It's Not 2008, It Is 2007: Goldman Global Alpha Just Blew Up All Over Again

Tyler Durden's picture

Those who have been around for more than one trading generation (which in the old days was 3-4 years, but in the current centrally-planned, vacuum tube-traded times, is more like 3-4 months), will distinctly recall that the first rumbling of the financial crisis started not with the bankruptcy of Lehman, or even the handoff of Bear (and its massive silver legacy short) to Jamie Dimon, but in August 2007, when days after the market hit its all time high, something went massively wrong in the quant market segment (nobody still knows what it was but many speculate that is was simply every algo being on the same side of the trade and trading out all at the same time following the blow up of the Bear Stearns hedge funds). What the first week of August 2007 was notable for, in addition to massive losses for such legendary quants as RenTec (very well described in Scott Patterson's book titled appropriately enough "The Quants"), was that for the first time ever, the infallible Goldman Sachs... fell. Specifically, its heretofore mythical Global Alpha quant fund, which had the mythical allure of a 33rd degree Freemason dinner, imploded, and crashed, forcing the end of a quant generation, and the beginning of the end of Goldman's aura of invincibility. As Bloomberg recalls those August 2007 days: "Goldman Sachs Group Inc.'s $8 billion Global Alpha hedge fund has fallen 26 percent so far this year, a decline that may prompt more investors to withdraw their money, according to people familiar with the fund...On June 26, Goldman said Eric Schwartz, co-head of asset management since 2003, would step down in the next few months and leave Peter Kraus in charge of the fund unit. Global Alpha decreased 8 percent during the last full week of July and was down 16 percent from the beginning of January through Aug. 3. There is an Aug. 15 deadline for Global Alpha investors who want to redeem money on Sept. 30." Well, the reason we bring all of this up, is because unlike what everyone claims, it is not 2008.... it is 2007 all over again. To wit: Goldman Global Alpha just blew up, for the second and probably last time.

From Reuters:

Katinka Domotorffy, the head of Goldman Sachs Group Inc's (GS.N) quantitative investment strategies group, will leave the bank at the end of the year, according to an internal memo, as one of its biggest hedge funds continues to suffer from weak performance.

 

Domotorffy is a Goldman veteran who joined the bank in 1998 as a portfolio manager and researcher.

 

She took on her most recent title as chief investment officer and head of QIS within the asset management division in 2009 when Mark Carhart and Raymond Iwanowski, co-founders of Goldman's prominent Global Alpha Fund hedge fund, retired.

 

The Global Alpha Fund is down 12 percent this year, according to sources familiar with the matter.

If 2007 was any indication, and it was, every terminal event for Global Alpha is a harbinger of many, many bad things coming. What is just as ominous is that if Goldman's quant fund has now blown up, then there are tens if not hundreds of other quant funds, and otherwise, that are completely defunct and liquidating, but simply choose to keep quiet.

As we predicted a month ago, the rot will very soon stink up the place, but little did we expect that it would start at the head.

Look for many more such stunner announcements in the days to come, and also, since it is now 2007 all over again, it may just be the case that Goldman's dramatic S&P 500 target cut, just discussed, will actually come true much faster than anyone expects.

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DeadFred's picture

On time for what? They could have announced this days ago or days from now, so why did they chose today afterhours. It may be random but I doubt it.

IQ 145's picture

You know something; I doubt it too. A "little" paranoia is a good thing nowadays. I didn't consider it as spin until you mentioned it; it does make pretty good spin.

Thomas's picture

Maybe today's march upward was a forced liquidation (of a short position). The other, seemigly innocuous, oddity was that Central Fund of Canada marched up with the market instead of down with GLD/SLV. It was a large 3+% differential.

Who would voluntarily invest in these markets. Oh, that's right: anybody who has to somehow protect their falling cash positions. It is time for this turtle to come home.

TheLooza's picture

Agree. Let me know when it does, thanks.

mkkby's picture

How is being down 12% blowing up?

jbc77's picture

Great post thomas. My thoughts exactly.

WestVillageIdiot's picture

This is a very mysterious event.  Usually these announcements are timed to royally fuck over some option position I have taken.  Currently I have no option position so this doesn't make sense at all.  There must be some other way this is going to screw me.  There is no other explanation. 

chinaguy's picture

Thanks, best laugh I've had in a few days......

Axenolith's picture

Check the closet and under the bed before you retire for the evening... ;-)

Blano's picture

I have the same problem.  They're trying to lure us back in, that's what it is.

LongBallsShortBrains's picture

You either left an open order or forgot about a position/ got a partial fill exit.

Melin's picture

Thanx for that...at least we're going down laughing

AmCockerSpaniel's picture

Nothing just happens on WallStreet

Tijuana Donkey Show's picture

Management LBO.... Why pay more? 

DormRoom's picture

you run for the doors when Reconnaissance Technologies starts to report a loss.  That hedgefund is MASSIVELY leveraged, and has HFT bots embedded in every market.

They are LTCM^666

When they start to deleverage, the financial world blows up.

jballz's picture

do you mean

renaissance technologies?

