Let me preface by saying, my brain is incredibly smooth, but because I have all my FINRA licenses, this is financial advice (oops). Now I started off as a smooth brain retard in college with a mid 2.0s GPA and somehow by the stroke of luck (and lying on my resume, why? bc fuck their standards) I managed to get a role in Fixed Income Sales & Trading at one of the Bulge Bracket Banks. (Very happy to verify this with the mods if they need me to).
That being said, I’ve been a lurker and apes since mid-April and wanted to stay quiet bc at the end of the day when the House of Cards comes crashing down, I’m out of a job, but at least my bank account will look like a phone number. Over the last few weeks, I’ve started digging into a good amount of TRS/ETRS for both fixed income and equities at work and there is something that I uncovered that really painted a picture of just how fucked the world is because all these idiots that I work for and work with have gambled all of our money away over the last decade. (Now this has been talked about, but I want to dive a bit deeper on the dominos) Alas, I give you: The Bearish Exposure TRS (Negative TRS). Now I’m not good with pictures and graphs.. like I said low 2s GPA. but try to stay with me.
So I work in FICC sales in which we deal a lot with TRS on Fixed income securities such as Libor, SOFR, various, benchmarks, and Treasury Bonds. That is fairly simple:
US 30Y Bond TRS:
Counterparty A (Kenny) pays Counterparty B (Investment Bank) a fixed rate (0.05%) on X Notional (1BN for example)
Counterparty A (Kenny) receives Total (positive) Return (or pays Total loss) on 1BN 30Y Bonds over a set period of time (months or years)
Now as a TRS trader at an investment bank, it’s fairly simple to hedge this position. You turn to your bond trader next to you and have him sell you 100BN 30y bonds that way if Kenny’s position increases, you are ok because you actually own the asset as your hedge. No matter what, you are walking away with the 0.05% fee that you are getting paid to do this which is a great deal.
The same applies to equity TRS (think ape, think):
Kenny pays 0.05% and receives TRS on any stock or basket of stocks he wants…. At least that’s the proper way to do it.
But these clowns couldn’t stop there… now I present to you: Bearish Exposure TRS on GME (or a meme stock basket):
Counterparty A (Kenny) pays Counterparty B (Investment Bank) a fixed rate (0.05%) on X Notional (1BN for example)
Counterparty A (Kenny) receives Total Bearish (negative) Return (or pays Total positive gain) on 1BN Notional of our favorite stock over a set period of time (months or years).
Now here lies the problem, how the f*uck does an Equity TRS trader hedge this thing. OH, THAT’S RIGHT, YOU TURN THE CASH EQUITIES TRADER NEXT TO YOU AND SHORT THE STOCK.
-in this case, if GME goes down and Kenny is owed tendies, you are covered because you shorted the stock and can now pay out the bearish return while still making the fixed rate that you receive from Kenny. That a win?? Right?? Wrong.
This is when I realized that the music had stopped and swiftly proceeded to move my entire 401k, and useless company stock to GME on top of what I already had.
The reason citadel and friends need to use these bearish exposures ETRS’s is because there may literally be no other way he can get a borrow to short the stock. Also, many market makers find it quite profitable to these TRS’s because of course they make their 0.05% and their heads are so far up their own asses that they assume the house always wins….. until now.
The dominoes start the fall…
As the next gamma squeeze approaches and market makers slowly eat themselves alive without realizing it, the following will unfold:
- SHF’s now have un-imaginable short exposure to a basket of stocks (specifically concentrated in GME) in both short positions, optionality and, negative exposure ETRS. (god help us all).
- As call buying drives GME into a gamma squeeze (while market makers hedge their short calls), the value of the stock market will likely decay along with any collateral that short hedge funds have posted against their shorts.
- Some crusty fat guy up in risk management will walk in and realize the end is near and now they all gather to prepare for the end.
- our beloved marge is called.. now here is where it gets wild…. what happens when you fail a margin call??? That’s right, forced liquidation.
- By now we are already seeing numbers we couldn’t even imagine. but it doesn’t stop there…With SHF’s gone.. there is this one little problem… WHAT HAPPENS TO ALL THOSE NEGATIVE ETRS SWAPS?? I’ll tell you what.. They go, poof. And when a TRS counterparty that was supposed to pay you if a stock goes up goes poof, no one and I mean no one will be able to pay you that return that you were owned by Kenny since the stock soared to infinity.
- And that’s when you realize it all over because you just shorted a billion notional of a stock that’s up 10000% to hedge a position that doesn’t exist anymore. I’ll let your imaginations paint the rest of the picture.
- You (the TRS trader) piss yourself as the walls close in, your boss comes over and takes a piss on you, his boss comes over and does the same. you’re all covered in piss as you walk outside, jobless, to a bunch of apes with fruit up their ass that took you for all the money in the world.
Now I’ve never written a DD before but this one seemed fitting. Once again, my brain is pretty smooth so there is some retardation to this all, but hopefully, it’s enough for some of you to understand the general idea of it all. This is only a piece of the puzzle but it’s one that they have been trying to hide because it really paints a picture of how deep the rabbit hole goes. SHF’s, Prime Brokers, Market-Makers, DTCC, & The Fed in that order are going to feel whats it’s like for the House to finally lose and I can’t wait to stand there with you all when they do.
That money in the caymans is ours, the money at the investment banks? Ours. The money at the Fed, believe it or not… ours as well. It’s time to reset the natural order of the world. GLTA.