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Absolute Perfection: Goldman Loses Money On Just One Trading Day In Q3
The Goldman 10-Q is out, providing numerous interesting datapoints for those willing to scour through them. The key one: Goldman lost money on just one trading day in Q3, making money on all the other 64. As a reminder, even in Q2 Goldman lost money on two trading days. The statistical probability distribution of 1 out of 65 is something that not the SEC, but Richard Feynman should be looking into, as Goldman Sachs, after rewriting the lass of risk/return, is now set to redefine normal distributions and other Statistics 101 concepts.
Looking at Goldman's risk profile, total VaR presumably declined from $221 to $189: this was due to declines in Interest Rates and Equity Prices VaRs, coupled with an increase in Currency Rates and, more importantly, Commodity Prices. Notably, the "diversification effect" of numbing VaR provided about a ($93) benefit to reducing overall risk. One wonders what will happen to Goldman's VaR when the dollar carry trade bandwagon hits a wall and death and destruction become pervasive.
And an indication of just how much of a hedge fund Goldman has become instead of a client servicer, the firm's Equities Commissions revenue for the quarter dropped to $930 million from $1.2 billion YoY, while prop Equities Trading skyrocketed from $354 million to $1.8 billion YoY! And just in case you were wondering someone, somewhere was motivated to destroy Fixed Income powerhouse Lehman and Bear, look no further than Goldman's Fixed Income, Currency and Commodities which did a gentle jump from $1.6 billion in Q3 2008 to $6 billion last quarter. And that explains all you need to know about motivations and backstops.
More to come.
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How is this possible?
It wouldn't be possible in a functioning market.
It's a clear indication of a manipulated market.
You hit the nail on the head.
Of course, GS will trot out any number of officers and "experts" to explain how all this is completely normal and expected blah blah blah. In fact, the first volley of that explanation is this quarterly filing.
The arrogance is breath taking.
It's because they cheat.
They bet on sure things i.e. KNOWN outcomes.
uh yeah because they rig the outcome and operate with 100% insider info. if i could run my business that way, i'd be sleeping on $100 bills too
They are just smarter than the rest of us.
Source: dogma
Don't question it, just assimilate and be ready to hand over your tax dollars if anything goes wrong. Goldman will take care of the rest and heck might throw a few sheckels at charity to take care of public relations.
"...might throw a few sheckels at charity to take care of public relations."
Uh, doubtful. From that Bloomberg article of earlier today:
“The injunction of Jesus to love others as ourselves is an endorsement of self-interest,” Goldman’s Griffiths said Oct. 20, his voice echoing around the gold-mosaic walls of St. Paul’s Cathedral, whose 365-feet-high dome towers over the City, London’s financial district. “We have to tolerate the inequality as a way to achieving greater prosperity and opportunity for all.”
You need to translate from Goldmanese...
“We" (YOU) have to tolerate the inequality as a way to achieving greater prosperity and opportunity for "all" (US).
Now it's correct...
I thought the translation was "let them eat cake"
That didn't turn out too well in the focus groups...
LOL
ZerOhead is one of the sharpest whits among a very large crew of sharp whits.
it's a portfolio affect
When you win you keep the profits. When you lose, the government picks up the tab. You have a problem with that?
THIS IS PURE MANIPULATION
ITS IMPOSSIBLE
Seems to me Goldman has monopoly powers. How about we treat them as such.
They can become a public utility or be broken up. Either way beats the heck out of the current robber baron situation.
The money they made was basically a transfer of money from our accounts to theirs...this is a travesty.
Nice advertisement.
lol. how about telling how many days were $200M+ and $500M+
What most people do not get here is that Goldman Sachs is group of powerful individuals and families at the core, they CASH OUT and hide behind the Goldman Name all the time and there is no way to know who they are and how much they made.
Goldman can just hire them as traders and pay them all the profits for the trades they do, you will blame Goldman, but its the INDIVIDUAL(s) that are robbing you. I will say find them and prosecute them one by one, get the msg out.
Why would any institutional investor do business with these bafoons? They're just taking your money.....some will say they're smart.....smart at taking money from fools.
Why would any institutional investor do business with these buffoons?
Why? Because it's clear they have the inside track, they make boat loads of money and they will not be held accountable for their actions. I'm sure they're spreading the wealth mafia style.
Early this morning I was watching the news and the reporter commented on the coming (near) record banker bonuses in the pipeline. He said there was public displeasure with these bonuses and it indicated the banks had not learned their lessons from the recent banking crisis. I laughed out loud.
