Home > Investors: The $1 Billion Armageddon Trade Placed Against The United States
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Investors: The $1 Billion Armageddon Trade Placed Against The United States

July 25th, 2011

Jack Barnes:  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.

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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.

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  1. justin
    August 10th, 2011 at 11:52 | #1

    Fools…this Trade is getting destroyed right now. If they are still in it, they are down close to 100 million dollars right now. Treasuries have been on fire this week reaching record highs. If the trade is a short, which is what you would think if it was a bet on downgrading debt, they are losing a lot of money. Again, they are losing a lot of money if they are still in it. Futures are marked to market which means losses have to paid for everyday on the close. There are so many things wrong with this article, its crazy.

  2. Matt
    August 9th, 2011 at 07:25 | #2

    @hehe
    Uh, pretty darn well. Remember when Timeh Geitner said there was no chance that the US would have it’s credit downgraded? Whoever placed this bet did’t believe him either.

  3. Steve-O
    August 9th, 2011 at 00:39 | #3

    @fiona64 Puh-lease!!! Are you kidding? BO has been an embarrassment. I’m amazed people are so blind not to see that. I’m an indecent, voted for BO, and totally regret it. He hasn’t lived up to his hype.. and he has not helped anything. That 700B stimulus was *so* effective. The guy and his party spend money like never before… and their only recourse is to “raise taxes” … Tea party is trying to get him to CONTROL SPENDING! What’s so wrong with that?

  4. robertsgt40
    August 8th, 2011 at 11:27 | #4

    Just a coincidence. LOL

  5. August 8th, 2011 at 02:25 | #5

    The biggest trader in the world on the US stock market is the US Government acting through their nearly 500 investment fund managers. Acting on inside information prior to 9/11, government investment managers bet that certain stocks would fall after the September 11, 2001 attacks on the World Trade Center and the Pentagon. Early reports of suspicious put-options against such corporations as United Air Lines, Merrill Lynch, and American Air Lines were never investigated by the Security Exchange Commission…the government would not welcome any attention to insider trading in which the government fund managers won trillions of dollars for their portfolios.

  6. Wow
    August 7th, 2011 at 23:14 | #6

    “Yields are going up sooner rather than later, if the person behind this Armageddon trade is correct.”

    Comforting.

  7. gmathol
    August 7th, 2011 at 05:04 | #7

    Sorry people, try to understand what’s really important. Wall Street? Nope! Spending for wars? Yes! Declaring social security as an entitlement program? Yes!

    …etc. Cut the c**p and stay in the real World.

  8. sb
    August 7th, 2011 at 02:10 | #8

    @centralnjbill
    NOT A CHANCE THAT IS TRUE

  9. Bob
    August 6th, 2011 at 15:30 | #9

    @James
    Someone just won BIG!

  10. fiona64
    August 5th, 2011 at 18:41 | #10

    @Santiago Put down the Faux News Kool-aid, Santiago. This is all about the Teabirchers holding the country hostage; all thinking people can see that.

  11. James
    August 3rd, 2011 at 23:41 | #11

    It doesn’t matter if the deal was reached or not, default either way. This bipartisan joke of a government can’t make any headway, can you imagine if they actually had to make spending cuts, we would default before they could argue it out. I can’t think of a single thing that could happen that wouldn’t cause us to default, even if Ron Paul is elected and Rand Paul is speaker of the house nothing will get passed, the lifetime senators and congressmen that the boomers voted in will not let it fly.

    The country MUST go down in flames before everyone understands we need REAL change to improve our economy: less government, less regulations, less taxes, less spending, less laws, less welfare, no medicare, no medicaid, no SS, 95% less military! Inflation will soar, wave good bye to pensions, retirements, real estate, equities, and the USD! 70% unemployment, 1000% inflation, cats and dogs living together! We will default and change will happen, and then 10-20 years later hold on because we will be the most prosperous economy in the history of the world.

  12. Storm
    August 2nd, 2011 at 15:51 | #12

    Who cares about those rating agencies? They gave a AAA rating to SUBPRIMES…
    The U.S. ARE going to default.

  13. notbuying
    August 2nd, 2011 at 01:48 | #13

    Can you say George Soros? ‘nough said.

  14. test
    August 1st, 2011 at 11:20 | #14

    Everyone chill- this is not a lot of size at all. Sizes much larger than this are traded regularly and throwing around the terms ’1 BLN in margin’ is showing that this author has no concept of the amount of margin people regularly post on rather benign trades. This article is either intended to freak people out to make the bond markets go down or this author has no idea how trading works and genuinely believes this is newsworthy when it’s not. It’s like someone writing an article on ’1 Million KB used in server predicting apocalypse.’

