Goldman Crashes To Earth: Reports 24% Trading Day Losses In Q2, Compared to 1% In Q1

What a difference a quarter makes. Back in Q1, Goldman reported one (1) day in which it had a trading loss out of 62. It also reported 32 days on which it made over $100 million. Oh how the times have changed. According to the just released 10-Q, Lloyd Blankfein's firm suffered an epic implosion, recording 15 trading day losses out of 63, or a stunning 24% loss rate. And far worse: only 4 days in which Goldman recorded profits of $100 million. And that's why the stock is floundering. The only question is whether this was premeditated to shift the public anger away from Goldman which back in 2010 barely had any trading day losses in the entire year. And if not, what is the systemic change that caused this worst quarterly performance for Goldman in years?

The "Fractal" Limit Order Buster: The Latest Market Manipulation Algo Gimmick

Yesterday, just after 8 pm Eastern we presented a very curious move in NatGas trading on the NYMEX when under very light volume, the NG performed something akin to a sine wave expansion, with about 12 peaks and troughs with ever increasing amplitude, until ultimately it triggered a major sell off when it appeared to touch off an avalanche of limit orders about 3% from the prevailing price, leading to an almost instantaneous 8% drop in Natgas which was promptly recovered. We dubbed this a fractal pattern, and after a follow up with the trade forensics experts at Nanex, it appears this was a very spot on designation, as zooming into the pattern indicates increasing levels of self-similarity and complexity. Yet aesthetic observations aside, this latest algo appears to be nothing more than a limit order-busting market manipulation device, whose sole purpose is to destabilize and generate volatility for the creator of the algo. Curiously, as Nanex indicates, the algo is not limited to Natgas but also appears to recur in other far more liquid instruments, such as the SPY, when a comparable fractal pattern was observed in broad daylight. As to how the algo itself profits from the price instability it generates: we are unsure. One could certainly trade the increased volatility through derivatives, by buying vol cheap in advance of such as limit order triggered waterfall, especially in very thin markets, and then selling the vol at the apex of a given move. Obviously, this is merely speculation. That said, we are dead certain Finra and the SEC are promptly pursuing the trader responsible for this glaring attempt at market manipulation in order to find out precisely how one profits from such fractal algorithms.

Big Trouble In Little Goldman's VPN Firewall (Or NYT's Editorial Department)?

This evening's latest NYT Story-Morgenson Joint Venture story about Goldman beats a well-beaten drum: the question, which has been discussed extensively on Zero Hedge and elsewhere before, of just how ridiculous and ludicrous is the notion, used by Goldman in both Congress and before the SEC, that Fabrice Tourre, then a midlevel 28 year old whose story has been told millions of times, worked completely and entirely alone when perpetrating the Abacus CDO "transgression" (for which Goldman neither admitted nor denied guilt). Obviously this is such BS that nobody but an entity as entitled (and for the implications of perceived infinite self-entitlement look no further than DSK or David Sokol) as Goldman (and hence the SEC which needs Goldman for future employment prospects) could possibly believe it. There is however, a link in the story that is so weak, that it raises extensive questions about either the credibility of the entire narrative, or the complete worthlessness of Goldman's IT security and VPN firewall, two possibilities that demand further inquiry.

Grassley Steps Up SAC Insider Trading Inqury: Demands SEC Information On How Regulator Resolved Steve Cohen FINRA Referrals

It looks like the SAC investigation is about to go to the very top. As we reported over the weekend, Senator Chuck Grassley recently commenced an investigation into at least 20 trades, both stocks and options, at SAC Capital, that may implicate the billionaire with the zamboni in insider trading (despite a very spirited defense that Mr. Cohen is a true humanitarian at, heart having recently purchased none other than the NY Mets, evidence of his civic duty) and lead to an insider trading conviction that would make the Raj Raj affair pale in comparison. Of course, any investigation of SAC would draw many parallels to Madoff, where it would appear impossible that any potential insider trading over the years occurred without the regulator's knowledge. Hence, in a new letter to the SEC, the senator has made it clear that he is now investigating whether or not SEC pursued and/or resolved any of the numerous Finra referrals regarding SAC. Grassley is also seeking: "how the number of referrals over this timeframe compares to similarly situated firms, [and] whether a Wells Notice was ever drafted with regard to SAC Capital related to any of these referrals or related to any other matter (if so, please provide a copy of any Draft or Final Wells Notice)." We expect to discover the answer to the last question to be exactly zero. We also expect that various district attorneys will suddenly jump at the opportunity to earn a few political brownie points now that they smell some very nutritious blood in the water.