Of course they learned their lesson. They learned very well they are masters of the universe and we-the-people are impotent. The proof of those lessons having been learned are the bonuses.
Mission accomplished.
I got a chuckle out of this because early in my career I made money off a Goldman quote mistake. I had a couple million dollars of a mortgage pass-through and the Goldman trader read his rate sheet improperly, saying '96' when he should have said '98'. I had another dealer on the line who had it right, so I bought from one and sold to the other for a free couple hundred grand.
But normally they are much sharper than that.
From Jeremy Grantham Special Topic October 2009:
We all want smaller, simpler banks that are not too big to fail. And we can and should arrange it!
Step 1 should be to ban or spin off that part of the trading of the bank’s own money that has become an aggressive hedge fund. Proprietary trading by banks has become by degrees over recent years an egregious conflict of interest with their clients. Most if not all banks that prop trade now gather information from their institutional clients and exploit it. In complete contrast, 30 years ago, Goldman Sachs, for example, would never, ever have traded against its clients. How quaint that scrupulousness now seems. Indeed, from, say, 1935 to 1980, any banker who suggested such behavior would have been fired as both unprincipled and a threat to the partners’ money. I, for one, saw Goldman in my early days as a surprisingly ethical firm, at worst “long-term greedy.” (This steady loss of the old partnership ethic is typically underplayed in descriptions of Goldman.) Today, Goldman represents a potential hedge fund trade as being attractive precisely because they themselves have already chosen to do it. These days, all – or almost all – large banks do proprietary trading that is pure hedge fund in nature. Indeed the largest bank, Citi (owned by us taxpayers), is gearing up to substantially increase its aggressive prop trading as I write. (“No, no, we’re not!”)
I rest my case......
Go long Goldman and short the S&P. The perfect hedge.
Seriously.
I just ran my numbers, too. As it turns out, I am the other side of all of those trades.
Regards,
John Q. Taxpayer
Tyler, you need to go back and repeat Stats 101. That is clearly a normal distribution, but our friends at GS forgot to extend the histogram further to the right. The mean is up in the $75-100M/day range, but it's probably normally distributed.
In my mind, the above graph begs the question: what is the range? (I'll look at the 10-Q shortly for the answer.) Could it be possible there are some $200M days out there? No doubt they are the high volume days, of which there were few last quarter. But don't worry, SLP is a good thing that helps improve liquidity at no cost.
"That is clearly a normal distribution, but our friends at GS forgot to extend the histogram further to the right."
The right-most bar in the graph is labeled "> 100" which subsumes anything to the right of it in the domain. I don't think the original claim is that the data are not distributed in a Gaussian manner. The original claim is, Government Sachs lost money just one day in the quarter, and just three days in the past two quarters. The odds of this occurring at random are essentially zero.
Thanks for clarifying buddy... You're right... I'm wrong for not correctly I identifying the arguement. Also, I apologize for not being 100% correct when 100% of my comment was sarcastic.
I just wanted to clarify because Tyler has been all over this issue for the past month. I think it's amazing the content he creates every, single day. But, we can't let him get lazy. He lives off criticism, not compliments. (Evidence: CNBC?) So we need to push him as much as possible. I guess that's his cross to bear?
Losing money is satanic.
Almost like Madoff!
YES! NECK AND NECK WITH MADOFF!
"Just like Madoff except with real money!" (FIFY)
Hey, I want to know what happened to the poor guy or gal who got fired for the day Goldman actually lost money trading. Poor schmoe.
I just hope that I live long enough to witness the revolt.
Having said that, many americans are too fucking stupid to realize that they are getting jacked. President Obama is getting jacked by these same fucks.
The good news is that there are plenty of americans who realize what is going on and that word is spreading.
The karma and payback is going to be remarkable.
By the way Blankfein you hypocrite, have you redeemed the 22 billion of FDIC TLGP yet? You know, the one in which you said your wish was that you had never participated at all?
Tyler, please, I urge you to submit your article directly to Arianna Huffington for publication.
"President Obama is getting jacked by these same fucks."
No doubt, but knowing the President's background, it's more likely "pay-for-play."
While pressuring Congress to re-institute Glass-Steagall wouldn't be a panacea, if he had done this back when the market was tanking, he could have said that the bankers were trying to crush the economy because they didn't want to be held accountable by the American public (and he would have been correct). Given all the GS-connected cronies that are insinuating themselves in the govt. bureaucracy now, it's hard to imagine that he is being blackmailed.
The sooner people understand that Obama is nothing more than any ordinary politician, no matter how well he reads from a teleprompter, the sooner they'll be willing to hold him to account.
