set multiple quarterly records for new issuances since that time. Pretty crazy how high it has jumped since the beginning of 2021… Almost as if, banks haven’t wanted these
So, during an economic downturn, how would these CLOs fair? In April 2020 (after the mini crash of March 2020) the Federal Reserve announced that its $2.3T lending would include loans to CLOs:
Federal Reserve Board - Federal Reserve takes additional actions to provide up to $2.3 trillion in loans to support the economy
If the CLO market is strong and in good shape, why do the market participants need access to the lending facility? Did the economic downturn have negative effects on issued CLOs? Of course, it did. Publicly traded companies are smeared all over the CLO Obligor lists. If their share price deteriorates and the company begins losing money, it’s going to be tough to pay off all these loans.
CLO RISKNot all CLO investors share the same risk. Securitization is the pooling of loans (Shitadel’s and others) into a single security. From there, entities can invest in the various tranches of the CLO. Think of tranches as levels within the CLO security. The senior tranche does not suffer losses until the lower tranches have been wiped out. Below the senior tranche are the mezzanine tranches, junior tranches, and the equity tranche. The equity tranche has the most risk, but also the most rewards should obligors continue to pay their loans off. The equity tranche suffers losses first, followed by the junior tranches, then the mezzanine tranches in the event underlying loans default. Insurance companies and financial institutions typically buy up the senior tranches. The junior (higher risk) tranche level is where mutual funds and ETFs typically invest. Mutual funds and ETFs are common types of retail funds, so, when Shitadel’s loans go belly up, guess who holds the bag on those loans?
I’ve read so many articles about how senior tranches in AAA-rated CLOs have never defaulted and why that makes these investment vehicles safe, but the problem I have with these articles is this:
MUTUAL FUNDS INVOLVEMENTIn 2020, The FED did a study on CLOs to find out who the main investors in the market were. Since data is so hard to come by for even the FED, they had to use 2018 data for their analysis. At that time, mutual funds accounted for 18.1% of CLO investments and roughly 1/3 of those funds were invested in mezzanine, junior, and equity tranches of the represented CLOs. My assumption is that these numbers have grown due to the overall growth of the CLO market and the number of NPORT-P, and previously used N-Q forms, that have been filed since 2018 (NPORTs are quarterly holdings reports for mutual funds and ETFs and N-Qs were bi-yearly until phased out completely in 2020).
These are the number of times N-Q/NPORTs containing the search phrase “Collateralized Loan Obligation” was mentioned from 2018 – 2021 (N-Q forms are extrapolated to meet the number of filings for NPORT-P filings):
Speaking of hard to come by data, the Financial Stability Board did a report in 12/2019 indicating that they could not find the direct holders of 21% of leveraged loans and 14% of CLOs. That’s… umm… A lot of missing information.
SHITADEL’S INVOLVEMENT IN CLO MARKETShitadel has flown up the ranks of most referenced U.S. broadly syndicated collateralized loan obligors (making interest payments to the CLO investors from issued bonds/loans) and is currently the #2 obligor for the industry of “Capital Markets”, behind Brookfield Asset Management.
You'll need to sign up for a free membership with S&P Global to access the source docs:
Top Obligors Q3-2020
Top Obligors Q4-2020
Top Obligors Q1-2021
Top Obligors Q2-2021
Top Obligors Q3-2021
Citadel Securities LP, which is one of Citadel’s entities, is the firm being used as the obligor to these loans.
Here’s the number of NPORTS and N-Q’s filed containing the search words “Citadel Securities LP”:
I’ve evaluated A LOT of these funds and every one that I have looked at has contained Shitadel’s loan:
Citadel Securities LP Term Loan B 1L, (LIBOR USD 1-Month + 2.500%), 2.50%, 2/27/28 (the $3B loan that was refinanced, arranged by JPM)
I’ve also found you can search “Citadel Finance LLC” in the NPORTs to access mutual funds/ETFs invested in Shitadel’s “debt”. These are investments in the $600M Callable Senior Notes issued March, 2021.
In a market valued at nearly $1T, Shitadel is now the 38th most referenced obligor. Meaning, they have roughly the 38th highest amount of recurring interest payments on their loans. The only other “Capital Markets” industry participant who has flown up the ranks similarly, albeit not as dramatic to Shitadel is Jane Street Group, who was the 112th largest obligor at the end of Q3-2020 and is now the 55th largest (#3 for Capital Markets). In terms of buying leveraged loans directly through syndication, the Jane Street and Shitadel loans end up in a lot of the same mutual funds/ETFs.
