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Goldman Sachs On How To Navigate The Slowdown
Remember when a week ago the world was slowing down? Apparently all it takes to forget reality is for Europe to sweep the fact that its banks are insolvent under the rug courtesy of a systematic farce conducted by the very system the banks are part of, rendered even more "credible" since as of today it appears no banks will fail the stress test. On the US earnings front, a materials company beating reduced expectations and a chip maker having just record the best quarter in its history (what growth next for Intel: 80% margins? 90%? every household in China buying an i7 980 for their 7th toaster in their 5th house?), even as global trade is paradoxically stalling following an all time record month for Chinese trade? Americans may be unemployed and homeless but they sure like their iPads and their fast PCs. Either way, to remind readers that despite the latest market run up on no actual positive economic data, here is Dominic Wilson, Director of Global Macro & Markets Research at Goldman, with advice to clients on how to navigate the "slowdown."
Global Market Views: Navigating the Slowdown
1. Over the last few weeks, it has become clearer that the US economy has been slowing. It is this theme that has dominated markets lately, not earlier European sovereign fears. We have long had a view that 2010H2 would show significantly softer US growth. But for early in the year, US data generally proved better than expected and markets traded along those lines. As a result, we have been slower to reposition for this shift than we would have liked even as the market has moved closer to our own long-standing views. We think that there is still room to position for slower US growth. But with systemic risks overpriced, already-high levels of concern about Europe and China and a solid earnings season ahead we are currently doing so more on a relative than an absolute basis.
2. For all the legitimate focus on the European sovereign story, the broad macro backdrop to the last two months of market pressure in hindsight looks simpler. The last two months has delivered fairly consistent disappointments in the US data from housing to payrolls to the ISM surveys. Global PMIs peaked in April. Our new improved GLI (we revamped it a few weeks ago, a process we carry out roughly every 4 years) now shows a clearer peak in March of this year (having bottomed in February 2009) and moderation since then. Global data remains consistent with robust current growth. But disappointments are disappointments. Against that backdrop, markets have until recently done what they often do when faced with this kind of news, until recently pushing equities (cyclicals in particular) lower, hurting commodities and related currencies and pushing bond yields up.
3. In relative terms, the market has also indicated that a shift in its worries from European sovereign risk towards US slowing began some time ago. US bonds have outperformed and the spread between Eurozone and US 2-year yields is back to January levels, having round-tripped a 50bp move; the SPX has been a laggard to both European and EM equities lately (even in USD); US consumer and housing-related areas have led the way down, with our Wavefront Housing and Consumer Growth baskets giving back the year’s gains; and even against the EUR, the USD has lost decent ground. In most cases, this represents a significant reversal from December to April when positive US surprises (absolute and relative) drove many markets.
4. The shift in focus to a US slowdown – and the argument that deflation not inflation is the major risk for the G3 – should not be surprising and has been a core part of our 2010 outlook. From a trading perspective, the problem has been that for several months, US news was continually ahead of expectations, a dynamic that was arguably the key market theme between December and April (and one we traded). But the basic problems that our US forecast has always flagged – and which are largely unconnected to sovereign fears – have become more visible. We still expect final demand to grow at just 1.5% in the second half as the inventory boost fades and fiscal policy becomes a drag. At the same time, the policy debate has shifted in ways that make a rapid response less likely. Jan Hatzius and team have been beating the drum louder about our 2010 views and the growing risks to 2011 in a number of important pieces over the last few weeks.
5. In the very near-term, there are some important offsets to this backdrop. First, sentiment shifted sharply negative and expectations have clearly fallen. Deflation risk (something we had to consciously raise for most of the last 12 months given our long bond bias) is now routinely on the agenda. So the near-term hurdle on the macro news is lower and we have seen some reversion in the data recently. Second, US earnings season is kicking off. Current earnings should be reassuring, so guidance will be in focus. But the market is heading into the season with more fear than has been true for several quarters. Third, there are signs that Q2 GDP growth is coming in stronger than expected in several places. Globally, things are slowing, but as Kevin Daly and Alex Kelston have showed, deceleration is coming from what look like stronger levels of Q2 growth than many expected. So here too the market may have to process better current news even as it worries about the forward path.
