On March 13, David Kostin boldy went where A. Joseph Cohen has gone so many times before, by becoming the best contrarian indicator around. To wit: "Investors we met this week remain bullish in both outlook and
positioning, consistent with our view. We expect S&P 500 to
rise to 1300 by mid-year (+13%), before ending 2010 at 1250 (+9%)." Kostin missed his target by 30% in 3 months. We are not sure if even his equally capable predecessor, AJ Cohen, was as skilled at so wholesomely raping and pillaging the P&L of the firm's few clients who still are terrified to utter a squeek of disapproval against the monopolist for fear of losing those oh so precious trading axes, formerly rightfully belonging to GS archrivals Lehman and Bear Stearns. Luckily, we have Christine Varney keeping an eye on such market monopolistic behavior.
How Goldman's "Recommended Top Trades" Cost Clients Billions And Contributed To Goldman's Perfect RecordSubmitted by Tyler Durden on 05/19/2010 06:31 -0500
Zero Hedge has long discussed the strange phenomenon whereby Goldman recommends a trade only to unwind it shortly, after institutional clients who have been naive enough to follow it, end up losing millions, sometimes in a period as short as a few days. The observation there being that the only way Goldman scores something like a perfect 63 out of 63 quarter is by literally raping its clients, along the lines of what Goldman is currently facing civil and criminal probes for allegedly doing in the CDO space. And while our rant has been public for quite some time, yesterday was the first time the Bloomberg also decided to join the fray.
Eric King reports the breaking news that in a letter obtained by Ted Butler, the DOJ's Antitrust department is considering launching an investigation into silver market manipulation by JP Morgan. Should an announcement of a full formal probe of manipulation by JPM follow, it would be tantamount to a confirmation of what numerous individuals have been claiming over the years, that JP Morgan, the LBMA, the CFTC, various banks, and even that kindly old grandpa who was so much against derivatives except when he was about to lose money as a result of regulation that he is spending the whole weekend telling his investors in Omaha to run, not walk, to Borsheim's, and buy all their massively overpriced trinkets (you can't be a quadrillionaire without first being a trillionaire), are nothing but a borderline criminal cabal that traffics in wealth extraction courtesy of a few monopolist players. As Eric King discloses in its letter the Anti-Trust division announces that "it will carefully consider the issue of silver market manipulation by JP Morgan and other traders. Generally the CFTC investigates these types of market manipulations. However, the suggestion that JPMorgan Chase may be signaling other traders, warrants further analysis. The DOJ will carefully consider the issue you raise, and you can be assured that if we conclude that silver traders have engaged in anti-competitive conduct, we will take appropriate enforcement action."
Paging Christine Varney. Finally, what Zero Hedge has been pounding the table on for months is starting to make it through to (some of) the ruling elite. In an interview with Dylan Ratigan, Bernie Sanders, who unfortunately is not quite representative of the prevailing DC groupthink yet), says: "it is not just a too big to fail problem, it is monopolistic control of the economy and the incredible concentration of ownership. If Teddy Roosevelt were here right now, the guy who broke up all the big special interests in his day: if he believed that two-thirds of the credit cards were being issued by four banks, does anyone think we should not be breaking these guys up."
The argument for breaking them up is blatantly simple: to protect taxpayers against another TBTF episode, as well as to preempt their concentration of ownership which means "unbelievable power and monopolistic influence over the whole economy."
Sanders, following in William Black's footsteps, is also painfully blunt: "the issue is not whether Congress regulates Wall Street, it's the degree to which Wall Street regulates Congress."
"[Goldman] designed something intentionally complex that's basically a mechanism of transferring money from you to John Paulson. John Paulson, it is true, has not been charged with anything. But he was involved in designing the security. For all we know right now it was probably his idea and if he walks away without being charged, it shows how broken our system is." This is Simon Johnson discussing the Goldman fraud charges on Friday night with Bill Maher. Could the public's attention now be shifting ever more toward those top performing hedge fund managers who year after year made billions, and instead of praising them for their acumen, are now seeing a sentiment shift toward one of wealth merely as a result of massive criminal collusion between the hedge funds and the big banks... well big bank, cause Goldman is really all that's left of the traditional broker/dealer complex. Which once again invokes our long-standing point: the DOJ should immediately break up Goldman Sachs into many smaller entities, due to the firm's unquestionable (allegedly) criminal monopolistic impact on the marketplace. Christine Varney - wake the #&$* up! And whatever happened to that FBI investigation into SAC? Will Stevie Cohen be next as the mid-term elections approach and the public demands blood from someone?
