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It's Not 2008, It Is 2007: Goldman Global Alpha Just Blew Up All Over Again
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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right on time.
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.
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.
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.
Agree. Let me know when it does, thanks.
How is being down 12% blowing up?
Great post thomas. My thoughts exactly.
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.
Thanks, best laugh I've had in a few days......
Check the closet and under the bed before you retire for the evening... ;-)
Mmmm: http://www.youtube.com/watch?v=SbyAZQ45uww&feature=related
I have the same problem. They're trying to lure us back in, that's what it is.
You either left an open order or forgot about a position/ got a partial fill exit.
Thanx for that...at least we're going down laughing
Nothing just happens on WallStreet
Management LBO.... Why pay more?
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.
do you mean
renaissance technologies?
I thought Reconnaissance sounded cooler.
it kinda does,
good night, west
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.
The world's best oxymorons:
- Military intelligence
- Jumbo shrimp
- Paper gold
- Long term capital management
Young intellectual.
..uh, they were actual Nobel prize winners....and it was then that Lehman's fate was sealed...When Genius Failed...a good read.
"they were actual Nobel prize winners"
....like Obama, the prince of whirled peas?
"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.
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...
I gotta figure that most ZH readers are already ducking and covering. But, thank you for letting us know!
By now most ZHers are working feverishly to secure the steel plate to cover up their anal opening.
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.
and so the second dip begins.
and it's gone......
The new deeper and wider crater is just ahead!
This time with even more thieve-o-matic enhanced systemic FAIL!
It's amazing what 30x leverage will do for you. LMAO
And since Europeans banks are at 70X+ ratio, shall be even more amazing.
I think "Abyss" is the word you're looking for...
:-)
BUT BUT BUT...you just said that meant 200 S&P points up before 400 down?!?!?!
Who cares about S&P? NOBODY. Just PLEASE tell me that the Goldman bonuses won't be hurt!!
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.
Couldnt happen to a nicer group! FU Goldman.
The world is a vampire................
Aaaah shit....2007??? We gotta wait another whole year for the 2008 echo?
sunny
History doesn't repeat, it only rhymes.
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.
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"
Anyone here have the balls to short GS on this news? .....I thought not.
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.
Being a eunuck has it's advantages.
Long or short this mkt and you're bound to get kicked in the nuts.
Fuck no; I think the anouncement is spin to suck some more retail shorts in.
There's no measureble retail in this mkt.
GS is down 40%. Anybody shorting here has balls of steel and a brain to match.
Uh oh....short GS now. If I admit my mistakes (if indeed they are) does that mean I have more credibility? Than what?
Robert Prechter's Elliott Wave International has pointed a down arrow on GS in one of the forecast just recently.
So, one must ask, Will poor Booby be wrong again or will the sane people of the world realize after sucking the blood out of everybody they can. Nobody wants to deal with the Squid anymore.
On that note, does anybody want to invest in any bank who has a trading desk anymore ??? Think JPM, WFC and Shitty bank.
Let's be old style just for a moment. How did GS get bank status and why are any banks who have a trading desk allowed to be a bank.
Are they not hedge funds and that's how we got into this Fucking Mess anyway.
Somebody correct me if I am wrong but during TARP - Goldman and I think others, maybe Morgan Stanley, bought a smaller bank or bank charter to get bailout money. I am pretty sure that was the case. Total BS. You gamble with 40 to 1 leverage - lose then ask for a bailout. They are evil MF'ers.
You got that right. So it's probably the best trade.
Trout, please!
The Only reason I am Not shorting Goldman on this, or any other news, is that I am already out in front of it: I've been holding LEAP puts on Goldman for awhile now, and they are in the green.
While I am not expecting a SPLAT! for this company, I Am expecting ruinous amounts of regulatory attention. Look though their company hisotry, happens all the time.
i'll say it again! Fucking Western Bankers!!!
i'll say it again! Fucking Western Bankers!!!
That's exactly what's happening as several Euro banks have now been completely shut out of the overnight markets and have had to bid up by 100bps for dollars from the ECB to settle overnight transactions. The end is near.
Prior to the meltup, Austria dropped the 'f*ck this Euro bond crap.' Germany under Merkel does another attempt at selling a German underwritten Eurobond...she is finished same with that French idoit. EZ meltdown contiues.
he did say he'd say it again
hahaha...
FREE SERGEY!
It's funny how truth works in these broken markets--all the metrics I've read here and elsewhere seem to point to an absolute end point; a mathematical certainty--so why, after reading and researching all these numbers that do not lie, do we see the opposite of what should occur?
I'm guessing all the bad news is bullish? Does that make sense?
Of course it does ...bad news = QE3
what? no gld or slv?
Very good post!
This was a daily read for me back during that time. It's been pretty inactive lately.
http://hf-implode.com/
Oh yeah, I remember that; it was entertaining.
