Goldman Sachs Asset Management
"In our portfolios with currencies, we have been short the CHF on the grounds that it was an expensive currency which we expected would experience capital outflows as European growth normalized. We were surprised by the sudden removal of the peg. Although the CHF real effective exchange rate is lower than during the European crisis of 2011, it has actually appreciated in recent months. We exited a substantial portion of our CHF short today and are monitoring the situation closely."
"we venture that the SNB will sooner or later be forced to permit the franc to appreciate and thus to enrich the holders of low-priced, three-year call options on the Swiss/euro exchange rate. It's a long shot, to be sure--the options are cheap for a reason--but we judge that the prospective reward is worth the obvious risk." - Jim Grant, Sept 14th, 2014
If only the $3.2 billion Goldman Sachs Global Opportunities hedge fund had listened to the firm's equity strategists, life would have been great. However, as Bloomberg reports, the so-called 'best-ideas' fund dropped 5.6% in October leaving it down 2.6% for 2014 as interest-rate bets went pear-shaped amid the crash-and-dash that was October's market manipulation. "We believe monetary policy needs to catch up with growth, and that interest rates in the US and UK are likely to rise by a significant amount," the fund wrote. It seems Goldman 'muppeted' itself. Things aren't working out... and as a gentle reminder, the fund lost 35% in 2008.
High-yield bond issuance has surged in recent days as 'wide' spreads have encouraged investors to take the dip once again (despite firms' record leverage and increasing desperation to roll the wall of maturing debt). However, it's not all guns blazing, as one manager noted, "while the market reopens, it reopens with issuers having to be a little more investor friendly." Despite Carl Icahn's warning that "the high-yield bond market is in a major bubble that's gonna burst," Bullard's "QE4" comments sparked Goldman to add US junk bonds and Aberdeen says selling EU and buying US corporate debt "is the trade that kind of screams at you right now." The dash-for-trash down-in-quality is back as CCC-demand surges and, as one trader notes the market's schizophrenia: "one day the market feels like it is shut down and you can’t sell anything and you wake up this morning and you can price any part of the curve."
About 36 months ago Ireland’s two-year notes were yielding 14% and its government and the Brussels apparatchiks were scrambling with tin cup in hand to stave off disaster. Now their yield is negative 0.01%.
- Goldman’s Andrew Wilson Says QE in Europe a 2015 Story If at All
- European economy would have to weaken significantly before QE comes into play, said Andrew Wilson, co-head of Global Fixed Income and Liquidy management team at Goldman Sachs Asset Management.
- Says Draghi has foreshadowed policy easing at next meeting, expects ECB to cut rates 1-2 times before they look to other methods such as an LTRO
- Says if other methods don’t work it would “ultimately have to be QE”
- FHFA Is Said to Seek at Least $6 Billion From BofA for MBS Sales (BBG)
- Record Pact Is on the Table, But J.P. Morgan Faces Fight (WSJ)
- Magnetar Goes Long Ohio Town While Shorting Its Tax Base (BBG)
- Mini-Wall Street' Rises in Hamptons (WSJ)
- Obama to call healthcare website glitches 'unacceptable' as fix sought (Reuters)
- Starbucks Charges Higher Prices in China, State Media Says (WSJ)
- Cruz Is Unapologetic as Republicans Criticize Shutdown (BBG)
- Berlusconi struggles to keep party united after revolt (Reuters)
- SAC Defections Accelerate as Cohen Approaches Settlement (BBG)
Overnight, following the disappointing BOJ announcement which contained none of the Goldman-expected "buy thesis" elements in it, things started going rapidly out of control, and culminated with the USDJPY plunging from 99 to under 96.50 as of minutes ago, which was the equivalent of a 2.3% jump in the Yen, the currency's biggest surge in over three years. Adding insult to injury was finance ministry official Eisuke Sakakibara who said that further weakening of yen "not likely" at the moment, that the currency will hover around 100 (or surge as the case may be) and that 2% inflation is "a dream." Bottom line, NKY225 futures have had one of their trademark 700 points swing days, and are back knocking on the 12-handle door. Once again, the muppets have been slain. Golf clap Goldman.