6. But although markets have moved quickly to price a weaker view, on our forecasts, US growth expectations are likely to have to fall further probably on an absolute basis, and certainly relative to many other places. How best to trade that view from here, however, depends not just on how sharp the US deceleration proves to be but also on how two other risks shift. As we addressed in 2006 during the great ‘decoupling’ debate, the first is whether the rest of the world slows more or less than expected. The second is whether systemic/sovereign risks will grow or recede. In practice, many assets that have exposure to US growth risk also have exposure to these two issues and it is important to weigh all three. If growth disappointments are broad and systemic risk increases, the impact on assets is obvious (short equities, short cyclicals, short commodities, long bonds). But if the rest of the world holds up relatively better, or systemic risks ease, more focused implementations will do better. In general, a relative focus on domestic-exposed equities, front end rather than long-end trades (not an easily available option currently) and USD shorts would often be better alternatives.
7. While the market may not have fully adjusted to our own US view, our views of the non-US growth picture have been less negative and the non-US data picture less uniformly disappointing. Recent decisions to hike in a range of economies (New Zealand, Sweden, Canada, Peru, Chile, India, Korea) suggest greater comfort with the growth picture in places. In Europe, we continue to forecast better than expected growth. While Q2 is shaping up well after a disappointing Q1, it is really Q3 that will be decisive. Europe’s PMIs are not slowing rapidly, though parts of consumer confidence look soft. And while our new China forecasts show sharper sequential slowing in the near-term than consensus, and PMIs are falling, we see a shift away from policy tightening and an improved growth picture further out (more on this below). Confusingly, some of the latest Asian export data would point to better US growth but less in Europe and China.
8. Sovereign and systemic risks may also recede further, at least in the near-term, as we have argued both on the sovereign front (see Francesco Garzarelli and team’s Bond Snapshot) and in credit (in recent Credit Lines from Charlie Himmelberg and team). The European stress tests – due on July 23rd – look broader than initially envisaged, reaching deeper into the Cajas and Landesbanken and stressing for sovereign losses. Inevitably, arguments that they are still insufficient (particularly with respect to the rumoured haircuts on public debt) are in full swing. But just a few weeks ago, it was common to hear complaints that a) Germany would never publish; b) sovereigns would not be stressed at all; c) only the very largest institutions would be covered. There is clearly still plenty of risk, particularly since the path to the kind of substantial capital-raising that bookended the US test is less clear. But overall, things are turning out better than expected lately.
9. Our views with respect to the three major risk exposures are thus as follows; a bias towards short US growth exposure; a bias to be long sovereign/systemic risk exposures; lower conviction on non-US growth – particularly with respect to timing – but our forecasts lean positive. Broad directional views on equity indices and long-dated bond markets do not fall cleanly from this set of views. Equity indices have exposure to further US growth downside but further relaxation about elevated systemic risk would help. Long-dated bonds have rallied sharply already and while they have exposure to further US slowing, they are vulnerable to better non-US growth and to reversal of the flight to quality premium that relaxation about systemic risk could bring, as our Sudoku framework highlights. We cut our main directional trades (long DAX, short USD/MXN) and our only trade on US bonds is for them to stay range-bound (expressed through a “strangle”).
10. Two kinds of trades may reflect these views better. The first is long exposure to systemic or sovereign risk worries in forms that have some protection against growth risk. Our Credit Strategy team is long High Yield CDX against shorts in a basket of CCC-rated credits; last Friday, we went long Spanish 5-year bonds against shorts in Germany, activating a more constructive view on Spain flagged in late June; and we remain short protection in a basket of ‘elevated’ CDS (Korea, China, Hungary, Czech). The second is relative exposures to the US growth slowdown. Noah Weisberger and team have gone short our Wavefront Consumer Rotation basket (short consumer cyclicals against other cyclicals) and flagged similar trades (long China-related or foreign cyclicals against domestic cyclicals). And in FX, our fresh long in AUD/CAD has some of this flavour (long China, short US growth), though it is vulnerable to better recent Canadian news.
11. The toughest issue is how much to rely on better than expected growth outside the US. If both the US and non-US growth disappoint, a negative outright stance would be logical. If non-US growth holds up close to our forecasts, two trends where we have less exposure might extend. The first is USD weakness (something we are weighing up a lot currently) alongside a further shift back towards pricing hikes in non-US economies (pricing of Australian rate cuts recently was a major overshoot). The second is EM equity outperformance, a trend we anticipated in a Global Weekly in late March, but a little too early. For many large EM markets – which have been tightening – some slowing in US growth might actually ease the policy dilemma. Since tightening risk has weighed on EM markets, this in turn might help the EM/DM outperformance to continue.
