"We have very convincing arguments for further selling off in US Fixed Income...We have a lot of supply next week in a relatively low year-end volume to support our technical analysis from a fundamental standpoint, and China and the US have been clashing over climate talks the past week. Now we have statements by Chinese officials saying that if the US does not blow its trade deficit back out to its widest levels they will stop buying treasuries. In an environment where people are trying to correct imbalances, China demands more imbalances, and intends growing at a 10% pace without developping demand from its middle class. Irrespectively of whether China will follow suit or not, these open discussions in the media are enough to add fuel to the firesale." - Nic Lenoir, ICAP
Somewhere Julian Robertson is convulsing in a fit of lucre-driven epilepsy. The question for today: what is the bigger pain trade - an outright stock short, or a UST flattener? Everyone knows one shouldn't go against the Fed, however the Fed is behind both of these... So where will it crack first?
With sovereign CDS (and risk) finally becoming a heated topic of debate, Moody's has compiled its 2009 Review and 2010 Theme Review for sovereigns. The report opens with some rather stark and reasonable observations: "2010 may prove to be a tumultuous year for sovereign debt issuers given the uncertainties surrounding the likely pace and intensity of fiscal and monetary 'exit strategies' as governments start to unwind quantitative easing programs. Indeed, the only certainty is that the exit strategies will be fraught with a good deal of execution risk. In our view, the key policy challenge facing advanced economies is therefore to time the exit perfectly: not too quickly or too soon so as to prevent choking off growth; and not too slowly or too late so as not to unsettle financial markets." In short: 2010 will be the year when the experiment of offloading all private sector risk on the public balance sheet ends. Whether the conclusion will be a happy or sad one, remains to be seen.
"Now that the crisis is over, and given the special circumstances of the crisis, and Goldman’s contribution to value-destroying securitizations, it is in the public interest to claw back the money paid to Goldman Sachs. AIG did not need to settle for 100 cents on the dollar in November 2008, and in September 2008, a good negotiator would have refused to hand over more collateral, and should have clawed some back (or insisted it was a temporary loan). Money should be clawed back before Goldman pays out taxpayer subsidized bonuses." - Janet Tavakoli
In The Year Two Thousand....And Ten!!!
As predicted by Dougy Kass:
"Goldman Sachs goes private. Goldman Sachs (GS) stock drops back to $125 to $130 a share, within $15 of the warrant exercise price that Warren Buffett received in Berkshire Hathaway's (BRK.A) late 2008 investment in Goldman Sachs. Sick of the unrelenting compensation outcry, government jawboning and associated populist pressures, Warren Buffett teams up with Goldman Sachs to take the investment firm private. The deal is completed by year-end."
and 19 others...
12:56 (Dow Jones) Goldman Sachs' (GS) managing director Lucas van Praag responds to several questions the Zero Hedge blog posted last week related to Goldman's prop trading operations as well as how it defines market risk and if it has a risk policy. Prop investing activities represent about 12% of the firm's net revenue, fair value accounting is a "critically important" aspect of risk management and firm says it isn't managing its business as if it has some sort of government guarantee. But more telling is the fact that Goldman took time to respond to these questions and criticisms, perhaps proving firm realizes its image has taken a beating and needs to be repaired. (SMR)
The two specialists on using email as a key prosecutorial device (both from the pitching and catching end), discuss the validity of bringing up emails to the public domain in the AIG case. Why this hasn't been done already, especially with round after round of public outcry and various regulatory agencies involved, is a mystery which can only be solved if one realizes that those in charge have nothing to gain from uncovering the dirty truths at the heart of the crash that almost cost Goldman Sachs a bankruptcy, scratch that, a liquidation (of course, nothing could be further from the truth, sayeth His Holiness Viniar. We, on the other would point out that in this case (and incalculable others) Viniar himself would probably be the only exception to the prior statement, thus invoking a nightmarish analysis of non-exclusive Venn diagrams and other logical gibberish).