- The Inland Empire bubble is back: BMW to Amazon Space Demand Spurs Rush to Inland Empire (BBG)
- Tamerlan Tsarnaev was on classified government watch lists (Reuters)
- Brothers in Boston Bombing Case Said Drawn to Radicalism (BBG)
- Germany Spurns Calls to Loosen Austerity Stance (WSJ)
- Spain poised to ease austerity push (FT)
- What ever happened to France's voice in Europe? (Reuters)
- U.S., South Korea Reach Nuclear Deal (WSJ)
- U.S. Sees No Hard Evidence of Syrian Chemical Weapons Use (BBG)
- RBA Set to Invest Foreign Currency Reserves in China, Lowe Says (BBG)
- FedEx Wins $10.5 Billion Postal Contract as UPS Shut Out (BBG)
Goldman Sachs, pillar of ethical honesty in the lead up to the last market top and crisis, appears to be so bullish on leveraged loan and high-yield debt that it prefers to create an entirely separate holding company (that requires less transparency and avoids the Volcker Rule), raise external equity capital, lever up, and use a management team with "no experience managing a business development company (BDC)." As the WSJ reports, Goldman plans to offer shares in a new unit, Goldman Sachs Liberty Harbor Capital LLC "as soon as is practicable," in a BDC that means it is exempt from the so-called Volcker Rule. The entity also enables Goldman to report less transparently since it qualifies as an emerging growth company under the JOBS Act. Given the richness of credit, and the 'frothiness' in high-yield, is this an implicit option on credit (if credit rallies, profits go up to parent entity; if credit tanks, entity implodes and eats 'remotely' the new equity capital without affecting the bank itself)? Or maybe we are being too negative?
The Chairman of Goldman's Asset Management group, unwise supporter of Man Utd, promoter of 'decoupling' myths, and creator of the BRIC mnemonic has decided, with everything looking so tickety-boo, to retire. Whether his great Buy BRICS fail or his BoE leadership bid fail was the final straw is unclear, but for now, the erstwhile permabull (and mocker of market skeptics) leaves us on a bright note:
- *O'NEILL SAYS CLEAR EVIDENCE OF THINGS DOING BETTER ECONOMICALLY
20 years of 'broken record' survival and the Brit throws in his chips now - just as everything looks be taking off? Leave your farewell message below...
Back in 2011, BlackRock's Larry Fink revealed one of the great unspoken truths of capital markets, namely that "markets like totalitarian governments." They also like authoritarian socialism, sprinkled in with a healthy dose of nationalization, because as Bloomberg reports, one of the biggest beneficiaries of over ten years of the "glorious socialist revolution" in Venezuela, coupled with over 1000 nationalizations by the bed-ridden and roughly 15 times deceased Hugo Chavez (if one believes all the rumors), is none other than Goldman Sachs, which generated some 681% in returns due to "aligning its interests" with those of the unshakable Venezuelan ruler.
- Wal-Mart misses topline expectations: Revenue $113.93bn, Exp $114.89bn, Sees full year EPS $4.88-$4.93, Exp. $4.94, Unveils new FCPA allegations; Stock down nearly 4%
- China chooses conservative new leaders (FT)
- Eurozone falls back into recession (FT)
- Moody’s to Assess U.K.’s Aaa Rating in 2013 Amid Slowing Economy (Bloomberg)
- Another bailout is imminent: FHA Nears Need for Taxpayer Funds (WSJ)
- Hamas chief vows to keep up "resistance" after Jaabari killed (Reuters)
- Obama calls for rich to pay more, keep middle-class cuts (Reuters)
- Obama Undecided on FBI's Petraeus Probe (WSJ)
- Battle lines drawn over “growth revenue” in fiscal cliff talks (Reuters)
- Rajoy’s Path to Bailout Clears as EU Endorses Austerity (Bloomberg)
- Zhou Seen Leaving PBOC as China Picks New Economic Chiefs (Bloomberg)
- Russia warns of tough response to U.S. human rights bill (Reuters)
- Japan Opposition Leader Ups Pressure on Central Bank (WSJ)
- Zhou Seen Leaving PBOC as China Picks New Economic Chiefs (Bloomberg)
As we have explained recently, the US fiscal cliff is a far more important issue 'fundamentally' than the Fed's economic impotence. While most market participants believe some kind of compromise will be reached - in the lame-duck session but not before the election - the possibility of a 3.5% drag on GDP growth is dramatic to say the least in our new normal stagnation. As Goldman notes, the window to address the fiscal cliff ahead of the election has all but closed, the 40% chance of a short-term extension of most current policies is only marginally better than the probability they assign to 'falling off the cliff' at 35%. The base case assumptions and good, bad, and ugly charts of what is possible are concerning especially when a recent survey of asset managers assigned only a 17% chance of congress failing to compromise before year-end. Critically, and not helped by Bernanke's helping hand (in direct opposition to his hopes), resolution of the fiscal cliff will look harder, not easier, to address as we approach the end of the year - and its likely only the market can dictate that direction - as the "consequence is terrible, but bad enough to force a deal."