 

WestVillageIdiot's picture

I thought Reconnaissance sounded cooler. 

X.inf.capt's picture

it kinda does,

good night, west

IQ 145's picture

Reconnaissance Technologies; eh? Thanks, I'll try to look that up. I just love LTCM; what a great name; they long term managed their clients money to what 8 cents on the dollar; something like that. Couple of professors with a big computer that didn't know shit about real markets. Hilarious.

WestVillageIdiot's picture

The world's best oxymorons:

-  Military intelligence

-  Jumbo shrimp

-  Paper gold

-  Long term capital management

rosiescenario's picture

..uh, they were actual Nobel prize winners....and it was then that Lehman's fate was sealed...When Genius Failed...a good read.

Imminent Crucible's picture

"they were actual Nobel prize winners"

....like Obama, the prince of whirled peas?

Freddie's picture

"Eat your damn peas!"

Krugman is another one who "won" a Nobel.    I never read the LTCM book but read some excerpts.  One of the best bits was when the head of the fund John Meriwether (Ex Salomon and U of Chicago MBA) was panicking.  He brought up some Italian guy with a high school education who dressed like a mobster but he knew trading. Meriwether is saying he could go to Buffett or Soros etc etc.   The guy was street smart and told Meriwether that it was over. He had looked at the portofolio and told Meriwether that everyone else would pounce on them.  The same pile on Lehman and Bear to kill them off. 

Hilarious that a high school educated guy with street smarts knew 10X more than a bunch of Nobel prize winning PhDs.  Supposedly they all became golf bugs in Greenwich and Myron Scholes was trying to work out the mechanics of the golf swing.  The idiots used a small sample of data for their models with no tails/black swans.  The house was on fire while they were out playing golf.

jdelano's picture

If madoff's perennial 12% returns were labeled extremely suspicious after the fact...why has nobody realized that Simon's private fund is some kind of massive fraud? All the MIT wizards work in the public fund--the closed fund is just Simons and his relatives/buddies at work--my guess is that they use the open fund to boost positions already held in the private fund--then the private fund immediately exits. Can't wait until somebody blows the lid off renaissance...

Henry Chinaski's picture

I gotta figure that most ZH readers are already ducking and covering. But, thank you for letting us know!

WestVillageIdiot's picture

By now most ZHers are working feverishly to secure the steel plate to cover up their anal opening. 

Think for yourself's picture

Made me laugh, big time.
I guess I'm a good exemple of this as I am a chronic procrastinator and always wait for overconfirmation before heading one way or another.
I exiled myself from the system pretty penniless in 2010 (didn't think it through, no PMs at all) and have been saving while travelling SA and working in bars, hostels, teaching english and what have you. Still saved enough to buy 12oz Ag in the last year and just made my first buy of Au monday, a very modest 1/4oz. Price still seems good, don't care if it dips further considering the fundamentals, at least I got rid of those darned FRNs and now have some 24k sheet Au to cover my ass with.

Long-John-Silver's picture

and so the second dip begins.

 

and it's gone......

Cistercian's picture

The new deeper and wider crater is just ahead!
This time with even more thieve-o-matic enhanced systemic FAIL!

Mactheknife's picture

It's amazing what 30x leverage will do for you. LMAO

lolmao500's picture

And since Europeans banks are at 70X+ ratio, shall be even more amazing.

UGrev's picture

I think "Abyss" is the word you're looking for...

Robslob's picture

BUT BUT BUT...you just said that meant 200 S&P points up before 400 down?!?!?!

 

 

wombats's picture

Who cares about S&P?  NOBODY.  Just PLEASE tell me that the Goldman bonuses won't be hurt!!

Thomas's picture

Not to worry. The last time it looked like the bonus pool might be small and their last, they took really, really big ones. Looting the accounts is a predictable response for all banana republic dictators.

MFL8240's picture

Couldnt happen to a nicer group! FU Goldman.

Vampyroteuthis infernalis's picture

The world is a vampire................

sunny's picture

Aaaah shit....2007???   We gotta wait another whole year for the 2008 echo? 

sunny

DeadFred's picture

History doesn't repeat, it only rhymes.

AmazingLarry's picture

Thought I read Reggie Middleton saying something to the effect that they cannot trade. Shame, they're such a bastion of market health and happienss. 

Oh, and fuck you Lloyd.

Id fight Gandhi's picture

Hey how do you add your twitter name on this so we can all chat during the day? I see a thing for it... Im "FightGandhi"

steelhead23's picture

Anyone here have the balls to short GS on this news? .....I thought not.

Henry Chinaski's picture

No. I have not the balls to trade anything in this market and am standing pat in GLD, SLV and cash, along with mostly diversified real unleveraged unencumbered physical assets.

Id fight Gandhi's picture

Being a eunuck has it's advantages.

Long or short this mkt and you're bound to get kicked in the nuts.

IQ 145's picture

Fuck no; I think the anouncement is spin to suck some more retail shorts in.

Id fight Gandhi's picture

There's no measureble retail in this mkt.