  15. Santiago
    August 1st, 2011 at 03:43 | #15

    Well, look at what the idiot voters put in the White House. A man who has previously NEVER seen a budget in his life.

    This is Obama’s first real job and his failures are becoming more and more serious as well as dangerous to the financial well-being of the United States.

    You cannot have a “AAA” rating when an economically illiterate, inexperienced Marxist with a solid left-wing agenda occupies the White House. He doesn’t know what a budget is, but he does know that the government does not tax people enough nor spend enough of their money. This bet is a ‘no-brainer’.

  16. Debt Plan
    July 31st, 2011 at 22:43 | #16

    Debt Deal reached….I guess someone will lose big

  17. Kev
    July 31st, 2011 at 21:18 | #17

    @Chuck T
    “In addition the 14th Amendment states that bondholders will be the first to get paid, so a technical default to bond holders will also not be allowed.” -Chuck T

    The 14th Amendment affirms the validity of the public debt of the United States but says absolutely nothing the priority of creditors. The amendment doesn’t mention bondholders.

  18. DABIGRAGU
    July 31st, 2011 at 21:10 | #18

    @Patricia Cash

    Yes. George Soros was convicted of the crime of insider trading in France. He was fined 2.3 million dollars. He appealed 3 times and lost.
    Conviction stands.

  19. rsb1
    July 31st, 2011 at 16:43 | #19

    .. given the ‘prime time pantomime’ that is taking place to resolve an issue that simply takes a ‘veto’ one could easily imagine that a monster kick-back would ultimately satisfy everyone involved in this scam of scams.. isn’t it time that the futures market was closed to end this and other (i.e. the oil market) manipulable put-option fraud ?.. this is the same BS that happened on 911 with the put options against AA and UA – who knew then, and who knows now ?..

  20. July 30th, 2011 at 21:54 | #20

    “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.”

    That’s not the only possible explanation. I’m not even sure it’s the most likely. Given the numbers coming out of the House, the Senate and the White House, a downgrade is inevitable. The “big package” – spending cuts and revenue increases – has been off the table since negotiations between Boehner and the White House broke down a couple of weeks ago. It would have taken a deal that big that week to save the AAA rating.

  21. Aaron Fleszar
    July 30th, 2011 at 14:48 | #21

    If you really want the truth about what’s going on in our financial markets you have to learn about the 2008 coup d’etat first which started with Sarah Palin as McCain’s running mate.

  22. centralnjbill
    July 30th, 2011 at 13:40 | #22

    I have it on good authority that the bond trader at issue in this story was a major Tea Party funder (who cannot be named because he’s already ordered the killing of others who tied him to the previous investment coup of shorting airlines immediately prior to 9/11). This shadowy billionaire issued orders to the leader of one of the most prominent Tea Party groups who then called each of the Tea party affiliated congressional representatives over the last few weeks and ordered them to block any effort at a compromise. As always, this was never about political belief for the puppet masters, but a way to make money.

  23. Santa Fean
    July 30th, 2011 at 13:13 | #23

    You wonder why the common person wants to burn the banks down? This is so much horse crap that it is almost unbelievable. When did banksters start making money from nothing? No product, no production, nothing to show but more money? It is getting very close to the time we destroy the Fed and eat the rich. By the way you only make 500k or so a year? YOU are not the super rich that need to be destroyed. The richest 1% that control the corporations need to die. Harsh? Not really as these corporate “people” are destroying America as we speak. I think we start with burning down Greenwich and Wall Street. Yes, I am calling for revolt against our corporate masters and the police that they control. Unless you want to see the super rich get richer while the common person suffers? Or are you all about blaming the poor? Clearly we are not going to be left with many choices….burn down the banks or stay a slave. I am not hiding.

  24. itsnothard
    July 30th, 2011 at 11:13 | #24

    That’s not a lot of size. Also, looking at the amounts it sounds like someone is putting a curve trade on. Then of course we saw 10yr Yields print 2.79% on Friday, very close to an all time low. Basically, this story is written about nothing.

  25. Same Trader as 9/11 Futures
    July 30th, 2011 at 11:13 | #25

    This is being engineered by the same trader who bought American Airlines and United Airlines futures just before 9/11.

