Archive - Mar 2010

Either Goldman is desperate to raise $3.1 million (it's not), or the firm is offering investors a 300% leveraged surefire way to make money in a rising market via an investment in Leveraged Index-Linked (interest-free) Notes due 2011. Or, most likely,  a third alternative - for others to profit, Goldman would have to lose, which is an amusing and quaint proposition (link to Goldman's 2009 profitable trading days here). The only way Goldman will not lose money on this issue is if the S&P closes below 1,123.7 on May 23, 2011 (the determination date). This has led some to question - is 1,123.7 a market ceiling according to this March 1, 2010 bond issue? To be sure, the notional is minor (however, more can always be tacked on), but someone's P&L, and thus bonus, will be determined on how these notes perform vis-a-vis Goldman, not investors.

If the contents of this post doesn't give you pause and cause you to doubt the future of the Eurozone's integrity, I don't know what will. Here's a quick quiz. What well known (in name only) Italian American has a significant chunk of the European Union Sovereign nations apparently modeled their financial engineering from?

Yet another week where stocks defy fundamentals, Wells Fargo running wild, furniture stocks like ETH hitting new 52-week highs. Looks like another resumption of "Dash for Trash" in the making. Perhaps the "Affliction" flatbillers will re-emerge at Starbucks to daytrade single digit midgets.

An early glimpse at the detailed "Volcker Rule", which is expected to be released this afternoon, indicates that not just bank holding companies are going to be targeted by the prop trading ban. The WSJ reports that "the White House's push to limit, or in some cases ban, certain risky trading activities at financial companies also would affect companies that don't own bank subsidiaries, according to a summary of proposed legislative language prepared by the administration." This probably means that life for those pesky hedge fund scapegoatees is about to get even more unpleasant. And as for trading sovereign CDS, we suggest you novate all positions promptly.

FOMC's Beige Book indicates that things could not be better... if you ignore the record unemployment of course and the tens of trillions in rollover debt, and the quadrillions in 2100 deficits, and that damn snowfall which came at a very sensitive time for the economy. So yes, aside from that, all is great.

The past week has made it clear that German public opinion, and therefore the German political process, will not tolerate a crude bailout of Greece; even if it is via “subtle” off balance sheet guarantees and the like. For example, why should Germans agree to a bailout of Greece with its statutory pension age of 61 when Germans do not receive pensions until the age of 67? Meanwhile, the level of fiscal austerity being demanded of Greece, namely a decline in the projected fiscal deficit from 12.7% of GDP in 2009 to 2.8% of GDP in 2012, is in GREED & fear’s view wholly incompatible with the reality of Greek democracy. In this respect the charge by the Greek Prime Minister George Papandreou over the weekend that the country was being treated as a “laboratory animal” by the European Commission is a reflection of the prevailing “Club Med” mentality. - Chris Wood

Heck of a job, guys ...

The only thing worse than a no news day, is a day like today, when every piece of news/rumor contradicts the prior one. An hour ago Moody's was praising new Greek initiatives to increase the retirement age to 100, decrease wages by 100% and mortgage the Acropolis. This was promptly followed up by the just released announcement, in which Moody's said it has put five Greek banks, most notably among them the National Bank of Greece (which as we first disclosed is still ashamed of disclosing the Titlos prospectus on its website). Should the NBG's, which currently has an A2 sub debt rating, be notched lower, we expect some interesting collateral calls to occur in the very near future (see our analysis on the Titlos SPV situation). Of course, we are not sure how an independent downgrade of the NBG would occur without Greece itself being downgraded in tandem. Which fits perfectly with the ever increasing confused chatter emanating out of all parties doing whatever they can to bail out Greece, without actually bailing it out.

Presented without comment. Courtesy of lucasvpraag

Thank god smart people still have the temerity of existing in this world. Jim Chanos is, for better or worse, one of them. In this short but sweet Bloomberg TV Interview, he tells the retaaards from Europe just where they can shove it. "Hedge funds are being demonized once again for the failings of governments and regulators everywhere. We've seen this happen in subprime, we've seen this happen in the banking crisis, we are now seeing it happen in the currency and sovereign debt crisis. Hedge funds are being attacked as causation. They're the symptom and not the cause of the problem."

The dollar’s status as the world's preferred reserve currency has come into question amid a ballooning budget deficit that keeps the U.S. dependent on foreign financing. It is now a matter of "when" rather than "if" the Chinese yuan will replace the U.S. dollar as the global reserve currency.

With governments fueling "La Terreur" towards all things financial, it's hardly surprising that market players are running scared after talk of market clampdowns and restrictions. However, before we panic and cut all our positions it's important to understand what's motivating governments. What are their true objectives and what lasting impact can they have on markets? Once we understand this can we place our bets more securely and objectively.

Petros Christodoulou, most famous for having worked previously at Goldman, and now incidentally the head of the Greek Public Debt Management Agency, has told Market News that while he has no comment on the timing or tenor of the new issue (we venture to assume the timing will be in the next two weeks, as after that Greece be bankrupt for real), he is willing to wait and "allow the market time to digest" the announcement of today's austerity measures. (And if these don't work, the next round will promise Greek workers will pay the government for the privilege of having a job.) Of course, the implementation of these measures is subject to a mass rioting contingency, so while the verbal diarrhea out of everyone who is axed in the viable Greece trade continues, actual actions will be few and far between.

Medivation shares are not doing too hot: apparently if your core Alzheimer's drug (developed in collaboration with Pfizer) ends up being a failure, your stock drops by almost 70%. Pity, because that drug may have been useful to everyone else buying the broader stock market with the hope they won't eventually suffer the same fate. Yet what is notable is that this information, which hit Business Wire at 7:30 am Eastern, was apparently good enough for someone to make a huge bet on a stock plunge just before the market closed yesterday, at 3:59pm to be specific, and to make almost $21 million on inside information. The net result: a profit of just under $21 million in 1 minute of open market activity. Even Goldman can barely make that much money at that speed.

The following just released video from the Cleveland Fed, in which the Fed explains the workings of the Fed, does not need much commentary, suffice to say that it likely came to you courtesy of the production and direction talents of Goldman's PR group. It appears the video is supposed to be some form of user friendly PR approach created by the same people that gave you Enron. Alas, some of the biggest roles of the Fed are sadly unaccounted for. We leave it up to you, dear readers, to uncover just what these are but here are some suggestions: buying everything in perpetuity, keeping Goldman solvent in perpetuity, keeping the Fed's shady dealings with other Central banks and primary dealers hidden from the public's eye in perpetuity, keeping fed funds rate at (or below?) zero or below in perpetuity, etc, you get the picture.