Goldman Sachs

Frontrunning: August 13

  • U.S. Regulator Subpoenas Banks Over Long Warehouse Queues (BBG)
  • Apple Said to Prepare Holiday Refresh of IPhones to IPads (BBG)
  • Fed's Yellen Says Stance on Banks Hardened (WSJ)
  • Mexico opens up its energy sector (FT)
  • Spin: Greek GDP marks gradual deceleration of recession (FT) ... spin aside, it dropped 4.6%, and in reality, probably over 10%
  • Made-in-Canada Solution For BlackBerry Avoids Nortel Fate (BBG)
  • America's Farm-Labor Pool Is Graying (WSJ)
  • Video of 'lame' cattle stirs new concern over growth drugs (Reuters)
  • Paulson Bid for Steinway Trumps Kohlberg Offer (WSJ)
  • Egyptian government yet to decide on pro-Mursi vigils (Reuters)

Futures Push Higher On Reflexive, Paradoxical News Ahead Of Key Retail Sales Print

It's only fitting that in a bizarro new normal, the news that passes for positive is either conflicting, reflexive or, well, simply bizarre. Last night was no exception as the "good" news came in the form of speculation that in order to promote its consumption tax hike, the Abe government would consider a corporate tax cut. How that helps the country with the 1 quadrillion yen in debt is not exactly clear, or how it makes consumer tax hikes any more palatable in a nation in which more people than anywhere in the world are retired and elderly, and thus removed from the corporate lifecycle, is just as nebulous. But the market liked it. Just as it liked the good ole' European cop out, of posting a surge in consumer confidence, or relying on reflexive indicators to represent an improvement in the economy, when in reality the only thing "improving" is the stock market. This happened when the German ZEW Economic Sentiment survey soared from 36.3 to 42.0 on expectations of a 39.9 print. So one must buy futures, or that's what the GETCO algo programming says.

Equity Futures Slide More On Resignation Taper Is Just Around The Corner

Despite an overnight surge in the Chinese markets, with the Shanghai Composite closing up 2.4% following reports that China will not only continue with its "liquidity tightening" operation by, paradoxically, cutting RRR for smaller banks, but launch a stimulus for several Chinese provinces and city governments "on the quiet" in the form of jumbo-sized bank loans, and GDP news in Japan that were so bad they were almost good (although not bad enough to close the Nikkei in the green) US futures continue to take on water following the second worst week of 2013 as the market now appears resigned to a Taper announcement in just over 5 weeks (as we have claimed since May). News in Europe continues to be bipolar, with the big picture confirming that only dark skies lie ahead following yesterday's news that a new Greek bailout is just around the corner, or rather just after the Merkel reelection (even though Kotthaus perpetuated the lies and said a second cut in Greek debt is not on the agenda - although maybe he is not lying: maybe only Greek deposits will be cut this time), offset by on the margin improvements in the economic headlines, even as credit creation remains not only non-existent but as the FT reports (one year after Zero Hedge), some €3.2 trillion in financial deleveraging is still on deck meaning an unprecedented contraction in all credit-driven aggregates (one of which of course is GDP).

Goldman Admits Payroll Data Is "Economically Meaningless"

As the disconnect between payroll data and GDP grows, and the schrodinger reality of a non-farm-payroll print and JOLTs data increases; it will not come as a total surprise to Zero Hedge readers that Goldman Sachs has finally been forced to admit that investors have been fooled by the relative importance of jobs data. While the payrolls data has the largest financial market effect of all economic indicators (by a large margin), Jan Hatzius finds that neither payrolls (or Advance GDP) provide any incremental information about the broad strength of the economy.

From JCPanic To JCPandemonium

While outlining the ridiculous spectacle of the last 24 hours news flow on JCPenney is useful for some, a step back to view this charade for what it is - a hedge fund manager massivley under-water, a company careening into bankruptcy, a board desperate to show it has any relevance, and a most senior creditor (Goldman Sachs) chomping at the bit to securitize the firm's T-Shirts and small appliances... the entire 'bounce' from yesterday has been retraced as Ackman and JCP's board fling insults at each other... JCPanic has been downgraded to JCPandemonium... on its way to JCPoof...