Love him or hate him (and based on some recent appearances, notably side by side Hugh Hendry, he hasn't left much room for amorous intentions), Joe Stiglitz once again takes center stage, this time in this appearance at the Commenwealth Club, in which he discusses various things (among which are his grading of Obama, which compared to Dubya' administration, he gives an A+, and since this is roughly in line with where the rating agencies rate the US, it should raise all sorts of red flags). One of the key topics of discussion is his claim that efficient markets are a myth, and that Adam Smith's "invisible hand" appears as such because it was never truly there. Joe's bashing of economists with their hollow goal-seeked theories is one thing we can certainly agree with, and as to the market being propped by visible hands and other means, well, that is beyond the scope of this post (unless Chairman Shalom decides to grace the comment stream with his presence).
Earlier today the general public got one of its first public disclosures of what Goldman believes its prop trading operation contributes to the firm's top and bottom line. For those uninitiated with banker lingo, prop trading is basically the profit that Goldman makes by transacting exclusively as a hedge fund: this is not agency or facilitation revenue, but merely principal positions that represent balance sheet risk for the firm. Of course, with the Fed having made clear that America would fail before Goldman does, the definition of risk as it applies to Goldman is laughable. Yet considering that Goldman must disclose a trading VaR , or value at risk on a quarterly basis, which over the past year has averaged over $200 million, one can back into what the actual prop capital and revenue generated by prop strategies is (VaR is simply a statistical calculation of how much Goldman would stand to lose if a "one in twenty" event occurred. It is not the maximum loss risk that Goldman has exposure to - a good example of a terminal event, i.e., one which would leave the firm bankrupt overnight, or aVaR of infinity with a narrower confidence range, would be something like the recently notorious "what if" of an aborted AIG bankruptcy, courtesy of Tim Geithner). Goldman's head of PR claims the Goldman's prop trading accounts for only 12% of net revenue. Zero Hedge disagrees, and we would like to pose a question to Mr. van Praag which we hope Goldman will answer for us in order to refute our observation that Goldman may be disingenuous in its public statements.
The man who has benefited more from governmental subsidies for financial companies (which also happen to comprise his core investments) than anyone else, Warren Buffett, has decided to cry foul and complain to the SEC over what is quickly becoming a war in the news wire world. Turns out, his Business Wire firm, which is one of the top two distributors of official news and information from public companies, has realized that subsidies are actually not all that cool, especially when one is not on the receiving end of wasteful capital spending. As a result Buffett has come to the brilliant conclusion: "Business Wire contends that subsidization would be anti-competitive." We wonder how long it will take before Mr. Buffet concludes the obvious - that government subsidization of his pet Wall Street firm Goldman Sachs has very much the same anti-competitive results? We are not holding our breath. Warren has once again proven that while the word hypocrite may be a tad strong in describing him, it does serve quite well.
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.
"Has the era of the dark pool come to an end?" Thus begins the Traders Magazine cover article "End of the Line? SEC Targets Dark Pools and Off-Board Trading", which deconstructs all the incipient issues, criticisms and concerns facing the utterly discredited Mary Schapiro who is hell bent on getting at least one thing right during her career at the SEC, before she is brushed off as even less effective than her arguably much worse predecessor Chris Cox.
As expected, dark pool operators have responded, getting concerned that after the recent escalation in the Flash trade scandal, they are the next natural target. And what surprise that their only retort, as per this WSJ article, is that they provide liquidity, and make stock trading cheaper. Right down to the generic script. At least they haven't used the mutual assured destruction defense clause quite yet.
Paul Wilmott: "Thus the problem with the sudden popularity of high-frequency trading is that it may increasingly destabilize the market. Hedge funds won’t necessarily care whether the increased volatility causes stocks to rise or fall, as long as they can get in and out quickly with a profit. But the rest of the economy will care."
"if you look at what's happened recently in the credit markets, it hasn't opened
our eyes to liquidity risk, but liquidity cost and liquidity risk is perhaps a different
animal. It's not just about price volatility. It's about volume volatility. It's about timing of
that volume volatility. It may be there today, and when you want to get out of your
position, it may not be there tomorrow. And how do you reflect that into your own
trading and into, not just your alpha generation, but on the risk side of the alpha
generation? Most risk models don't really take into consideration the kinds of anomalies
that we may see on a yearly basis."