12. In all this, China looms large, given the way its cycle has run ahead of others. Beijing has no doubt noticed the signs of slowing we all see. A shift towards more supportive policy – and there have been hints – could be a meaningful positive, both for regional equities and regional FX. We are watching closely for clues that this is underway. The CNY has also dropped off the radar already – a symptom of our collective attention deficit disorder. After a nearly 1pct move in the last 2-3 weeks, it looks odd to be pricing just 0.5pct more in the next 6 months. The Chinese resisted CNY depreciation both in the Asian crisis in 1997-98 and the global crisis in 2008 (the largest 6-month fall in CNY in the last decade is 0.5% amid a global collapse that pushed their TWI sharply higher). The notion that this may be about to change, when they are signaling the opposite, is implausible. If USD depreciation continues it will become even less likely. Thomas Stolper and team took us long the 12-month forward before the shift and still like the view. We have also added a short USD/SGD position ahead of tonight’s GDP print, supported by many of the forces described here.
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GS aside, seems like Obama is the best contrarian indicator.
Obama is going to perform a pump-n-dump of the U.S. in 2012
2012? He's doing it right now.
I am concerned it's ye olde hump-n-dump he's doing!
Hence why Hank was buying banks with his retirement fund.
So busy in China buying banks in China, that he was un able to see the real estate thing.... CDO whatever.
I will chime in tomorrow , on points 1 -11 ...
I would believe CSX and Intel over data. I don't think they are fabricating their expectations. Face it. Things are not as dark as the data points were indicating.
Bull! Is that why individual income tax is down YoY from 2009? Is that why social insurance is down YoY? Is that why the BDI is dropping like a stone. Down 60% now or so? There is no way but down.
Maybe eventually. But for the time being that is not the case. That is what these companies are telling us.
I remember sitting on several tech high fliers in January of 2000 and listening in on the conference calls. The CEOs were REALLY talking up business conditions. "No indication of slowing demand... raising projected earnings." By April, on the same company CCs, I was hearing terms like: "This is a new reality," and "this slowdown was completely unexpected based on our channel checks." It is the rare CEO, CIO or COO who won't put on a happy face... after all, they ARE the company and their egos aren't small.
I'll take most of the data points over the talking points of executives who benefit handsomely from higher stock prices (options and salary) and are obviously incentivized to talk if not glowingly then in gray sort of language like "cautiously optimistic". These Captains of Industry are the heads of the US Ponzi scheme - GAAP v. Non-GAAP, getting Basel III extended for 10 years, options awards (and backdating), using executive compensation consultants to justify pay, shall I go on? P.S. Have you looked at insider selling v. insider buying? Disparity of wealth between an average worker and a CEO?
Take a look at the NFIB survey. The Baltic Dry. 40 million Americans on food stamps. The riots in the EU, Iran, India. The 50% deficit of Illinois's state budget. Trillions in unfunded pensions. The huge required debt rolls over the next few years. US CRE down 40% from the peak. Drive around your neighborhood to see the houses for sale, the vacant store fronts. Go to a food bank to see the lines. Apply for a job and see how many other applicants there are.
I don't know when or how or why, but the debt defaults are coming. You can listen to your execs talk up a 6 day rally, but if you do you should look at YUM, LZB, BBY, Bed Bath, Callaway, etc. - all companies that saw a substantial decline post earnings on some cautious commentary. Intel and CSX are companies that have substantial abilities to squeeze suppliers, manage tax rates, etc. and can essentially game profits any way they want for any given quarter.
Brilliant post...last sentence sobering.
CSX shipping volume was flat for Q2, they made money on the more expensive shipping items...autos. If the consumer doesn't continue to buy autos this could go down. American Association of Railroads has reported 2 consecutive months of shipping volume decline. If this continues Q2 may be the last upside report from CSX for a while. Intel will do well due to worldwide demand for cheaper computers...especially as wages increase in India and China. The Us should be the concern. Companies with global exposure should fair well....those with mostly domestic most likely had a good March and April with June slowing dramatically. Watch for forcasts to be redically down graded come August/Sept..
