Goldman Sachs

Only in public schools and universities is the fairy tale still taught that governments are representative of the people.  The blue collared man on the street realizes the chips are stacked against him.  For those who don’t have political connections, the pseudo fascist system that is still referred to as “capitalism” in the U.S. is akin to a casino game of chance.  That is, the odds are always in the house’s favor.  The house is the federal leviathan and its equivalent at the state and local level as well as the big, cartelized industries which feed off government protection. With Obamacare, the middle class will end up being liable for yet another entitlement program that, like any other government initiative, will cost more than was initially estimated.  Worse yet, they will be bombarded with advertisements they paid for which attempt to convince them that Uncle Sam has once again delivered prosperity with a badge and a gun. The disheartening part is some Americans will be foolish enough to actually believe it.

For anyone who can't see the "WHY" or "HOW" in a Muppet Manipulators suit, re: Facebook IPO, here's a step by step guide comparing my research to that of the top 4 underwriters showing exactly what they did wrong & how everyone is ignoring it

While the sur-realities of just what Corzine and the rest of the MF Global 'traders' did has been extensively discussed here and elsewhere, PBS' Frontline provides the most succinct (and relatively in-depth) documentary on just what occurred from how the corrupt CEO lobbied regulators who had the power to stop his risky bets to the endgame realization of the missing customer money. A narrative, not just of "a bet that went bad", but "a Wall Street morality tale". Must watch!

For the drillers, but....

All you need to read.

While hard information is scarce, concerns about deposit flight from Greek banks have increased since the 6 May elections. To the extent that such flight arises from liquidity concerns, the ECB can contain it (or its impact) via its various monetary policy and ELA operations. But, as Goldman Sachs notes in its Focus today, the ECB cannot deal with concerns about bank solvency and/or deposit currency redenomination. That requires a pan-Euro area guarantee of the Euro value of bank deposits by the fiscal authorities.  Politically, it will not be domestically popular in Germany (inter alia) to extend such guarantees, however much Germany may benefit from arresting the financial instability deposit runs may cause. And institutionally, in order to contain the threat of free-riding on the guarantee of others, entering into a pan-Euro area deposit guarantee would need to be associated with a deepening of the pan-Euro area system of financial supervision and regulation. This would involve substantial loss of sovereignty relative to the status quo and require significant institutional innovation. However, attractive in principle, even Goldman agrees with our skeptical perspective that it is unlikely that such a guarantee can be implemented credibly in short order. So, what would you do with your hard-earned deposits? Demand them or leave them at the bank on the basis that the EU leaders will do what they promise - this time is different.

Did Facebook Feed Inside Information to the Big Boys … While Leaving the Individual Investor In the Dark?

According to some estimates, there are currently about 500 hedge funds in the world with AUM over $100 million. This means that roughly half of these asset managers collected performance and management fees for one simple task: to hold AAPL stock. According to the latest just released Hedge Fund Tracker from Goldman Sachs, a record high number of hedge funds, or 226, were long AAPL stock as of March 31, just days ahead of its all time highs, in what can only be described as the world's biggest hedge fund hotel (California). Because the only thing that is roughly comparable to the chart of the recently parabolic move higher in the AAPL stock is the number of hedge funds holders: 216 at the end of 2011, 209 at the end of Q3, 181 at the end of Q2, 173 at the end of Q1 2011, and so on. And while they may all be long the stock for their own "fundamental" reasons, the reality is that whenever there is a scramble for safety, on margin calls or simply due to general Risk Off behavior, it is the winners that would get sold, as selling beget selling, and eventually liquidations. Only in this case, 226 hedge funds all have the same winner. So far the AAPL drop has been relatively benign, not least of all because the stock is the NASDAQ, which just happens to be the growth frontrunning of the 2012 stock market. But what happens if the Fed continues to push off the NEW QE announcement: just how much of a general collateral redemption onslaught can the said hotel withstand before its tenants all scramble to leave at the very same time?

They call their clients muppets, they lose their clients massive amounts of money, they get preferential government treatment and get paid billions in bonuses at the same time they accept trillions in bailout aid. Exactly why not a class actiion FB suit again?

All you need to read.

By the time Operation Twist (1) ends in just over 40 days time, on June 30, Fed Chairman Ben Bernanke, according to his previously announced "loose" target, will hope to have extended the average maturity of all bonds in the System Open Market Account (SOMA) to a record of roughly 100 months from 75 month at the onset of the program in October 2011. After all the sole purpose of Twist was to load up the Fed's portfolio with duration, forcing the rest of the market to shift its investing curve even further into risky assets, as the Fed will have effectively onboarded the bulk of securities in the 3-4% return interval. Now as we showed back in early April, hopes that the Fed will simply continue with Operation Twist 2 after the end of "season" 1, as suggested by some clueless "access journalists" who merely relay what they are told by higher powers, are completely misguided as the Fed simply does not have enough short-term securities (1-3 years) to sell, and would have at most 2 months of inventory for a continued sterilized operation. Which however, does not mean that the Fed can not be quietly ramping up its operations in the ongoing Twisting episode. Because as Stone McCarthy demonstrates, as of the past week, the Fed has already surpassed its 100 month maturity target of 100 months, and is at 102.82 months as of May 16. And this is with 6 more weeks of Twist to go: at the current rate of SOMA purchases, the Fed will have a total portfolio average maturity of just shy of 110 months by June 30! Which means that contrary to market expectations of what the Fed's own stated goal may have been, Bernanke will have gobbled up nearly 40% more long-dated Flow relative to estimates! In other words, Ben does not need to do a full blown Operation Twist 2 episode: by the time Twist 1 is over, he will have attained nearly 40% of the goals of the next potential sterilized operation.

This week we bring back Alasdair Macleod, publisher of Finance and economics.org, because, as he puts it "every horror that we discussed last time we spoke is coming about". Especially scary since our previous conversation with him was less than three weeks ago... Today's interview continues building on his excellent synopsis from last month that detailed the origins of the Eurozone crisis. The fundamental shortcomings warned of at the Euro's creation in 1997, combined with the excessive sovereign debts run up since then, have finally expressed themselves at a scale too large to be contained any longer. Today, Alasdair details in-depth the huge and serious challenges facing Greece and the major Eurozone countries, and the likely impacts of the fast-dwindling options left remaining.  He sees no happy ending to this story, no outcome in which serious pain and permanent behavior change can be avoided. And for those looking for shelter from the unfolding economic storm, he sees few options besides the precious metals (which he believes are severely under priced at the moment):

There's a big, fat "I told you so" coming down the pike. 

• Inside J.P. Morgan's Blunder (WSJ) - Where we learn that Jamie Dimon did not inform his regulator, the Fed, where he is a board member of the massive JPM loss even as he was fully aware of the possible unlimited downside
• Euro Attempted Recovery Countered By Asian Sovereigns (MNI)
• Santander, BBVA Among Spanish Banks Downgraded by Moody’s (Bloomberg)
• Defiant Message From Greece (WSJ)
• G-8 Leaders to Discuss Oil Market as Iran Embargo Nears (Bloomberg)
• Spain hires Goldman Sachs to value Bankia (Reuters)
• China to exclude foreign firms in shale gas tender (Reuters)
• Fed Board Nominees Powell, Stein Win Senate Confirmation (Bloomberg)
• Defiant Message From Greece (WSJ)
• Fitch Cuts Greece as Leaders Spar Over Euro Membership (Bloomberg)
• Madrid Hails Moves by Regions to Cut Spending (WSJ)

The best charts are those that need no explanation. Such as this one.