    Maybe someone doing “God’s work”…., like at Goldman Sachs…

  26. lonnie bauer
    July 30th, 2011 at 08:38 | #26

    i am glad someone gets it

  27. Joe Casepack
    July 30th, 2011 at 03:25 | #27

    @Jimbareno

    Bingo, this has George Soros written all over it and since he has Obama in his pocket he can make this happen.

  28. Beavis
    July 30th, 2011 at 02:56 | #28

    Errrm….like…maybe this is all on purpose, the US is pretending to turn a blind eye to a financial crisis they already knew would happen and are exploiting it. To show the banking systems usefulness is out dated. In order to implement a new economy. If parts of the world don’t work with us, we have a giant military. We won’t work with you, enjoy our set of rules. This can be the only outcome. We do this already, but under the eyes of the current banking system.

  29. Chuck T
    July 30th, 2011 at 01:26 | #29

    The default is theater. The Fed has been buying over 50% of treasury auctions for the last 6 months. The auctions would have failed at current interest rates without Fed intervention. In addition the 14th Amendment states that bondholders will be the first to get paid, so a technical default to bond holders will also not be allowed. The government takes enough money in via taxes to cover the interest. However, some tough choices will be have to made on what doesn’t get paid. Social Security is still solvent (for now) i.e. more FICA taxes are collected than paid out to beneficiaries, so SS will also be paid.

    Default is inevitable either now or in the future. Better to start dealing with it now than wait for a massive collapse. This is a 5-10 year problem that can be solved only by cutting everything. Military budgets need to be cut, entitlements needs to restructured (does anyone under 35 really believe Social Security will exist when they turn retirement age). Every government agency needs to start cutting their budget by 5%-8% a year. By the way look up baseline budgeting if you want a real education on just how bad the budget process is.

    The only person I feel will actively deal with these issues is Ron Paul. He is the only candidate calling for both Military and Domestic spending cuts.

  30. BB_Jones
    July 29th, 2011 at 23:57 | #30

    Evil people will continue to do evil things. Just because they wear suits and claim to have honor and integrity doesn’t mean they care about America and/or you. If so, then why do so many of them own property in foreign countries?

    http://atlantapost.com/2011/06/30/cheap-african-lands-drive-foreign-investments/

    OOPS! That’s just for starters.

  31. Bill Dee
    July 29th, 2011 at 23:28 | #31

    @MontgomeryScott

    check out those 9/11 trades……. know more about spreads and don’t just look at one leg…..

  32. Jerry Zelinka
    July 29th, 2011 at 21:56 | #32

    Soros is the only cat that fits this situation. Have you read any books that Soros has authored? I have.

  33. Ben Franklin
    July 29th, 2011 at 21:52 | #33

    Probably placed by a Teabagger politican or his financial backer – who would know better that it’s a sure thing? The Republicans didn’t manage to complete the job of destroying America under Shrub, now they’re back to finish the job.

  34. Dan Ragins
    July 29th, 2011 at 21:47 | #34

    Better get ready for a huge margin call because this trader is getting smoked!

  35. Anthonyl
    July 29th, 2011 at 20:59 | #35

    That’s not capital, just cash!

  36. Jimbareno
    July 29th, 2011 at 20:39 | #36

    Definitely George Soros!

  37. Ron Johnson
    July 29th, 2011 at 20:32 | #37

    You guys are seriously wasting my time and yours. Get real, its time to get rid of these people. They are generating a lifestyle that simply requires manipulation of people for profit. They are offering no tangible positive addition to anything. Not a service, or a product. Stop taking loans, stop using credit, stop trading stocks. If you do, you are a part of the problem. These were financial instruments invented by people who have no interest in being productive members of society. they just wanted to invent a way of taking money for nothing. And you let them.

  38. Vince
    July 29th, 2011 at 19:49 | #38

    @Tony Schwartz
    Trial of the 21st Century for crimes against humanity including these money junkies is happening. Register here to help make this happen http://peoplesconference.org/reg. We are needing event organisers/coordinators/donators etc. for 8 world wide locations. Lets bring these criminals to justice before they crash the world and emerge as the rulers of us all.

  39. Uncle Claw
    July 29th, 2011 at 19:15 | #39

    @LariAnn

    The US is already in default – debt ceiling deal or no deal. Buying our own treasuries, printing money like mad, intentionally devaluing the dollar – makes debts owned by creditors worth less – that is default.

    The debt ceiling “crisis” is just theater. It means nothing. Any “deal” will not negate the fact that we can’t service “our” debts – actually, the gangster-bankster debts that were offloaded onto us through fraud.

    Yet no big bank execs are in jail. Thanks Clinton-Bush-Obama tag-team of traitors. You’ve done your bankster masters well.