When the US goes down, the rest of the world will follow. Intel will be hurt as bad as CSX. There is just too much supply (of everything) and no money to buy. Everyone's broke. What's more, most of this crap we don't really need or can go a long time without. Cars, computers, e-toys, expensive houses, furnishings, etc., etc. Demand will contract further and faster; we're only in the 2nd inning of this game.
Bingo Miker, we are going from Supply side insanity to demand side sanity, but that transition will not be easy for a world infrastructure that is built upon the supply-side lie of infinite growth.
ORI
http://aadivaahan.wordpress.com
Intel's story is it's due to "Cloud Computing". Uh-huh. The thing about Cloud Computing is that it's harder to trace where the chips are going. But not impossible. Look for server sales for HP, Dell and the smaller guys to increase if this is indeed the case. If those don't increase, then Intel is stuffing the channel, and that always ends very, very badly.
I'd also look to see how VMware is doing, as well as Citrix and Microsoft's Cloud Computing. VMware I know for certain has consolidated at least some office space, with one former big office going up for lease.
Hmmmm.....interesting. It's clear that nobody has a clue right now where the markets may be heading. For a couple of weeks you get calls of Dow 1000 and everyone lowering their forecasts on SPX. Now you get Intel telling us the second half of the year is going to be great after just having their "best Q in history".
I have no positions right now as I travel and wouldn't know what to do if I wanted to trade. Do you believe the leading indicators, unemployment, housing that all say "holy shit!" or the BEOs telling us the second half will be great?
No wonder we get a market that gyrates hard to either side. Something is not truthful here. You can't get gloomy economic numbers and rosy corporate forecasts. It'll be interesting to watch but for now, it just gets a lot more confusing.
If 'earnings' are defined as the non-GAAP profits of a select few companies that can manipulate international tax regimes, arb international suppliers, look for lowest cost sites and bargain for tax abatements, squeeze suppliers for lower margins, etc., etc., etc. - then yes 'profits' can go up in a bad economy. But contrast the performance of the top companies (ISM) and the small (NFIB) in the survey results. The big companies are cannibalizing the economy.
@TraderJoe "No wonder we get a market that gyrates hard to either side."
I was net long and hard today.
jeez, can't someone go long in this market?
I'll go long when your icon stops jiggling at me.
Guess at least 9 traders were short today.
Futures are kicking Big Elephant ass. Intc blew away the earnings. Must be all those kick ass i7 processors. Slow down my ass. Gots to have those Apple Mac book pros with the core i7's
Slowdown?? But "Michelle" posted this on another article -
________________________________________________________________
Well, obviously the market rise is because we're experiencing the healthiest quarter in four years.
According to Morgan Stanley, at least.
http://www.bloomberg.com/news/2010-07-13/import-surge-points-to-accele, ra...
________________________________________________________________
Perhaps the Federal Government will disband all statistical agencies because the ONLY REAL indicator ANYONE needs is the S&P, correct?
Great Job TD - you have an incredible sense of humor - whatever your taking I want two!!! Great post Michelle - (I feel sooo much better now that Morgan has restored my confidence - God Bless America)
I don't think the group that navigated us into an economic iceberg should provide us with further instructions.
Heck it would even make sense to simply do the exact opposite of whatever GS tells you. If they are talking up China just assume GS believes that China is a bad bet and they are looking to exit.
When in doubt, assume GS hates you and wants your money.
"I don't think the group that navigated us into an economic iceberg should provide us with further instructions." - ROFL - Thank you I needed that!
That's fine tyler, but we still have to trade what's in front of us
So that's my point - what is the "trade in front of us"? Up until last week it was clearly down. Now it's clearly up? What happens if Retail Sales miss by a decent margin? Does that trump earnings and take us down again?
As I said, I'm glad I can't trade right now. I would like to say I've seen this movie before, like as in last July - December. But is that the case?
My feeling is we just muddle around chopping a few weeks higher, then a few weeks lower in a range for quite some time. Wash, rinse, repeat. The trick is getting the cycles timed correctly. And if anyone you know claims to be able to do that, they're flat out lying.
Let me borrow a line from the reformedbroker.com:
"It's the Asset Class, then the Market, then the Sector, then the Stock."
What do you mean you can't trade right now?
If stocks are unappealing to you then pick a different asset class (go gold or bonds or whatever).
