How Goldman's "Recommended Top Trades" Cost Clients Billions And Contributed To Goldman's Perfect RecordSubmitted by Tyler Durden on 05/19/2010 07:31 -0400
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.
- Martin Wolf: Eurozone plays "beggar my neighbor" (FT)
- Specter loses senate race, Rand Paul driven by Tea Party (Bloomberg)
- Riots, fires spread across Bangkok as army forces protesters to surrender (Bloomberg), fire set to stock exchange (WSJ)
- Yes, please keep throwing away your money by buying Apollo's IPOs (Bloomberg)
- Roubini says US may soon face bond vigilantes (Bloomberg)
- More on Goldman's Timberwolf CDO: settlement talks between Basis fund and Goldman heat up (Reuters)
- Doomsayers beware, a bright future beckons (NYT)
- Asian, European stocks, commodities fall; Treasuries rise after Germany bans short selling.
- Consumer prices in US may show inflation contained as economy recovers.
- Germany to ban naked short-selling on certain financial stocks, soverign bonds.
- Hedge Funds bet Europe's $1 trillion rescue package won't cure debt crisis.
- Private Equity-backed US IPOs leave buyers with worst returns in decade.
- US Regulators proposed new curbs to tame volatility; circuit breakers for every stock.
RANsquawk 19th May Morning Briefing Stocks, Bonds, FX
Wednesday Trading Session Set To Be "The Most Volatile In Living Memory" Warns Telegraph, Plunge In Bunds ExpectedSubmitted by Tyler Durden on 05/18/2010 23:20 -0400
If there was any doubt about where futures will open tomorrow, the following article from the Telegraph should assuage all doubts: "Traders greeted the move by BaFin, the German regulator, with a mixture of anger and astonishment. One bond trader said he expected Wednesday's trading session to be one of the most volatile in living memory: "It will be complete chaos, I really don't know what the Germans think they are doing.""Without the two-way flow the German market is likely to become utterly dysfunctional," said one London-based bond trader. "Nobody ever thought they'd do this in a million years and it raises the long-term question of who is now going to want to buy their debt."
BaFin banned naked short sales and unsecured CDS on government bonds in the euro zone. The Federal Financial Supervisory Authority (BaFin) on Tuesday naked short sales of debt securities by euro zone countries, which are admitted to trading on a domestic exchange in the regulated market, temporarily prohibited. it has also temporarily banned so-called credit default swaps (CDS), where the reference obligation is a liability, at least one country of the euro area and they do not serve to hedge risks (unsecured CDS). (translated from German)
The market’s immediate response to the ban announcement was to sell the Euro. Such a response makes sense as when faced with the inability to manage risk in debt, stock or CDS markets, participants sell what they can. And that means the Euro. But by having inadvertently further undermined the Euro, today’s actions increase the risk of failure in the entirety of the liquidity support program as the Achilles heal of the European intervention is its potential to undermine the currency. Unlike the US policy response, massive liquidity support from the ECB can create the perception (if not the reality) of a debt monetization scheme. While the US explicitly monetized the debt, it benefited from a flight to quality and worlds reserve currency status, neither of which the Euro enjoys. A precipitous decline in the Euro remains the risk to the outlook, and on display today as the Euro declines led the selloff in broad risk markets. - Jeffrey Rosenberg
Dylan Ratigan and Berney Sanders do a great summary of the various parallel amendment attempts to put some teeth into Dodd's joke of a bill. Ironically, as misguided as it is in most regards, at least Merkel's "reform" showed the kind of conviction that Dodd and his mostly incompetent colleagues will never be able to muster, as they scramble all over each other to collect the scraps that Wall Street has promised them so long as Goldman can generate annual revenues of $60 billion and above. And since our politicians would make the Amsterdam Red Light district blush, you can bet the end results of the Senatorial corruption will be unprecedented, resulting in a bill that achieves the opposite of what it is intended to do: i.e., make banks even stronger and gives the Fed even more power. Which is why any debates about the merits of Merkley-Levin or blah-blah are pointless. The only final arbiter in the reg reform issue will be the market itself, which will resolve everything the second it crashes once and for all. And judging by the size of the carry unwind currently occurring, we may not have to wait long. Which is why we think that Angela Merkel may have brought about the unwinding of the market that will be the one real catalyst to any real reform: after all, for people to express any interest in what is going on in Wall Street's Washington branch, people will have to lose everything... again. As Senator Sanders says, the American people have got to stand up. He is right, however the only thing that will wake America out of its slumber will be one more terminal crash, the one that corrupt and busted finreg reform was supposed to prevent.