Obama is simply a front man for GS and JPM. It was put in his job description when he took massive campaign bribes... I mean donations... from the finance industry to get the job in the first place.
Obama's job is more no reform "reform" so GS, Citi, JPM can keep rigging markets and screwing every one else with our own money.
And Obama is doing a nice job at it, I might add...
"Meet the new boss, same as the old boss."
(The Who-Won't get Fooled Again)
Anybody else watch "The Warning" on PBS's Frontline?
http://video.pbs.org/video/1302794657
Some familiar faces in the video, and now look where they are. Imagine that!
Various articles have mentioned that there is likely $600-$1,000 trillion (yup, a quadrillion!?) of derivatives out there, all of it unregulated and virtually undocumented. It boggles my mind that I could sit down with one of my neighbors and basically write a derivatives contract on a napkin that if one of our other neighbor's houses burns down, then the person that wrote the contract with me would have to pay me say $200,000. If 9 other people wanted to bet that it wouldn't burn down, I could write derivatives to collect $2 million if it burned down. I don't even have to have the money to pay my side of the contract if the house doesn't burn down. It doesn't matter a bit if I have no interest in my neighbor's house or am not a party to their insurance policy.
Alan Greenspan, the former Fed-head, thought derivatives actually reduced risk and improved stability!! Sure, no regulations, no margin requirements, no exchange for trading, no reporting requirements, and virtually no documentation. If world GDP is running around $60 trillion annually, that's only 10% or less of the notional value of the derivatives out there.
One of the reasons we can't look to fundamentals for anything any more is that big money is being used to preserve and hide the status quo. Does anyone else think that the allowed use of high frequency trading (HFT)/flash trading and front running is just an attempt to allow the big firms to unfairly skim money on just about every trade made in order to rebuild their balance sheets? Who would bet against that these players are a party to discussions on interest rate policy and stimulus in advance of policy changes, or likely even have a say in policy?
I highly suspect that why we're seeing the bailout money going where it's going is to try to plug all the holes where someone like AIG, GS, or JPM might have to actually pay on a leveraged derivative bet. Think of how much was spent to prop up AIG, a party to massive amounts of derivatives. Care to guess which company was a huge beneficiary of that? Government Sachs!! As soon as one party defaults on one of these, I think it will expose the entire rotten, stinking core. What we're seeing is an attempt to keep it hidden. As Deep Throat said regarding Watergate, "Follow the money."
One wonders if the Obama administration chose Geithner and Summers, or if they were chosen for his admninistration. How long is it going to take before the first big derivative default, and what will the cascade of intertwined derivative collapses look like? This, I suspect, is why so little of what we're seeing right now makes any sense...or makes perfect sense.
hidingfromhelis
Can you send a copy to Dylan Ratigan while you're at it? I loved seeing his bonus desk for the bailouts -- the numbers are big as life as graphics on his desk. Maybe that will help a few of the TSTGI Americans get it a little bit. Every person who starts to get it will help...
Squids, in addition to their razor-sharp beaks, have very large brains, which make them excellent traders.
The seemingly dubious performance described by these statistics could be attributed to the fact that, over the past quarter, there has been limited downside to being a madman, and limited upside to being a genius. QE autopilot.
Leadership. Morals. What's my cut?
Akin to the absolute arrogance of Rome just before the fall of the empire. Goldman Sachs.. can you hear that? It is the sound of your inevitable demise..
Rome went on a loooong time before slowly crumbling. Actually, you could argue it's still there today with the papacy continuing on with the tradition.
If you won 64 hands of blackjack in a row, what do you think the casino would do to you?
"Throw him in the alley and tell the cops he got hit by a car."
-Ace Rothstein
Sadly, Feynman is dead. But Stephen Hawking is still with us...
I think he's calling more on his sense of humour than his sense of numbers.
We're getting used to these types of numbers from GS. How does this compare to other competitors like MS, and JPM? Anybody have that info?
It's another Sigma X event! The more improbable it is, the more commonly it will occur!
So we have half of the Gauss curve,an average VAR but what s
about leverage?How much leverage on its equity does a commercial bank need to reach these results?
Is the bank s supervision body aware?
Hello ZH and Tyler,
I was thinking on doing my thesis on this topic. What statisitical methodology would you suggest I use to show the three losing days is NOT random? IF you have any other suggestions; I am all ears. Thanks
They deliberately lost money on that one day so that it wouldn't look too obvious.