And who said you had to trade in the farked up US market? Pick another country if you want to buy some stocks.(Not that it matters since everything is so damned interconnected that avoiding risks is impossible)
If your lazy just sit on some T-bills or buy some bonds. (Be weary of AAA ratings since its just an arbitrary unit of measure and be cautious about rate increases killing your bond investment)
You want some risk buy some gold (physical not that stock BS) while its a bit cheaper and just wait for a rise. (Be cautious of that pesky collectibles tax and accept that the gold market is as manipulated as it a market can get)
You want safe than invest in your own ability to generate income. (Don't bother with more student loans and if you can't pay for education without them then don't bother. Hell pick up a trade since its a hell of alot cheaper than a Masters)
You have plenty of options but you also have plenty of risks.
"You have plenty of options but you also have plenty of risks."
Mamis: The Nature of Risk
Probably the best book ever written on market speculation.
Haven't read it but thanks for the advice.
Since Harry mentioned market entry I think its prudent to say a few words about that.
If someone tells you they know the entry of a certain stock they may be right but if someone tells you they know the entry for multiple stocks (or a farking market sector) they are full of crap. (and likely a momentum investor a.k.a gambler)
No one can call the entry point for a market sector or an entire market. There are far too many factors to sort through in order to make that claim true.
I try to call an entry on 3 stocks or less and I am still hit or miss. (Often taking a nasty loss before I get any return)
Double post.
I too wonder what the true downside catalyst will be that we all seem to be looking for. Could be a jobs report, but the BLS has that covered with the B/D model. The banks will hide their credit problems easily in their reports this week. As we trend into the Fall their might be some excitement from Mr. Market on a Republican takeover of the House.
The EU crisis WILL eventually blow-up, but how and when? There's too many people that want the Ponzi to go on (bankers, government, etc.). The PTB will throw everything they can at it. And the banks don't want to go under either.
I personally think it will be a muni crisis in the US. They can't borrow forever, can't print their own currency, and don't have a central bank to save them (as much as they want Feds to come to their rescue). Who knows when though...
You can't predict downturns or innovation.
The best I can do is guess who is the weakest when it comes to surviving a period of stress.
You don't HAVE to trade anything. Sit back and wait for the fish you know you can catch.
Blah, blah, blah. I can't believe I actually read that drivel.
GS should be honest and simply say:
How To Navigate The Slowdown:
Get a HFT computer and program it to <steal> earn 0.5 cent off each stock that runs through it. Office Space rocks!
Goldman's talking about a slowdown? K guys, so basically we are in full blown recovery mode, forget the double dip.
What slowdown?
A mass of kited derivatives blew up in September 2008This Big Lie has come from such propaganda sources as the Limbaugh Institute of Retarded Reactionary Ranting. But the $1.5 trillion in subprime mortgages were dwarfed by the $15 trillion US residential real estate market, to say nothing of the $1.5 thousand trillion world derivatives bubble. But, starting with Bush-Goldman Sachs Treasury Secretary Henry Paulson, the talk has been of a “housing correction,” not a derivatives panic. It must be pointed out that derivatives are nothing but wagers, bets placed from a distance on securities which themselves are often not mortgages, but rather other derivatives. The bettor buying a synthetic CDO or CDO² does not own the underlying mortgages or mortgage-backed securities, any more than someone who bets on a racehorse owns part of the horse. Blankfein and others tried to portray derivatives as a service to hedgers and end-users, but it’s clear that the vast majority of derivatives involve neither hedgers nor users, but only bettors on both side of the transaction. It is in any case this mass of kited derivatives which blew up in 2008, bringing on the present world economic depression.
Goldman Sachs executives are babbling cretinsThe mystique of Goldman Sachs is based in large part on their reputation as the smartest financiers on Wall Street. After today’s hearings, this mystique has permanently dissipated. The Goldman executives babbled. They sounded dumb. They stalled and stammered and went into contortions to avoid giving straight answers to simple questions. They were mendacious and evasive when they did speak. Financial powers around the world will note carefully the refusal of three out of four Goldman executives on one panel to state that they had a duty to defend the interests of their clients. Who will want to do business with such a gang? Goldman Sachs got $10 billion of taxpayer money in low-interest loans under the Bush-Paulson TARP. Part of that money went to pay for obscene bonuses for Goldman executives like the ones on display today. The argument for bonuses is that they must be paid to retain the highly talented personnel, virtual geniuses, who are indispensable for Wall Street speculative success. But these are no geniuses, they are imbeciles. No more bonuses should be paid by banks saved through public money.