Hey Bob how are you doing tonight? I looked your blog over, looks impressive. Sorry to call you a troll.
MS looks like it screwed a duck also..
Good citizens of Metropolis!
There is no hope.
Sell your children and shave your heads.
The magic spaceship will pick us up at noon on Saturday.
The others will be crushed like bugs.
http://geraldcelente.proboards.com
Celente has that kick ass NYC Bronx accent...
Oh you don't like NY you butnuts...
I get the idea of quant trading and see where big dollars can be made but the problem with most of these people is that they are academics that have no idea who I am or who all of you are. They are number without feelings, reality, votes, emotion and they trust computers to output all of those things which will work for a time but the markets move on people not machines, hense today.
I was thinking the other day how many hedgies are in hot water and failing to tell their (suckers) investors.
GUTTED! Thanks for spilling the beans, Tyler, I will connect the dotz. BEAUTY!
Its a WhipSaw market, they got cut in half and there's no circus magician to fix.
So what to do? Stock's at 100 +/- pretty shitty, Suckit Trabeck! Ah, Turd Ferguson?
"Goldman Global Alpha just blew up, for the second and probably last time."
God must be telling Lloyd 'The Annointed One on Earth' Blankfien something about the work he does down here for him yes?!!
Two busts maybe Lloyd could get the message from God his work is (Warning: technical term coming up)... crap
Lloyd's god is SATAN...and he is missed at home...
That's true....he never did say WHICH God he was working for for, did he? Hmmmm
I wonder if "God" ever needed a slimneball defense lawyer that is probably EX-SEC.
I put this into the larger context of recent veteran Hedge Funds losing big : Paulson, Ackman, TIlson to name a few. And now veteran hedgies are 'retiring'. All this spells too many dollars chasing too few viable options in a market where holding longer than intraday is simply not done. And where HFT simply obscures the fact that spreads are a mile wide and liquidity is a mirage, a perfect storm of negatives for size players who build positions.
They said it in Europe today: risk has gone systemic. There is no way for the Euro banks to trade their way out of trouble. US is only one step behind.
Nothing left but addicts and cowboys. Smells like home.
There is an old adage that goes something like, "dead fish rot from the head". I guess it applies to squid too.
When I started investing in the markets 40 years ago, I quickly dismissed quantitative market analysis as an exercise in mathematics only. I was a math major in college at the time. I have yet to change my mind about that, and see no hard evidence anywhere to suggest that I should.
How much bonus $ did she get to leave?
She got a will blow up ponzi's for beranke funbux lipstick tube.
Off topic, but...
Tyler, you gonna cover the silver manipulation 'news' today?
http://www.reuters.com/article/2011/09/14/silver-pricefixing-lawsuit-idU...
"* HSBC entered "tolling agreement""
HSBC's gonna turn rat on JPM.
"Dramatic" SP cut? Tyler are you kidding? The motherfucker is WAY overpriced and QE'd up beyond the hilt!
SP needs to be at 850 max at current funduhmentals etc etc etc.
I promise not to give these venal fucks any slack, if you promist not to, okay?
"the rot will very soon stink up the place, but little did we expect that it would start at the head."
...You sure that it is the head?
Someone tell the ASX200. It's a sea of green- only 10 out of 200 stocks are slightly red so far.
http://www.federalreserve.gov/releases/h6/Current/
PPI -flat vs. M1 LTM 17%
This shit happens when all you do is fuck around with phoney baloney paper money. When you don't produce nothing.
Is this God's doing???? Someone ask Cardinal Blankfiend. I think GS could use an exorcism.
well, nobody said Bitch!
So I did.
2006 chevy 4wd, several if not many fire arms, back up 2003 chevy 4 wd, camper, bazooka, chickens, avoacados, tools, more fire arms, a big wall, ssb radio, back hawk, some nuts. some alcohol, (not enough) and a partridge and a pear tree.
Bring it on vampire sqid bitch.
better to be in goldman global alpha quantacular than gs common. bitchez.
This is a little off topic but still in the realm of melt down. I am going to look at a Belarus tractor tomorrow and looked up the latest news. ZH has run a couple of things in the past 30 days or so about the Belarus economy. This is from CBS News--- google 9/14/11
"Lukashenko has cheated us, and my trust in him is disappearing as my pension is losing its value," said Galina Grigorovich, a 68-year old retiree who stood outside an exchange booth in the Belarusian capital of Minsk, hoping to buy hard currency.
But there was no hard currency on sale in that and most other street exchange offices in Minsk on Wednesday, despite the ruble being allowed to float freely on the exchange.
Belarus in June asked the International Monetary Fund for a loan of up to $8 billion. The IMF said in a statement issued Wednesday after a review of Belarus' economic policies that the nation would need to demonstrate its commitment to strong policies and structural reforms to qualify for the Fund's assistance.
The Belarusian ruble weakened sharply to 8,600 rubles to the dollar compared with the official rate of 5,347 rubles. On the black market, the battered currency had been trading around 8,000 per dollar.