Goldman's Top Disruptive Themes

The following eight secular disruptive themes are what Goldman Sachs believe have the potential to reshape their categories and command greater investor attention in the coming years. Critically Goldman focuses on the impact of creative destruction - a term coined by the economist Joseph Schumpeter, which emphasized the fact that innovation constantly drives breeding of new leaders and replacement of the old. These eight themes - through product or business innovation - are poised to transform addressable markets or open up entirely new ones, offering growth insulated from the broader macro environment and creating value for their stakeholders.

David Stockman: Hedge Funds, Prime Brokers, And The Whirligig of Wall Street Finance

As David Stockman, Reagan's infamous Budget Director, writes in his bestseller, The Great Deformation: The Corruption Of Capitalism In America – "the last thing hedge funds do is hedge."  The hedge fund complex is "not so much a conventional industry as it is a giant moveable trade": Wall Street trading desks frequently morph into independent hedge fund partnerships, and senior hedge funds often sire “cubs” and then sons of cubs. The protean ability of this arrangement to spawn, fund, and replicate successful momentum trades cannot be overstated, and has "generated trillions of permanent momentum-chasing capital." Ultimately, he warns, "apologists for the Fed’s evisceration of the capital markets could not see... they had unleashed the financial furies in the violent momentum trading modus operandi of the hedge fund casino."

Chinese Trade Data Brings New Hope Even As Old Discrepancies Remain

Overnight equity markets are getting a lift from headline-making beats for Chinese exports and (more importantly) imports. A 10.9% YoY rise in imports (compared to a +1.0% expectation) and a surge in copper 'demand' has the media calling the turn on the global economy (even as China's trade balance at $17.82bn missed expectations of $26.9bn by the most in 4 months and for the second month in a row). But... one glance below the surface of this 5.5 Sigma beat for imports and the other absurdities discrepancies are glaring...

"Market Parasite" JPMorgan Added To Goldman Aluminum "Cartel" Lawsuit

"Financial institutions have intentionally made a mockery of market logic, forcing end-users to keep paying more despite rising global aluminum supplies. As the Times points out, each time you “open a can of soda, beer or juice,” GOLDMAN SACHS gets a cut....  By inserting itself into a healthy industry producing widely needed commodities, severely degrading functionality, and widely distributing costs while itself benefiting, GOLDMAN SACHS and JP MORGAN couldn’t fit a more archetypal description of a parasite on the markets. Hoarding in aluminum, however, is just one in a bevy of ever-multiplying non-innovations, demonstrating how the leeching of productive society has emerged as finance’s guiding light, and leeching that antitrust laws are designed to prohibit and make the economic sanctions and repayment to consumers for entering such destructive enterprises too high to pursue."

Frontrunning: August 7

  • Libor Settlements Said to Ease CFTC’s Path in Rate-Swaps Probe (BBG)
  • Manhattan Homes Under $3 Million Never Harder to Buy (BBG)
  • Just two years late: Abe Pledges Government Help to Stem Fukushima Water Leaks (BBG)
  • Chesapeake drops energy leases in fracking-shy New York (Reuters)
  • Hedge Fund Magnetar Won't Face Charges Tied to Mortgages (WSJ)
  • U.S. envoy leaves Cairo after talks declared over (Reuters)
  • Credit-Crisis Oracle Rajan to Head India’s Central Bank (BBG)
  • Bank of England Changes Policy Tack (WSJ)

China's Credit Crisis In Charts

The rapid pace of China credit expansion since the Global Financial Crisis, increasingly sourced from the inherently more risky and less transparent "shadow banking" sector, has become a critical concern for the global markets. From the end of 2008 until the end of 2013, Chinese banking sector assets will have increased about $14 trillion. As Fitch notes, that's the size of the entire US commercial banking sector. So in a span of five years China will have replicated the whole US banking system. What we're seeing in China is one of the largest monetary stimuli on record. People are focused on QE in the US, but given the scale of credit growth in China Fitch believes that any cutback could be just as significant as US tapering, if not more. Goldman adds that China stands to lose up to a stunning RMB 18.6trn/$US 3trn. should this bubble pop. That seems like a big enough number to warrant digging deeper...

Spot The Next Credit Crisis

Information overload and cognitive dissonance often hide the facts from right under one's nose. Sometimes, as in the case of the following image, a picture paints a thousand words; and in this case, any doubt about where the world's 'most-bust-prone' nations are in the post-crisis new normal should be instantly (and visually) dismissed (as we noted here, here, and here).