Fed's Duke: "America's Poor Have To Make A Choice Between Paying Their Gas And Their Mortgage"

And another pearl of wisdom from the Fed's uberthinkers, in this case Elizabeth Duke: "the recent increase in gasoline prices has affected consumer choices in housing and other purchases, big and small. Family incomes have not kept pace with rising costs and many families, particularly those with low-to-moderate incomes, are actually facing the decision between buying gas to drive long distances to work and paying their mortgage. During the housing boom, when gas prices were much lower, potential homebuyers moved steadily farther away from employment centers in search of more affordable homes. This was referred to as the "drive till you qualify" method of home buying. Foreclosures remain high in these areas where the cost of driving to work has become so great." At least America's poor can still afford to buying deflating iPads... And after all didn't they said QE2 was a success for everyone? Or maybe the recent Philly Fed finding that lower and middle class families are actually suffering under the QE2 mandate, much in line with expectations of everyone who is not a Princeton economics professor or alumnus, are finally being validated. Oh well, this is nothing that a little QE3 can't fix. And some more thoughts from a Ph.D. in Captain Obviousness: "the collapse of housing prices and resulting worker immobility has changed consumers' appetite for homeownership. In Fannie Mae's 2010 Own-Rent Analysis, the percentage of respondents who said they were more likely to rent their next home than buy climbed from 30 percent in January to 33 percent in December of the same year." It's insight like that that explains why those Fed governors get paid the big Bernankebux.

SAC Investigated For Insider Trading

The world's most anticlimactic, yet overexpected, news has finally arrived. Reuters reports that Senator Chuck Grassley is investigating possible insider trading at SAC Capital Advisors LLP. Possible. LOL. And so it begins: "The Financial Industry Regulatory Authority last week provided Senate Judiciary Committee head Charles Grassley with about 20 instances of suspicious trading at the hedge fund, a spokeswoman for the senator confirmed on Saturday. Grassley had asked Finra in April for information on any such trading at Steven Cohen's $13 billion hedge fund...It was not clear if the trades had been referred to the Securities and Exchange Commission's enforcement staff, and authorities have not alleged wrongdoing by SAC or Cohen. Court filings also show prosecutors are investigating trade accounts at SAC, including one tied to Cohen, SAC Capital's founder. SAC representatives and congressional investigators met in Washington on May 10 to discuss possible suspicious trades, according to the Wall Street Journal, which earlier reported Grassley's receipt of information from Finra." So even once it is finally uncovered that Cohen's billions in personal wealth have been allegedly accumulated after years of information arbitrage, and we get yet another confirmation that hedge funds only make money through economies of scale, but mostly size (until the implode), or simple insider trading, we are supposed to remember that Cohen is a great humanitarian at heart, and has spent a few million of his allegedly ill-gotten gains for civic pursuits: "Also at the meeting, SAC Capital's
Washington-based policy adviser Michael Sullivan cited Cohen's
"civic-minded interest" in purchasing a stake in the New York Mets
baseball team, the report said.
" Last but not least, SEC heart SAC because with it gone, liquidity (and volume) on the NYSE would plunge by another 15% (and likely much more) in yet another confirmation that fair and efficient US capital markets are nothing but a farce. "At the meeting, SAC representatives suggested the investigators go easy on the hedge fund, saying it has internal procedures to track down and prevent illegal trading, according to the Wall Street Journal report."

Charting The Stunning Monthly Change In April ETF Volume

According to the National Stock Exchange April is so far shaping up to be a very cruel month for banks. After the March spike in trading volume and volatility in the aftermath of the Japanese earthquake and Fukushima disaster, April saw broad market volume tumble, particularly as represented by the one "synthetic CDO" product that everyone appears to be in: ETFs. While in March, ETFs accounted for 31% of all equity volume, in April, this number dropped to 27.5%, although it is the key components that bear pointing out. The traditionally most popular ETF, the S&P500 SPDR saw its notional volume plummet from $637 billion to just $386 billion, a 40% drop. If this is indicative of broader stock trading, then April will be a disaster for bank trading desks. Other key ETFs fared comparably: QQQ dropped 22%, and the XLF was down 43%. There was, of course, one major exception. See if you can spot it on the chart below and which should make everyone who is in it very concerned about a possible Finra margin hike in the ETF (because Finra will never hike margins in pure equity ETFs) as was discussed previously.

With Now Daily Margin Hikes In Silver, Is The SLV ETF Itself Next?