Billions in Bonuses handed out there at GS......in 2009 and 2010 thanks to the generous American Taxpyer.
How about 2011? Will Bankfine refurbish his Yacht this year?
He might have to cut back and go with a refurbishment instead of a new one this year.
alpha down?
no problemo. just suck in some more rubes looking for that S&P "return" and use waaay more leverage, right?
why tf would anybody accept 4% for 30 years when (s)he/it can get the S&P "return"? w/ a "cost of equity discount rate of only 8.7%??
"hi! i'm bill gross, and i, too have been dead wrong on everything for months, now. i rilly, rilly like bonds @ 141+, donchew? i'm gonna take my maturities waaay out to almost 7 and...? ...what? you're just not big enuf to understand how my "funds" work, that's all!"
The fed isn't worried about returns......yet
Off to rehab!!
The squid becomes calamari! (Which just happens to be a popular food in Greece and Italy).
"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."
Advanced ponzi rot causes blindness and makes you mute.
I worry ZH is Jumping The Shark with this post. A $1 billion quant fund sucking wind is THE event to set off market contagion? Come on...and I am a ZH fan/addict...
Who said it will set off contagion? We said it is a benchmark of the wreckage in the current market, and like last time around, that benchmark indicated very rough waters ahead as real liquidity, not fake HFT bullshit, is being eliminated.
Don't worry: a bankrupt Europe is a far greater concern to everyone at ZH than a simple, and very mortal, quant fund going under.
Like I said...I am a fan. Thanks for the clarification...
Well you said it yourself the other day about divergence in the credit markets towards the equity markets. Europe contagion is a credit event. But this is the beginning of the equity events. Just because one is a blade and one is a handle doesn't mean they aren't the same knife.
Someone somewhere believes HFT has the power to put equity markets in ponzi credit market proof bubble. Or at least pretend it can for longer periods in history than have ever been imaginable. A quant fund going under means every corporation that funds itself through stock IPO ponzi scheme is forced back into the credit markets. Just like all the banks who threw bad loans at the ponzi where forced back into the credit markets (US taxpayers).
So seperating them is not really possible.
Couple this story with this recent headline.....
The Head of Fidelity's Magellan Fund has gotten the boot.
Here's a tidbit.....
Magellan once had more than $100 billion in assets during the 1990s. When Lange took the helm, the fund fell from $52 billion to $17 billion, Reuters reported.
Read more: http://www.businessinsider.com/harry-lange-fired-2011-9#ixzz1XyynaPOaOT NTC to Investigate Rights Group's Allegations of Abuses......amnesty int'l (AI) sez (paste):
In its report, Amnesty International said that “some (Al Qathafi loyalists) were beaten to death, that at least three were hanged, and others were shot dead after they had been captured or had surrendered.''
Amnesty acknowledged the alleged atrocities were of a ''smaller scale'' compared to those carried out by the dictatorial regime of ousted leader Muammar al Qathafi, which it said might be responsible for crimes against humanity.
In a statement, the NTC's executive committee said it ''strongly condemns any abuses perpetrated by either side''. (End paste)
NATO allies commit "smaller scale" atrocities. allegedly. condemn. strongly
Paul Simon- Homeless - YouTube strongly. strongly. strongly. strongly.
Ya crimes against humanity. Didn't he open fire on rebels trying to set up a central bank in his country?
That's fucking turrible. Just turrible.
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)...
I'm ancient and should be on life support if you're using this standard of time frame
Well, given that standard of time, I've got mummy wraps on and embalming fluid leaking everywhere. Long live the mummies!
Please insert the Timmy bit at this most opportune time -http://www.realclearpolitics.com/video/2011/09/14/geithner_were_in_an_ea...
well, well
Every day I'm in the market, I feel like I'm playing chicken.
This is a very, very stupid question, but where have all the trillions gone? Somebody's sitting on all the fiat. Where is it?
"Somebody's sitting on all the fiat."
Not necessarily. Ever seen a price gap in a stock or index? XOM, for example, trades at 105 one day and then opens, gap down at 95 (on some rumor or other, say). Where'd that 10 go? No where, into oblivion, disappeared. Nobody got it, but the holders of XOM certainly took in the portfolio.
Money values can and do just vanish. That's what makes a deflation of financial assets such and article of abject fear for central bankers and why they are working so hard (but pointlessly) to stop it.
Just 3, no sorry, 4 years ago:
“We were seeing things that were 25-standard deviation moves, several days in a row,” said David Viniar, Goldman’s chief financial officer.
And a must read from those times, on the bailout of the Global Equity Opportunities fund (please don't drink or eat while reading this, your keyboard will thank you):
http://jeffmatthewsisnotmakingthisup.blogspot.com/2007/08/when-gamma-of-...
Just a flesh wound.
GS can thank SNB for this blow up