Archive - Jan 2010

The cachet of Goldman's in-house "privileged" funds (like the Global Equity Opportunities Fund) used to be quite significant, and seriously envied. Perhaps labeling them "vanity investments" is a bit excessive, but probably only a bit.

If you accept situations such as AIG and other cases where Buy Side investors (and, indirectly, the US taxpayer) were defrauded through the use of OTC derivatives and/or structured assets as the archetype “problems” that require a public policy response, then the Volcker Rule does not address the problem. The basic issue that still has not been addressed by Congress and most federal regulators (other than the FDIC with its proposed rule on bank securitizations) is how to fix the markets for OTC derivatives and structured finance vehicles.

CNBC's Jim Cramer is back to his usual permabullish batting average: today's sacrificial lamb - Google.

Today's heavy volume smells a lot like billions of mouse clicks ejecting stocks. All the Fembots supervising the motion chasers were getting flogged and horsewhipped if they did not immediately eject out of their positions. The market is basically issuing a "no confidence" vote on Washington's micro-management policies.

With the prop ban hitting Bank Holding Companies (despite what various politicians who have long outlived their welcome, their tenure, their dentures and even their corrupt status, say on CNBC) soon, the generic response has been: "Bah, not an issue - Goldman will just cease being a BHC. Done and done." Not so simple. Why? One acronym - TLGP. Of course, it is a joke that Goldman was ever allowed to be a bank holding company in the first place (we still can't wait to deposit our meager savings with Lloyd Blankfein's organization. When, oh when, will Goldman open a deposit branch on Paper Street?). Yet it is. The problem however, is that the TLGP is only eligible for bank holding companies and other FDIC-insured depository institutions. Should Goldman shed its BHC aura, say bye-bye to the TLGP guarantee.

For all who want to get up to speed on next week's political theater involving AIG, Tim Geithner, Goldman Sachs' Stephen Friedman, Goldman Sachs' Bill Dudley, Goldman Sachs' Lloyd Blankfein, and the endless taxpayer bailouts, here is a terrific timeline for everything relevant to the AIG soap opera. Courtesy of Bloomberg.

Is Bill Miller headed for retirement? Today's action in Legg Mason stock, which was down 10%, the most since May 2009, sure indicates investors may have had enough of the permabullish, pro-cyclical portfolio manager. The reason for the dramatic drop in stock price: accelerating outflows.

"Separating core banking franchise from speculative activities, imposing tighter leverage requirements and examining the complicated relationships between high frequency traders and banks constitute critical steps toward ensuring our financial markets are strong and stable.

By adopting these common-sense proposals, we can go a long way toward stabilizing our economy, restoring confidence in our markets and protecting the American people from a future bailout.

America cannot afford another financial meltdown and the American people are looking to Congress to ensure that that does not happen." - Ted Kaufman

Must be a down day. The exchanges are about to start breaking left and right.

Goldman Credit Default Swaps have surged by over 20% on the day the firm may have finally lost its trading "edge." With a 5% decline in the stock, the company default risk has jumped to a 5 month high at 121 bps. The last time its was here was on September 14th, when the stock was $177/share. Yet a relative value comparison since September 2, 2009 (if one belives in such things) indicates that the Company CDS is rich by about 16%. If traders believe today's stock price as indicative of the true value of GS, we anticipate a widening in Goldman CDS to a level in the upper 130s/low 140s.

If only it were as easy to ban the budget deficit. We have $118 billion in coupons on deck to be auctioned off on February 1. Out of curiosity, does the prop trading ban also make quantitative trading, aka the Fed's prop trading operation, also illegal?

I have had a lot of problems with the way the last two adminstration have dealt with this financial crisis and Wall Street, but I must say "Kudos to Obama". Somebody had to do it. Call it politically motivated if you want to (he is a politician, isn't he?), nobody else bothered to contain the self reinforcing boom/bust risk cycle that is Wall Street.

...when volume support breaks, the cradle will fall.

To paraphrase Mr. van Praag, "prop trading is a minor part of our business." The market begs to differ.

11:37 01/21 OBAMA BAN WOULD PREVENT BANKS OWNING,INVEST IN HEDGE/EQ FNDS

11:37 01/21 OBAMA PROPOSING RULE LIMIT COMM BANKS FROM PROP TRADING

11:37 01/21 SR ADMIN OFFL:BAN ON PROP TRADE ALSO APPLY TO BANK HOLDING COS>

11:37 01/21 ADMIN OFFL:WANT REGULATORS TO BE REQUIRED TO STOP PROP TRADING