Following relentless margin hikes in silver on various exchanges, here are some thoughts on what may happen as the "regulators" do everything in their power to bring down commodity prices down as the broader population increasingly creates their own gold (and as the case may be silver) standard.

Guest Post: Are You Really Protected From Another Flash Crash?

Pop Quiz: Let’ s suppose, hypothetically, you are trading a non-Russell 1000 stock. All of the sudden, out of nowhere, the network at a major exchange is hacked by some foreign intruders. Data becomes corrupted and the high freak “liquidity providers” head for the exits as fast as they can. Stop limits are being triggered everywhere and the phantom bids that represent today’s equity market have all but vanished. Your sell order gets executed 29% away from the last trade. Exchanges are able to quickly locate the source of the network intrusion and shut down the hackers (we know, not likely, but just play along). The stock you were trading quickly recovers after it brief loss and is now back to trading at its pre-hack level. In addition to your trade that got executed 29% lower, there were over 200 other “bad trades” that were executed far from the reference price. Question for you: Does the exchange break your trade since it was “clearly erroneous”? If you answered “No”, then you are correct. How can that be, you say. Didn’t the SEC put in place all sorts of rules since the May 6th “Flash Crash” that would protect your order from this type of situation? Well, in September of 2010, the SEC approved a little known FINRA rule request (Rule 11892) which created a new category for breaking of “clearly erroneous trades”.

ilene's picture

Self-dealing, conflicts of interest, favoritism and arguably fraudulent conduct are not unique to the treatment of auction rate securities during the economic collapse of 2008, for these qualities can be found in everything the Fed touches. But ARSs are one blatant example hardly anyone talks about.

Here Comes Abacus V 2011: Former Head Of JPM's Structured Products Desk To Be Charged With Securities Fraud For CDO Transactions

Considering it was the charges of securities fraud levelled at Goldman last year (subsequently settled) in late April that were the primary catalyst for the start in the market sell off, it would not be surprising that in a year which so far is following the script of 2010 verbatim, that we should get another allegation of insider trading by a major bank in something relating to CDO fraud, just to seal the guarantee on QE3. Well, guess what. We just did. As Bloomberg's Joshua Gallu and Jody Shenn noticed first, in the FINRA Brokercheck record of one Michael Llodra, there is a curious announcement. To wit: "MR. LLODRA RECEIVED A WELLS CALL FROM THE STAFF OF THE US SECURITIES AND EXCHANGE COMMISSION INFORMING HIM THAT THEY ARE CONSIDERING RECOMMENDING THE COMMISSION COMMENCE AN ACTION CHARGING HIM WITH VIOLATING CERTAIN PROVISIONS OF THE FEDERAL SECURITIES LAWS BASED ON HIS INVOLVEMENT IN THE SALE OF A STRUCTURED PRODUCT IN 2007." And just who is Mr. Michael Llodra? Oh only the global head of structured-product collateralized debt obligations at a little firm known as JPMorgan. And while JPMorgan has not been named yet, this news coming out a day ahead of JPM earnings is bad to quite bad. Recall that the Abacus process against Goldman started with the filing of Wells notices against Fab Tourre and his supervisor (which were never disclosed in time - a fact observed then by Zero Hedge - and subsequently ended up costing GS a little pocket change in FINRA appeasement fees). Does this mean the SEC is about to launch an all out assault against JPM at some point in the indeterminate future? Well, for an agency which is in dire need of improving its image, this just may be the case. Not to mention that the double beneficiary of this action would be none other than Goldman Sachs: a market sell off here would guarantee QE3 and certainly weaken the firm's primary competitor. Two birds with one porn-addicted regulator.

Advice On How To Trade Gross' Treasury Dump From A Former PIMCO Employee

Having worked at PIMCO for 4.5 years, I can tell you that this kind of a major allocation decision was not reached overnight nor was it reached without considerable debate by every senior member of the firm. In other words, the decision to lower total US Treasuries to 0% was discussed by senior portfolio managers, senior account managers and many prominent outside consultants for days and perhaps even weeks before it was finally implemented. They never do anything over there without vigorous debate and discussion. For example, Alan Greenspan is a paid consultant to the firm and often participates in their quarterly Secular Outlook meetings. I don’t know if Mr. Greenspan participated in the debate about this decision but I wouldn’t be surprised if he or others of his stature did. By this move PIMCO is clearly indicating, almost by putting their reputation on the line because imagine the underperformance they face if they are wrong, that bond yields in the US will be rising soon, US Treasury prices falling and liquidity drying up to some degree.