In our holiday abbreviated week, there is one piece of data we wanted to highlight not so much to our constant, non-Fed originating readers, but to our constant-Federal Reserve fan base, with the hope that they may point it out to their chairman, whose recent remarks indicate that he is unaware of any bubbles forming anywhere. For a distinguished historian of Bernanke's stature, we are confident that he has heard of the original stock bubble, and in particular, the South Sea Company. The chart below demonstrates the relative indexed performance of the South Street Company and of Buffett darling, BYD (1211.HK). The Buffett investment is not alone: there are hundreds if not thousands of companies whose fundamentals, no matter how hard one tries, can never be spun enough to justify their ludicrous valuations. We all know what happened to the South Street Company. The only question remaining is when will the very first market bubble pop experience its most recent reincarnation in the form of BYD and all its brethren, whose only purpose in life is to make the top ticker, and so many others, lose fortunes (with a little nudging from the all seeing prop, and otherwise trading, market makers).
But why worry. This time it is different (someone is probably about to publish a book under that title), and all those who keep chasing the momentum are certain to find buyers when everyone turns seller, thank to the infinite liquidity provided by High Frequency Traders.
- Bad news for Athens: ECB says no bailouts, look for record Greek CDS risk shortly (WSJ)
- Suspected intervention weighs on Swiss franc (FT)
- For stocks, the worst decade ever (WSJ)
- Fund boss made $7 billion in the panic (WSJ)
- Mihskin's brilliance to the forefront again, as Iceland lawmakers reject Icesave bill, another downgrade impending (Bloomberg)
- China now exporting its bubbles: considers extra $200 billion for CIC sovereign wealth fund (Bloomberg)
- Tishman's $5.4 billion boomerang gives Rob Speyer costly lesson (Bloomberg)
As from one Englander to another, so from one massive dollar short to another, we next shift to Steven Englander of BarCap and his daily "Dear USD" hate mail. The man who has been obsessively telling his clients to sell dollars as if he was a subsidiary of Goldman Sachs, must have booked some serious L on the recent, and very much expected, dramatic dollar retracement over the past 3 weeks. In his latest "FX for paranoids and hopeless romantics" Englander does point out one relevant item: that the Fed needs EM countries to keep selling the dollar in order to i) keep commodity prices higher, thereby benefitting these very EMs, and ii) to keep commodity price inflation high, in the absence of other forms thereof (wage, non-commodity price, etc). And that is why, Englander hopes and prays, both for his book, and for those of his clients, that Bernanke will keep on talking big all the while printing more and more dollars as ever more wealth is channeled from the middle class to both Wall Street and abroad.
RANsquawk 21st December Morning Briefing - Stocks, Bonds, FX
If you have a hedge fund in dire need of some managed account TLC, call this man (and get ready for daily multi-hour explanations on why you put "this or that" trade to people who have yet to complete remedial math); if you have a strategy to front run mutual funds which may or may not end amicably with the SEC in the form of a few hundred dollar settlement, call this man; if you are in the market for some barely occupied property at 740 park, call this man; If you are a CDS trader with special Deutsche Bank sales coverage connections, call this man; if you work for RenTec and feel like borrowing some of their strategies and making a mint, call this man (by the time you get the non-compete subpoena you will be sitting on a beach, earning 20%).
All you need to know about the man who heads the big quant shop, er pardon hedge fund, at the soon to be bankrupt 666 Fifth.
Just as the year end onslaught on the dollar was spearheaded to a climax by Blankfein's minions, so did Europe finally decide to convulse under an unbearable lead of ridiculous mispriced "assets" and vomited up a whole load of troubling financial data, which spread from Greece to Austria to Ireland, setting sovereign CDS to multi month highs. Obviously, this did not help the weak dollar case and cost GS traders a few hundred million.
Last Friday we were stopped out of two tactical trades, long EUR/$ for a potential loss of 1.8% and long GBP/$ for a potential loss of 1.1%. - Goldman Sachs
In the time before Bernanke, long-ago, investors cared about such arcana as cash flow statements, balance sheet (and even income statement before GAAP decided to play dead and allow companies, especially banks, to single-handedly determine what Earnings are). In this analysis, we highlight several cautionary trends that have emerged in the cumulative balance sheet of S&P 500 companies over the recent turbulent period. Our preliminary observations: even as balance sheet leverage has continued climbing, the assets of S&P 500 companies continue generating less and less cash flow, which begs the question: where will the next "efficiency paradigm" come from? And when.