NPORT FILINGS & SYNDICATED LEVERAGED LOANSMutual Funds, ETFs, etc. can directly invest in “leveraged loans” through syndication (where the loan is broken up and multiple lenders take on small pieces of the loans). We can actually see these loans within the fund’s holdings. Here’s a sampling of mutual funds/ETFs that filed NPORTS in 11/2021 carrying Shitadel’s loans:
Funds typically have more than one class of investments so each class is represented as a different series. Here are some of the funds with their series included:
Franklin Floating Rate Master Trust
LIBOSOFR TransitionI’m not going to go into a lot of detail on the transition from LIBOR to SOFR rates, but what you should know is this, LIBOR was the benchmark interest rate for short-term loans, but due to recent scandals and questions around its validity, it is being phased out for SOFR. New issuance CLOs must use SOFR after 12/31/2021, and legacy accounts have until 6/30/23 to refinance using SOFR. The transition to SOFR for new issuances, and as others are refinanced, will not only be a kick in the nuts to the CLO Manager, but to the CLO obligor as well (Shitadel) because SOFR rates aren’t coming in nearly as cheap as easily manipulated LIBOR Rates were. The assumption is that Shitadel and other borrowers will do everything they can to avoid refinancing their CLO obligations until as late as possible as this interest increase will have an impact on the amount of $ they need to shell out to investors. LIBOR Deadline Prompts Surge in CLO Issuances
CRIME IN CLOsCLO funds also have their fair share of crime occurring just like the rest of the financial market. This article from 2/4/2021 CIO Pleads Guilty to $100M CLO Fraud shows us how fraudulent this market can be. IIG’s CIO and managing partner plead guilty “to investment adviser fraud, securities fraud, and wire fraud in connection with more than a $100 million scheme to defraud the firm’s clients and investors.” According to the charges, David Hu and an unnamed co-conspirator “obtained approximately $220 million in bank financing to create a collateralized loan obligation trust, or CLO, for which IIG served as an investment adviser.”
“David Hu admitted to shirking his fiduciary responsibilities and defrauding IIG funds and investors for more than a decade, causing millions of dollars of losses,” Audrey Strauss, US Attorney for the Southern District of New York, said in a statement. “Hu mismarked millions of dollars of loan assets, falsified paperwork to create fake loans, sold overvalued and fake loans, and used the proceeds from those sales to pay off earlier investors, and falsified paperwork to deceive auditors and avoid scrutiny.”
Looks like the CLO market is just as deplorable as any other market. Sounds ‘bout right.
TOP CLO MANAGERSThis post is so long and I haven’t even gotten to the top CLO managers. Here’s some familiar faces:
FINI will be making a follow-up post to this with my speculative opinion on why Shitadel has climbed up the obligor leaderboard over the past year. I have some theories, but need more time to research. Feel free to beat me there!
The main purpose of this post was to point out Shitadel and many others’ corporate loans are being sold from banks (to reduce their exposure) and bought up directly by mutual funds, pension funds, ETFs through syndication and indirectly through the CLO market. When the stock market tumbles, this market will tumble too.
In the meantime, here’s a teaser: CLOs are often backed by corporate loans with low credit ratings or loans taken out by private equity firms to conduct leveraged buyouts through mergers or acquisitions... I wonder how many times Shitadel has filed an SC-13G form claiming beneficial ownership of acquisition companies. According to an Edgar full text search, this many times:
Wut doing Ken?
As always, Tanks fo’ reedin’
PS – DRS is the way.
EDIT 1: Spelling/grammar (the head injuries) - I see a formatting issue I don't like, but perfectly imperfect is a way of life.
EDIT 2: Added source link for $2.3T lending
EDIT 3: Added Citadel's name to the beginning of the post.
Collateralized mortgage obligation investopedia Forex; Elliott wave Forex factory / Binary options live signals bols; Walton capital ; Free binary option signal; Croisement moyennes mobiles Forex; Investment in unconsolidated investee definition / Impact tech ltd; Durlester investment group; Risk return concepts investment properties; Binomo google play; Futures and Forex expo dubai; Daily ...
[index]          
Collateral When you obtain a mortgage loan to... Skip navigation Sign in. Search. Loading... Close. This video is unavailable. Watch Queue Queue. Watch Queue Queue. Remove all; Disconnect ... Mortgage backed securities are a way of packaging several different mortgages into one financial instrument and having the owners pay the loan to the investor. Learn more about mortgage backed ... Today on Crash Course Economics, Adriene and Jacob talk about the 2008 financial crisis and the US Goverment's response to the troubles. So, all this starts ... Hedge funds used to occupy a dark, undisturbed corner of the financial world, but over lately they've been thrown under the spotlight. Still, many people don... Collateralized mortgage obligation (CMO) [Video Investopedia] by AT &T. 1:43. SBO33 PRESENT Money Laundering Definition Investopedia.mp4 by Yvanka Guertin. 1:25. Investopedia Video: Growth ... Introduction to credit default swaps. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/derivativ... We introduce the concept of a hedge fund by going over a brief and basic overview. Hedge funds get mentioned a lot in the financial media, particularly due t...