Don’t buy any used cars from Lloyd BlankfeinSleaziest of all was Goldman’s risk-monger in chief, Lloyd Blankfein, who pretended not to know that derivatives are often kept hidden off balance sheet. The morally insane Blankfein testified that his role was to provide the firm’s clients with “the risk they wanted.” Other GS witnesses represented the firm’s role as “distributing risk.” But it turned out that they were manufacturing risk through the very existence and activities of Goldman Sachs, which had the result of pyramiding the total risk of the US financial system into intergalactic space. It is time to regulate much of that unbearable risk out of existence with appropriate regulatory legislation. In the meantime, no sane person would buy a used car from Blankfein. Nor should they believe his assurance that the “recession” has ended.
But when at the end of the day Blankfein finally suggested to Sen. Tester that synthetic CDOs might be outlawed, we should accept his proposal immediately.
Today’s hearings reveal the Goldman Sachs gunslingers and whiz kids as ignorant gangsters and con artists, notable only for their ability to practice massive fraud with impudence. These sleazy mediocrities do not deserve bonuses paid for by taxpayers. Rather, it is time to shut them down and put them in the dock.
If Goldman Sachs had cared about is clients, it would have urgently warned them to unload their subprime risk by late 2006 or thereabouts. Instead, Goldman was busily increasing its clients’ risk by selling them more toxic CDOs out of its own inventory warehouse.
Goldman Sachs: bookies who stack the deck and fix the gamesAs the philandering Sen. Ensign pointed out, comparing Wall Street to Las Vegas is a slander on the croupiers of Las Vegas, where everyone knows or should know that the game is rigged so that the house always wins. To use the comparison introduced by Sen. McCaskill, Goldman Sachs was operating as the gambling house, or the bookie. At the same time, Goldman was betting for their own account. But much worse was the fact that Goldman was stacking the decks, loading the dice, fixing the games on which the bets were placed, and bribing the umpires.
As Ensign put it in a rare moment of lucidity, the subprime mortgage was bad. But the collapse of subprime would not have had anything like its actual destructive effect on the US economy if it had not been compounded by the mass of synthetic derivatives that were piled on top of subprime.
No national or social purpose served by Goldman Sachs and toxic derivatives betsThe broader issue raised by today’s hearing is: what human purpose is served by the existence of Goldman Sachs, which concocts toxic synthetic CDOs for the purpose of allowing speculators, who are often lied to and duped, to bet for or against them. Goldman Sachs can only be described as a speculative parasite which promotes the activities of other speculative parasites, such as the John Paulson hedge fund at the expense of the public and of its other clients. It was a crime to inject $10 billion of Treasury money into Goldman Sachs. It was another crime for the Fed to lend Goldman untold billions (just how many billions Bernanke still refuses to disclose) to keep them afloat and enable more predatory profits. These crimes must stop, and the public money must be clawed back. Most important, it is time to shut down the derivatives rackets.
Goldman got $12.5 billion from taxpayers for AIG credit default swapsUseful questions from GOP Sen. Coburn pointed to another kind of derivative: the infamous credit default swap (CDS). These CDS are what brought down AIG, whose London hedge fund had issues $3 trillion in derivatives. When the government bailed out AIG, part of that $180 billion of taxpayer money was used for payouts to the CDS counterparties of AIG, biggest among them Goldman, which got $12.5 billion from the US taxpayer. That was 100 cents on the dollar on a mass of toxic CDS. Coburn wanted to know why Goldman got all their money back, while GM bondholders took a bath as GM went bankrupt. That was, of course, a matter of Goldman’s political clout through GS alum Henry Paulson and Obama Car Czar Steve “The Rat” Rattner, backed up by the historic preponderance of finance capital over industrial capital in this country since Andrew Carnegie sold out to JP Morgan over a century ago.
