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Margin Calls Are Coming on All Sides - Bloomberg
A good lesson on hidden risk in hedging trades.
… in a crisis, extremely safe trades can be undone by different margining regimes. If you are in the business of buying widgets and selling widget futures, in ordinary times that will be a very safe trade because the price of widgets and the price of widget futures will be almost perfectly correlated. But if widget (and widget futures) prices suddenly move around a lot, and if the lender who funds your widget purchases is different from the clearinghouse that provides your widget futures exposure and they have different rules on collateral, then you might find yourself having to come up with a lot of cash on the losing side of your trade while not getting any (immediate) cash on the winning side, and then even a perfectly correlated trade—one that is guaranteed to pay out in full in the near but not-near-enough future—can blow up.


The idea of using corporate lines of credit with a bank as a cushion in bad times is a flat out lie. The bankers will never honor that. They’ll be in trouble themselves.
Another thing is that if you are a company and a bank gave you a credit line back in the good times, you can draw on that line now and have more money, which would probably be good for you. (Though see the point above—make sure they can’t demand the money back because you’ve breached a covenant!) Having more money, in a global cash crunch, is better for you than having less money. I have … less of a moral objection to doing this, if you can? Like, you might need that money more than the banks do. On the other hand the banks do need the money, and if they ask you nicely, maybe you should hold off
finance  mortgage  banking  risk  CoronaVirus  bonds 
4 days ago by jefframnani
The Coronavirus Pandemic Is the Biggest Emerging Markets Crisis Ever
interesting point from @adam_tooze's excellent article on C19 and emerging markets, relating to the heavy reliance on service industries on emerging market call centres, especially in India (a model that has been under strain for a while). the end of the off-shoring economy? an economy that has always made up the delta between tech promises and actual operational fulfilment.
India’s stock market is plunging, its exchange rate has slumped and its banks are under pressure. Meanwhile, its booming tech industry and call centers are paralyzed. (If your insurance claim in the United States is held up, don’t be surprised. The back-office workers in Bengaluru who normally process your paperwork don’t have the laptops that would enable them to continue working from home during India’s massive lockdown.)

Useful example of how emerging market bond trading worked, and this is simply astonishing:
Between 2007 and 2019 the value of internationally traded emerging market corporate debt almost quintupled from $500 billion to $2.3 trillion. And, over a similar period, foreign investors bought up one-quarter of the local currency sovereign bonds issued by emerging-market governments, helping to pay among other things for impressive new infrastructure.

Presumably a lot of that infra spend went to China via cheap credit?
Now the entire logic of emerging-market investing has gone into reverse. As investors everywhere run for safety, the dollar has surged, making dollar debts more expensive. Commodity prices have tanked. With China, Europe, and the United States shut down, exporters of manufactured goods and commodities have no one to sell to. Hardly surprising that the stock markets from Jakarta to Sao Paulo are in free fall. Emirates, the iconic airline of globalization, has shut down. In the past week, gigantic fiscal and monetary efforts have breathed a flicker of life into stock markets. The sell-off has been too massive for investors not to hunt for bargains. A huge injection of dollar liquidity has pushed the dollar off its highs. But the actual recession in the world’s developed economies has only just begun, and the pandemic has not even arrived in full force in the emerging markets yet.
adam_tooze  C19  emerging_markets  economics  bonds 
10 days ago by diasyrmus
The shock of coronavirus could split Europe – unless nations share the burden | Moritz Schularick and Adam Tooze | Opinion | The Guardian
What is needed is an unambiguous signal of mutual trust and burden-sharing within the European family. Nine heads of government, from Belgium, France, Greece, Ireland, Italy, Luxembourg, Portugal, Slovenia and Spain, have today called for the issue of “a common debt instrument” – a bond, in other words – to raise funds to fight the pandemic. This is the right path. This is a time for European solidarity. If the continent does not stand together now, the European project might never recover.
Eurozone  EU  finance  debt  crisis  coronavirus  Italy  Germany  bonds  cooperation  solidarity  dctagged  dc:creator=ToozeAdam 
13 days ago by petej
Why We’re Underestimating American Collapse - Eudaimonia and Co
They are new diseases of the body social that have emerged from the diet of junk food — junk media, junk science, junk culture, junk punditry, junk economics, people treating one another and their society like junk — that America has fed upon for too long.
failed  state  junk  collapse  catastrophe  climate  culture  social  pathologies  human  toll  school  shootings  opioids  opiod  epidemic  nomadic  retirees  capitalism  bonds  predatory  society 
4 weeks ago by KMP
Catastrophes and Correlations - Bloomberg
See, the problem with a global pandemic, for financial investors, is not that it’s bad, it’s that it’s correlated. If there’s a global pandemic then all the stocks and bonds will go down; if you own pandemic bonds, you will lose money on the pandemic bonds at the exact same time you are losing money on your other stocks and bonds.

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> A brief review of the Internet finds that a “Bag Full of Drugs” is available in both accessory pouch and tote sizes. “There’s nothing more fun than walking around town with your ironic bag full of drugs,” one vendor notes.

See, if everyone is carrying “Bag Full of Drugs” bags ironically, then maybe the police will not search your “Bag Full of Drugs” bag because they do not want to look like the sort of rubes who take jokes literally. It is a reverse-psychology hiding place. Maybe you should name your illegal cartel chatroom “The Cartel”; your compliance officers will just assume “they can’t be doing a cartel in ‘The Cartel,’ this can only be a joke.” (Actually I suspect that the “Cartel” guys thought that they were being ironic, but never mind that.) Anyway it didn’t work, with the cartel, or with the bags full of drugs.
bonds  levine 
7 weeks ago by elrob

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