After earlier we saw the decimation of the European currency, it is now Asia's turn where an impressive bloodbath is now raging. The AUDUSD is in freefall, having moved a massive 300 pips from yesterday's high to today's low. At under 50 pips from 0.855, the AUDUSD will likely breach 0.85 at which point the destruction at carry desks will become an epidemic, and full liquidations will soon ensue, coupled with billion dollar margin calls, forcing global asset liquidations at bulge brackets. With the carry collapse pervasive, don't look to futures to stage any miraculous Fed-inspired ramps tonight: Germany may have well called the Fed's bluff.
Watch Senator Jeff Merkley Ripping Apart Wall Street Crony Interests Right Now In Attempting To Pass Volcker RuleSubmitted by Tyler Durden on 05/18/2010 21:05 -0400
Right now on C-Span Jeff Merley is ripping appart not just Wall Street, but crony and corrupt Senators who are blocking a vote on the Merkley-Levin amendment. As a reminder Merkley-Levin is the critical and actionable form of the Volcker Rule that if passed would destroy Goldman Sachs. Live C-SPAN webcast here.
What does a failed community bank that is not TBTF or have its former CEO running the Treasury have to do to not end up on the TGI Bank Failure Friday dinner list of busted banks? Simple - be located a few blocks from where the president grew up and to which he has a sentimental attachment. Additionally, casually dropping a few mentions of criminal CDO investigation this, grand frontrunning jury that, is sure to bring instant wire transfers from a few TBTF parties (whose former CEO did run the Treasury), even if these parties are the same that last week were on the receiving end of yet another Wall Street themed fire and brimstone sermon. Today ShoreBank, which should have failed in a normal capitalist society, received a reprieve after the Obama administration did not force banks to bail it out. In fact categorically so. Because otherwise what kind of a fair and efficient system would we have, if preexisting ties and crony relationships were all that matter in determining life or death. After all that's how things worked in Russia. And Russia was an evil empire.
Assets tried to rally early yesterday, and oil prices started out moving higher, following largely in the shadow of equities. The DJIA was up roughly 90 points at its high point on Tuesday, but it sold off through yesterday afternoon. By the final bell in stock trading, which is at 4 PM, the DJIA was down 114.88 to 10,510.95. And oil prices were down, with equities. Crude oil dropped 92 cents, with the front-month June falling more than July. September contracts and beyond fell more than June did. Heating oil prices lost more than two cents, while gasoline prices held up the best of anything in the oil complex.
One of the benefits of working for the US Treasury, in addition to printing infinite amounts of debt at ever higher Bid To Covers, is the ability to confiscate stuff. As part of the UST's Seized and Forfeited Program, every several months the Treasury organizes assorted auctions for items that one would typically find at a Goldman Sachs Hamptons Fried Calamari party. At this point, it seems Tim Geithner finds himself in possession of a few extra Veyrons, SLR Maclarens, Bentleys, Stingrays, Spyders and Murcielagos, and needs to urgently get rid of these just in case the Direct Bidders decide to stop taking down up to 30% of each and every UST auction. The upcoming auctions for 2010 will be held in Broward Country, FL, June 3; Riverside, CA, June 9, 2010; Miami, FL, August 11, 2010, and Dayton, NJ, on September 1, 2010. The US Treasury page for the upcoming auction can be found here, as to whether the final auction prices are reasonable, you can check what recent auctions have closed for at this link. Below is the flipbook of all the ridiculous items currently in the possession of the Treasury, and which are now auctionable.
Seth Klarman Sees Another Lost Decade For Stocks, "Artificial" Market Reminds Him Of A "Hostess Twinkie"Submitted by Tyler Durden on 05/18/2010 18:43 -0400
Seth Klarman was speaking at the CFA Institute earlier, and in typical fashion cut to the chase: in summarizing the current market, the Baupost founder said he "sees few bargains in the current environment and predicted on Tuesday that the stock market could suffer another lost decade without any gains." And the punchline: his description of market conditions which he compared to "a Hostess Twinkie snack cake because everything is being manipulated by the government and appears artificial." Such facility with words, there is a reason the man runs a $22 billion fund and his book "Margin of Safety" has been out of print for years, and sells for a $1000 on ebay.
Yes this is it! We have crossed the Rubicon and events in the world economy are now likely to unfold in a totally uncontrollable fashion. Clueless governments still don’t understand that it is their ruinous actions that have created a credit infested and bankrupt world. They will continue to prescribe the same remedy that caused the problem in the first place, namely more credit and more printed money. The consequences are clear; we will have hyperinflation, economic and human misery as well as social unrest. When will the world finally begin to understand that we have reached the point of no return and that “the voyage of their life is bound in shallows and in miseries” (Shakespeare, Julius Caesar). Sadly, we are probably not very far from that point. It is already starting to happen in many countries. Never in history has the world been in a situation when virtually all industrialised countries are bankrupt. Therefore there is no precedent for what will happen in the next few years. What we can be quite certain about is that events will happen in a seemingly random pattern and that it will be impossible to forecast where the next crises will start. - Egon von Greyerz, Matterhorn Asset Management