Derivatives and zombie banks: the tollThanks to Goldman Sachs, the other Wall Street zombie banks, and their derivatives, the financial panic of 2008 has turned into a world economic depression of unimaginable proportions. The unemployed and underemployed in the US alone are surely in excess of 20 million. Five to six million home foreclosures are already done or in the pipeline, throwing tens of millions of Americans out of their homes. World trade has been seriously impacted. The budgets of California, New York, Illinois, and many other states are in crisis, with massive layoffs of teachers and other state employees. An entire generation is being destroyed. Now, Greek bonds are trading at junk levels under the attack of speculative predators including Soros, Greenlight Capital, SAC, and the protagonists of today’s hearings – Paulson and Co and Goldman Sachs itself. The attack on Greece and the euro represents the leading edge of the second wave of the depression, which is now arriving in much the same way that the second wave of the 1930s depression was unleashed by the Vienna Kreditanstalt bankruptcy in May of 1931, about 79 years ago and just a year and a half into that depression.
The goal of the Republicans is to portray themselves as stern judges of Wall Street, even as they line up in a unanimous phalanx to protect the finance jackals from any meaningful regulation whatsoever — as seen in yesterday’s vote to block cloture on derivatives re-regulation and reform. The goal of the Democrats is to expose the sociopathic evil of Goldman Sachs and the rest of Wall Street while preening themselves as defenders of the public interest, without however banning credit default swaps, banning synthetic CDOs, and imposing a Wall Street sales tax on all remaining derivatives and asset transactions.
To this degree, today’s hearings are being conducted in bad faith by both major parties. However, the dynamic of the resulting spectacle has the result of educating and mobilizing public opinion against the predatory practices which are the essence of Wall Street, even a year and a half after the banking panic of September 2008 and the monster bailout of zombie banks which soon followed. What is required is a new edition of the anti-banker sentiment set off by the Senate Banking Committee hearings conducted from January 1933 to May 1934 by committee counsel Ferdinand Pecora, which unmasked the corruption of Wall Street. Persons of good will need to get active now to push this process as far as possible while these social dynamics are working. It is time to hit the zombie banks, the hedge funds, and their derivatives as hard as possible, before the second wave of the depression hits. The program necessary to fight the depression and break the strangle-hold of Wall Street on the US economy and political system.
Mitch McConnell on the bailout: “Harry, I think we need to do this, we should try to do this, and we can do this.”During a break the senators filed out, and the GOP reactionary lockstep once again blocked cloture for a final debate on the Wall Street reform bill, weak as it is. Many activists of the Tea Party naively believe that they have been fighting for a year and a half that they have been fighting to take back the Republican Party. If that is what they believe, today’s second cloture vote proves that they have gotten nowhere in their efforts. Despite their charades, the GOP are the bodyguards of the Wall Street predators. Tea baggers who think they can break the Wall Street grip on the Republicans are pathetic dupes, and they need to wake up, pronto.
When Paulson went to the leaders of Congress to demand a $700 billion bailout for Goldman and his Wall Street cronies, GOP Senate majority leader Mitch McConnell was “deeply frightened” by the apocalyptic briefing delivered by Paulson and Bernanke. When Democratic Majority Leader Harry Reid started talking about how difficult it would be to get so much money in a hurry, McConnell urged an immediate bailout, saying: “Harry, I think we need to do this, we should try to do this, and we can do this.” (Andrew Ross Sorkin, Too Big to Fail [New York: Viking, 2009], p. 442) The GOP was the original party of the bailout, and they have not repented, as best seen through the continuance of McConnell, one of the key midwives of the bailout, as Republican Senate Majority Leader. This is the same McConnell who went to Wall Street recently to meet with zombie bankers and hedge fund hyenas, pledging to block derivatives reforms in exchange for big bucks contributed to the GOP’s campaign coffers. Tea baggers who think the GOP has changed or is moving to their side are sadly deluded.
Today, the market fetishism of the crackpot Austrian school has taken a severe blow. Now that Blankfein‘s public image has been soiled by Goldman’s scurrilous and scatological emails, the time is ripe for the radical reform of derivatives and the zombie banks. This is a matter of national survival.
The goal of the Republicans is to portray themselves as stern judges of Wall Street, even as they line up in a unanimous phalanx to protect the finance jackals from any meaningful regulation whatsoever...
Despite their charades, the GOP are the bodyguards of the Wall Street predators...
Well said..
And so that would make the role of the Dems as the party who only SEEMS like they want to bring change to the Street, yet they're an even worse bunch of hypocrites.
imo they don't even seem anymore, with two or three exceptions.