Please read:
Deep-Sea Cephalopods: An Introduction and Overview
Here's a snippet:
The deep sea is the largest, yet least-explored habitat on Earth. Its seemingly adverse conditions include crushing pressure, total darkness, and temperatures near freezing, yet a spectacular variety of delicate and primitive life forms thrive in it. Most bizarre among these are the cephalopods, found from the deepest trenches to the ocean's very surface, burrowing into or hovering just off the sea bed, on and around deep-sea reefs, hydrothermal vents and cold seeps, adrift or swimming with great speed and agility through the water column. From evolutionary accidents to the pinnacles of success, the deep-sea cephalopod fauna exhibit fascinating physiological, morphological, and behavioral modifications.
damn you beat me to it!
http://www.fundmymutualfund.com/2009/11/goldman-sachs-gs-q3-winning-perc...
next step, perfection!
Here is a link to ZH's analysis of Q1-Q2 trading days.
http://www.zerohedge.com/article/goldmans-42-100mm-trading-days-q2-absolute-unprecedented-record-just-two-days-trading-losses
To sum up what Goldman has reported this year:
194 trading days
116 trading days with over $100 million in gains
9 trading days with losses (only 3 since Q1)
Some of my clients have asked about this and I told them that Goldman itself is probably not a ponzi scheme, but these are ponzi numbers.
you don't think goldman is a ponzi?
I guess the definition varies from person to person. They feed on an ever increasing supply of suckers, (in this case suckers trustful of FRNs and our government) so I would say they classify.
I think the whole economy is a ponzi, and have a gameplan to protect my clients money when that starts to unravel...but hardly anyone (that hasn't already self-selected by coming here) is really ready to hear that about the whole economy, let alone its shining financial star.
I hear ya...hard to explain the concept of ponzi to the suckers... especially those far away from the bottom of the pyramid.
Goldman gets the money for providing such a valuable service. They run our government for us... and that is a very hard job. Lighten up people, this is the commission you agreed to pay for when you were in your american idol induced coma.
GS IS the US Economy (or whatever's left of it) at this point.
Mr. Preet Bharara
U.S. Attorney Southern District
212-637-2200
Jesus H. Christ.
No, he works the Northern District. Not a very good prosecutor. Always forgiving people
This is bullshit. Is there any way to find out every trade they have made?
A Normal distribution of returns is for gamblers like us, if we are lucky. That plot right there shows how HEAVILY the dice is loaded against all of us.
Goldman redefines bastardization of Skew and Kurtosis on mean P&L returns to a whole new level...
This is interesting. Clearly their research has been off. I seem to remember some major macro calls that were off the mark and I don't think they would tell their clients to do one thing while they trade against them. USD/JPY seems to ring bells on a big GS miss.
If it's too good to be true... it's probably fraud.
Tyler,
Are you sure you do not want a Poisson distribution of the probability of a 64 out of 65 win streak occurring in any 65 day time intervals of securities trading?
I am quite sure it would show a lower probability of such a non rigged, non insider trading event occurring.
Now if it was a Poisson distribution of Cramer's picking loser stocks 64 out of 65 times in any 65 day event... I am sure 64 out of 65 losers for Cramer would be... ur uh... the expected value...
Here's a line straight from the 10-Q...
The wanna-be editor in me wants to re-write this disclaimer. Maybe something more like...
BTW Tyler, I scanned through the 10-Q twice and couldn't find the data you used to create the profitable-trading-days chart. Can you redirect me to where you found the info?
EDIT: Oops, nm. Found it. Chart is on p.124 of the full 10-Q. I was scanning the abbreviated summary.
The only test I have ever cheated on was in Theater.
I missed one multiple choice question on purpose.
I will be applying at GS as soon as I graduate, because obviously great minds think alike.
This is just PAM being moved into the real world, it is all a matter of national security, why expect anything less? Scroll down to the section entitled - Market Manipulation and Bias
https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-pub...
cela!
This Vampire Squid will blow out some ink cover and miss on " TWO" days of the next 65.
That should shatter this premise that the fix is on.
Those charts remind me of the Enron power and gas market dominance. The market maker always does best, until correlations go to 1. Then if your a small or a big corporation you file BK. If your a small bank, you meet Sheila. If your a big bank you get to shove your junk in Timmy's piehole and Ben's trunk.
Questions. To me the legal question to ask is: What constitutes illegal market manipulation?
If GS has the ability to consistently move the market with their buying power and the understanding of other traders’ computer reactions, why can’t they profit from doing so legally? Technically, I don’t think they have monopsony power if GS has figured out how to manipulate other traders computer programs. I am not saying it is right, just that it probably is legal.