  40. DevilBoy
    July 29th, 2011 at 19:05 | #40

    @Tony Schwartz
    Execution for what?

  41. ChanIsNotMissing
    July 29th, 2011 at 19:04 | #41

    @Harry Johnson
    It becomes clearer each day why the French invented the guillotine during their revolution. The parasitic class has never gone easily.

  42. Uncle Claw
    July 29th, 2011 at 19:01 | #42

    @michele peel

    Still blaming Bush? Puhlease. You are in some serious denial here. Sure, Pres. Cheney and VP Bush were criminals, but Obama is on the same team, make no mistake. Obama has continued everything Bush started. He’s spent (wasted) more money than the Cheney Admin.

    Wake up.

  43. ChanIsNotMissing
    July 29th, 2011 at 19:00 | #43

    The ridiculous side of this is why the bet in the casino is not transparent.

    All the politicians have succeeded in doing is driving out real investment toward safe havens. They can’t stop this bleeding to gold and the franc, and now the yen? C’mon. I’ve been trying to figure the coming trend for gold for some time, and while it’s fairly easy to read the fundamentals – at the moment – the technicals are sparking off mixed messages. Been using this to get a grip – I am recommending this small, stellar analysis company: http://tinyurl.com/3wvd2mz

    Be sure to try the free subscription. It actually is free and they don’t bug you. Nothing to lose, I’m just saying, Gary Wagner of the Gold Forecast is shockingly accurate. It is truly uncanny.

  44. jr
    July 29th, 2011 at 18:49 | #44

    Change you can count on! “United States is either going to default or is going to lose its AAA rating.” Why didn’t Bush think of this; that’s right, he’s not as smart as “The OBAMNATION”?

  45. Iggy Scott
    July 29th, 2011 at 18:33 | #45

    Looks like the Koch brothers are going to make a kill on this one.

  46. Alex Filonov
    July 29th, 2011 at 18:24 | #46

    I’d like to see if there is any of US senators or representatives interest in this trade. It’s not illegal for senators and representatives to trade on inside information, if it’s Congress inside information.

  47. Patricia Cash
    July 29th, 2011 at 08:31 | #47

    @Gunny G

    Its not George Soros and he was never convicted of insider trading anywhere.

    My bet is on Donald Trump or Koch Brothers or someone in that league I can see Donald doing it as he is calling for a default to happen.

  48. oldgringo
    July 29th, 2011 at 06:47 | #48

    Soros makes sense (cents) in that he dumped all his silver holdings several months ago and made a tremendous profit…..Probably enough monies (millions)to engage in the future markets where if the government defaults he could make 10 times this newest investment……It’s a gamble he’s willing to engage in……If he looses it won’t have cost him a dime!

  49. michele peel
    July 29th, 2011 at 02:59 | #49

    Thanks Bush/Cheney/Rumsfeld for bankrupting the country, so select private companies could make off with Iraqi assets (and US tax payer dollars) to the tune of billions! They also killed millions of innocent Iraqis and thousands of own young people. Read the Shock Doctrine. The most important book for the times we live in.

    Why are the true criminals, who kill, rob, murder millions revered in this brain dead country instead of jailed!!! These people are evil. They did extremely evil things and yet it’s tolerated. Insane!

  50. Les
    July 28th, 2011 at 15:23 | #50
  51. Tony Schwartz
    July 28th, 2011 at 11:39 | #51

    Hopefully others will follow. i will pay $200 to anyone who can supply the name, address and phone number of the group or person responsible for this. Hopefully everyone is already doing it for free though. This way we can seek possible criminal trial against the group/individuals with the realistic potential of execution(If found guilty by a jury of their peers and allowed by a judge).

    T_schwartz317@sbcglobal.net

  52. July 28th, 2011 at 01:02 | #52

    Soros is behind the deal and pulling the strings of Obama. Convicted of insider trading in France, it appears that he is still playing at that game.

  53. laura
    July 27th, 2011 at 19:30 | #53

    @lyfsguud
    i agree..this is what soros would do. he just pulled out his firm letting his investors go because of new regulations.
    he has caused the fall of many in the past… i was wondering what he was up to and just what he would do to try to bring down our nation in some way.