The broader issue raised by today’s hearing is: what human purpose is served by the existence of Goldman Sachs
+1MM Fantastic! Great points.
If Happy Days Are Here Again, why can't the FED raise the discount rate? As TooBearish put it; What slowdown? ... Oh, it must be the recession/depression we're in.
I hereby rename this period as the Great Suppression
Perhaps someone needs to send the CNBC SPIN team to China for a week's broadcast with several billion pairs of Rose Colored glasses as they are simply ruining my BUZZ - The Shanghai Index is down 1.62% - I mean the audacity - perhaps they haven't translated the Morgan Stanley article to Chinese yet....we can only hope....
"While the market may not have fully adjusted to our own US view, our views of the non-US growth picture have been less negative and the non-US data picture less uniformly disappointing"
So, GS's programming hasn't yet pushed reality?
Quite obvious that all this is for the politicians benefit living in the rarified air of paid off journalists,spin doctors and army,s of well paid hacks and corrupt failed bankers.Its like King Midas when nobody would tell him he wasn,t wearing any clothes,when this lot goes its going to be worse than ever.No single country is going to be able to drag the economic world back onto its feet.The powers that be are just so desperate to carry on with a failed system so they keep their huge salaries,gold plated pensions,mega non-accountability,ultimate powers and sod the rest of us.Stress tests,its a joke all freshly printed money borrowed from god knows where and all to keep a deadman walking,a bloody Zombie corpse.The banks are insolvent and have no honest ready cash.Bullshit and lies and dodgy dealings equals the Great Depression.
Mr. balls
This could go for quite a while longer.
Books from the 70s and 80s said it couldn't last more than a couple years.
And yes, things were fucked up to then (FED manipulation, corporate lies, government paid off....)
'On the US earnings front, a materials company beating reduced expectations and a chip maker having just record the best quarter in its history (what growth next for Intel: 80% margins? 90%? every household in China buying an i7 980 for their 7th toaster in their 5th house?), even as global trade is paradoxically stalling following an all time record month for Chinese trade?'
Two words - erudite and lucid.
DavidC
Hello ZH hedge Family.
I don't post much here, but visit often.
I will only say this once:
MARKET CRASH straight ahead !!
(Within 2 weeks)
Too Nuch uncertainty ... Mr. Market no like uncert....(ALGO'S be DAMmed)
Besides . . . .. it's what Govco. needs for : QE2.0
I agree about the market crash. We are one headline away from 1000 points Dow crash.
There is a very dangerous divergence between this 6-day frothy "rally" and absolute lack of volume (lack of pros participation -- the pros are not buying the "rally", they smell a rat and not interested). I have never seen S&P spiking 100 points with the money flow index moving in the opposite direction (suggesting that this "rally" is artificially generated via futures manipulation -- they manipulate the futures to distribute the stocks to retail [using a 6-day window when there are no horrible US economic data releases])
But AA volume was twice of average today -- suggesting that the pros were dumping AA into this "Alcoa beats estimates" media hype. I bet the pros will be supporting INTC price and distributing the stock to retail tomorrow -- INTC daily volume will be 3-5X above average.
Sure, but the crash may be to the UPSIDE!
Goldman's crystal ball is so shiny.
Squid drivel makes me queasy. :P
You all know how bearish I have been in my last posts..
Since Dow corrected to 9600, I've cutted my shorts and gone long...
Why? I really do believe in a new sort of tech revolution... You americans are kind of traumatized by Nasdaq in 2000, I think.
What happened in 2000? The market showed the Nasdaq's potential is infinite. They exagerated, but I have the same feeling now. In Brazil, people you couldn't imagine using a computer, are using.. And this trend will only continue IMHO.. Eventually everyone will have at least one computer... And with that happening, I can only think of the Nasdaq going up, especially when you count Internet retailers in the equation.
I live in Brazil, and despite the global optimism about my country, the stock market is not that strong right now, but I believe that short term, commodities and Brazil shall also strenghten. The real is very strong already imo, but still upside ahead.
As for Europe, initially I thought it would drag the world with it... Then I realized that volatility as we seen in 2008, only when the next crisis hit america... And I believe that only happens after Dow 12k or so.
Hope my opinions were worthwhile,
Romario
In the 2nd downtown of events,
my prediction is Bank of America will be the new Citibank....
Billons and Billiond in losses, give it one year,
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