Who has been on the losing side of GS's trades? Any clue? Anyone unplug their trading computers?
And if the rules are changed to clip GS, will anyone other than those with the ability to generate vast computerized trades benefit? Statistically the NY Yankees should not win as many World Series as they have but they been able to buy better players – legally stacking the deck. Has GS behaved any differently than the Yankees?
Comment.
It is possible, that for now, GS’s computer programmers are smarter than what is left of their competitors. Lehman & Bear Stearns are gone and other trading houses are comparatively weak. Recall how crazy GS went when one of their programmers went rogue on them and they thought their code was breached. What happened to that guy by the way? With vast amounts of, essentially free, government money GS can make huge money on slight market movements.
If you had the wherewithal to crack the GS code wouldn’t you just front run GS and make a significant but comparatively tiny profit? Why fight GS (and who could) if you can make money on them? I bet there are some smart guys riding GS coattails and making substantial money.
"Using Evolutionary Game-Theory to Analyse the Performance of Trading Strategies in a Continuous Double Auction Market"
- http://www.springerlink.com/content/yp556247h83432g7/
"Game Theory and Algorithmic Trading"
- http://homepages.nyu.edu/~btb216/final.pdf
.. etc.
The Tech is there to accumulate all the money into a single pile.
I wonder what the societal effects will be !?
Goldman only has two ways to make money:
a) The Govt.
b) trading
c) all of the above
They are one of the "too big to fails" so the Fed allows them unlimited discount window money to gamble at the casino. The Fed and U.S. Govt. make sure GS wins, because if they don't they have no other way to offset their losses, and two they would be sticking the Fed with the losses.
Allowing GS and MS to become BHCs was outright criminal.
There was a reason why that was illegal, yet they did it anyway.
BOOKIES make money on the action. If there's action on a given day, they make money.
I thought Richard Feynman was dead.
http://www.amazon.com/Surely-Feynman-Adventures-Curious-Character/dp/039...
THANKS DYLAN!!!! Keep fighting the good fight--you are truly without peer in your industry. Someone who tells the truth and actually knows what the F he is talking about.
This must have been one of those "so simple it would never occur to any politician" epiphanies. Four great points by Dylan Ratigan that should immediately be taken up by pro-reform politicians. If Barney Frank deems these are unenforceable or not worthy of his attention, replace Barney Frank immediately.
Dylan's four (shockingly logical) proposals on how to fix the broken financial system:
Inject transparency, primarily to bring almost $500 trillion in swaps to the forefront.
Capital to back Wall Street's gambling. It is a guarantee that very few firms will have Goldman's trading pattern each and every quarter.
Enact a tax-code to discourage short-term profits. "Fortunes should not be made in minutes but over years through the creation of value to society."
Break up the Too Big To Fail banking institutions. Start with Goldman Sachs. Right Now. Christine Varney, we are still looking at you.
We know Goldman traded profitable. That's their job. Who orchestrates the promo to go along with the market so Goldman can make the money is the question. Does it go all they to the White House or is it closer to Wall Street?
Amazing. Simply amazing. Three losing days in 6 months. Quadrupling fixed-income, currency and commodity trading. Quintupling the equities trading business.
How long until they start pushing for global financial reform (undoubtedly, headed by a former GS exec) so once "The Next One" hits, they can lean on forcing Barclays, Nomura, and Rothschild out of business, too?
Who invented low margin high volume trading anyway?
This is getting very depressing. The GS execs are starting to filter out west as well, being plucked to lead some of the regional banks that have taken TARP funds and not raised capital quickly enough.
To answer Arthur - "is it legal" - maybe, they write the rules too! I like to look at the "intent" of the laws, not merely the laws when looking at something like this. You simply can't create enough laws to prevent the crooks from performing their deeds. My dad used to make me ask one simple question when an issue of ethics came up -"what is the right thing to do" - not "is it legal", or "did you get caught"...
We really should all figure out a way to get to their "system" of fraud.
Great piece Tyler ! You and ZH continue to define the very core of this and similar issues that surround 85 Broad.
New headline: Goldman doubles it's loss from one to two days. Their updated 10q-2009-2q.pdf page 124 now shows a second day of losses. I feel much better now. Those are much more manageable odds... not.
Hello ZH,
I was thinking on writing my thesis on this topic. Only 3 days of losing for two quarters. SOmething is not right at all with this picture. Its clearly rigged by using logic. What statisitical methodologies do you suggest I use to indicate that the 3 days of loses are not random events? I would be willing to bet the whitenoise(residual data) would show that as well. Do any of you have access to the data above? Thanks a lot.
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