  54. CPE
    July 27th, 2011 at 13:22 | #54

    This Trade was done by me no name given to you sorry, My Family has very nice super computers that forecast futures all the time. We created this deal because we see no way out of the debt problem.

    the AAA deal is complete and now we are waiting to see if our deals in London come out clean

  55. Me
    July 27th, 2011 at 12:49 | #55

    There are two sides to both trades. This looks like a spread of some sorts. One side will make money if the market stays in a tight range and one will make money if there is a big move. There is probably a finite amount of risk on both sides which would result in less than a full loss. Buy 123′s sell 124′s, etc. Scare mongering at it’s finest.

  56. lyfsguud
    July 27th, 2011 at 11:38 | #56

    Doesn’t anyone else think this was Soros? Qui bono??

  57. Harry Johnson
    July 27th, 2011 at 11:36 | #57

    There are no investors today, just parasites, gamblers and leeches. The bankster- speculator class needs to be sent to prison en masse.

  58. J.
    July 27th, 2011 at 07:53 | #58

    @Cory

    Just like food, made of atoms and leptons, is an illusion. Money as a trade instrument and numbers as a measuring instrument are merely symbols for objects. Zeitgeist nonsense.

  59. Cory
    July 27th, 2011 at 05:55 | #59

    Money is an illusion, ones and zeros on a computer, freedom is coming.

  60. Russell
    July 27th, 2011 at 03:28 | #60

    Russell :
    According to marketwatch.com, that already happened back in April because our spending is UNSUSTAINABLE!

    Does anyone tell the truth anymore??

  61. Russell
    July 27th, 2011 at 03:26 | #61

    Russell :
    According to marketwatch.com, that already happened back in April because our spending is UNSUSTAINABLE!

    http://www.marketwatch.com/story/us-gets-c-credit-rating-lower-than-mexico-2011-04-28?link=MW_home_latest_news

  62. July 26th, 2011 at 21:53 | #62

    @LariAnn

    LariAnn,
    Two of the 13 credit ratings agencies have already given warning of a downgrade in the credit of The United States, Inc..
    IF the ‘debt ceiling’ deal HAS already been done behind closed doors, it would mean that the United States Inc. is going to borrow MORE money, in the TRILLIONS, as well as NOT cut spending, in order to continue to fund the Empire.
    IF the rebublicrats in the House vote to BLOCK the deal, then the United States Inc. is going to have to halt payments on the interest borrowed on the debt to date (a technical default).
    EITHER way (default, or more insane borrowing) will lead to either a ‘statistical default’; or a ‘downgrade’ in the credit rating of the Corporation in D.C..
    The speculation of ‘insider knowledge’ may be far-fetched, but simple logic works quite well in making this futures trade. I would bet that this trade has an 70% chance of at least breaking even, and a 20% chance of taking the Brass Ring (with a 10% chance of not panning out).
    Whoever placed this trade is more optimistic than I am (obviously) on the success rate.

    Perhaps you do not realize how desperately BAD the condition of the Corporation is, LariAnn?

    It’s like the shorts on the AA and UAL stocks in the week prior to 9/11. They panned out, all right, but the trader(s) never came forward to claim their profits…whoever placed THIS short doesn’t actually care about amassing FIAT currencies, simply the thrill of winning the wager! In that sense, perhaps there really IS some ‘insider knowledge’ at work here…

  63. Rob
    July 26th, 2011 at 21:18 | #63

    This an example as to why such bets should be done pari-mutual style. Everyone in the game puts up cash, and when the bets are won/lost, the settlement is in cash; not liabilities or derivatives. I have no problem with the “privileged class” gambling, but hey, there should be the same rules as the dog/pony games are regulated by. The Casino of the wealthy has no defined rules, like parimutual. Hope the players there lose all.

  64. Scott
    July 26th, 2011 at 16:07 | #64

    LariAnn, most of the ratings agencies have stated that unless the deal struck over the debt ceiling fundamentally addresses the issues in the government budget, then the rating will be lowered even if they simply raise the ceiling and don’t default.

  65. Mehdi
    July 26th, 2011 at 14:14 | #65

    The question is no longer whether the US will default on it’s debt, but when and what the impact is going to be. There is no upward for US economy in short term, no political will for increase of government revenue through tax increase currently near lowest in their history neither a true intention on cutting costly entitlements.

    With political parties more concerned with pleasing their constitutions and corporate friends, Washington is really playing Russian roulette with their credit rating.

  66. LariAnn
    July 26th, 2011 at 13:02 | #66

    If you feel that a debt ceiling deal had been struck, why, then, would the trader bet on default or downgrading? Seems to me that if a deal is struck, it would snatch the US bacon out of the fire just in time to avoid default or downgrade. So shouldn’t the trader have been thinking that no deal was made, not that a deal has been made?

    Have I missed something here?

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