Goldman Sachs

Presidential Election Preview 3: Swing States And The Horserace

The 2012-2013 election season is exceptional, with more than 100 elections in economies accounting for approximately 60% of global GDP. So far, Goldman notes that markets have navigated through elections in Russia, Egypt, Greece, France, Mexico and Venezuela, among others. The closely watched Presidential election in the US will take place shortly, followed by the culmination of the political transition in China. Later on, markets will see countries like Italy, Iran, and Japan go to the ballots too. This extraordinary election season brings several questions to the forefront: Why are elections important market events? What are the main factors affecting that market-driving impact and its seasonality? And which states are key? Critically, Goldman finds that a divided government has on average produced considerably tighter fiscal policy - not a good sign for the Keynesians.

Presidential Election Preview 2: Where They Stand And Why It Matters

The 2012 US presidential election is perhaps one of the most unique and important elections in recent history from an economic perspective (with the time-line rapidly approaching). In choosing its leader for the next four years (for which we provide a handy 'where-do-they-stand' cheatsheet), we agree with Goldman that the country will likely be determining the path for near-term economic growth, medium-to-longer term fiscal stability and monetary policy at a time when the stakes are exceptionally high - whether or not the US economy returns to recessionary conditions in 2013, the US sovereign debt rating and the broader credibility of the US government to Americans and foreigners alike all hang in the balance. Goldman sees three factors that set the 2012 election apart.

Guest Post: Before The Election Was Over, Wall Street Won

Before the campaign contributors lavished billions of dollars on their favorite candidate; and long after they toast their winner or drink to forget their loser, Wall Street was already primed to continue its reign over the economy. For, after three debates (well, four), when it comes to banking, finance, and the ongoing subsidization of Wall Street, both presidential candidates and their parties’ attitudes toward the banking sector is similar  – i.e. it must be preserved – as is – at all costs, rhetoric to the contrary, aside. Obama hasn’t brought ‘sweeping reform’ upon the Establishment Banks, nor does Romney need to exude deregulatory babble, because nothing structurally substantive has been done to harness the biggest banks of the financial sector, enabled, as they are, by entities from the SEC to the Fed to the Treasury Department to the White House.

Presidential Election Preview 1: Timeline And Fiscal Cliff Flowchart

The fast-approaching US presidential election is perhaps one of the most important in recent history, with Goldman noting that the fate of near-term US economic growth, medium-term US fiscal stability (and, with it, the US sovereign debt rating) and monetary policy hinging on the outcome. In an effort to provide as succinct a view of these potential events, we present a four-part series previewing the big day. Below, we lay out the key dates and likely paths to resolution of the "fiscal cliff"; the most important and most imminent challenge that the elected candidate will be forced to face just after the election.

Frontrunning: October 25

  • Japan grapples with own fiscal cliff (Bloomberg)
  • Japan Protests After Four Chinese Vessels Enter Disputed Waters (Bloomberg)
  • Asian Stocks Rise as Exporters Gain on China, U.S. Data (Bloomberg)
  • An obsolete Hilsenrath speaks: Fed Keeps Rates Low, Says Growth Is Moderate (WSJ)
  • ECB Said to Push Spain’s Bankia to Swap Junior Debt for Shares (Bloomberg)
  • Spain’s Bad Bank Seen as Too Big to Work (Bloomberg)
  • China postpones Japan anniversary events (China Daily)
  • Carney Says Rate Increase ‘Less Imminent’ on Economy Risk (Bloomberg)
  • Credit Suisse to Cut More Costs as Quarterly Profit Falls (Bloomberg)
  • Obama offers a glimpse of his second-term priorities (Reuters)
  • Draghi defends bond-buying programme (FT)

Guest Post: Secession Fever Sweeping Europe Meaningless Without Debt Repudiation

While regional independence is superior to both the failing European Union and the façade of special interest controlled democracy, one further action should taken by any jurisdictions that choose secession: Newly restored sovereign nations should repudiate their share of the illegitimate sovereign debt when they exit existing unions and nation-states. Created by distant banking elites buying national politicians and parliaments to load up on sovereign debts that can never be paid off, this massive national debt load is illegitimate and destructive to existing and new national economies. Governments have three ways to deal with debt loads of this magnitude: The first is hyperinflation designed to destroy the payoff value of the debt, second is the official repudiation of the debt or third, a combination of both options. Attempting to hold the bankers accountable is not an option. The first nations to repudiate sovereign debt will have the advantage; and as nations undertake this endeavor, they should keep this in mind: All government bureaucracies grow until contained, taxes rise until curtailed and politicians borrow and seek power until thrown out of office.

Corzine Tells Judge That Due To Purchase Of 50,000 MF Global Shares Before Bankruptcy, He Must Acquit

That former Goldman, New Jersey and MF Global head Jon Corzine is absolutely convinced he is innocent of any client money vaporization or wrongdoing, and that the definition of the phrase "to Corzine (verb- to trust your money to a prominent individual and to find it has mysteriously disappeared)" is absolutely arbitrary, is not news to anyone. And if not convinced then at least at a complete loss to what actually happened. One just had to recall all the "I don't recalls" the Honorable Corzine told congress during the makeshift kangaroo court hearing on MF Global's collapse (even if the final outcome was less than desired).   So it's only logical that the Honorable Corzine asked a federal judge to "toss a civil fraud lawsuit accusing him of misleading investors about the risky bets the futures firm was taking before its collapse a year ago." The WSJ reports that "Corzine's lawyers blasted the investors' suit as a "jumble of assertions and accusations" that makes "no sense" that should be dismissed in a filing Friday in U.S. District Court in New York." But here is the kicker: MF Global may have mismanaged trades, Corzine's lawyers admit, but he sure didn't hide the risks or mislead investors about the firm's risk appetite or liquidity. Why? Because he was so convinced in the profitability of MFG he bought a whopping 50,000 MF Global shares in the open market two months before the firm collapsed. So let's get this straight: Corzine invested a whopping $225,000 (as a reminder, Corzine was CEO of Goldman Sachs for years) because he believed in the firm and not to give the impression that the firm was "safe" in order to avoid a full blown panic once the realization its was insolvent could no longer be hidden, and be wiped out on all of his stock, option and other MFG holdings? And this is what sophisticated lawyers use as evidence of his innocence? Seriously?

Frontrunning: October 23

  • Moody’s Cuts Ratings on Catalonia, Four Other Spanish Regions (Bloomberg)
  • And the market top: Billionaire Ross Interested in Buying Spanish Bank Assets (Bloomberg)
  • Japan Jojima denies govt seeks $250 bln BOJ asset buying boost (Reuters)
  • China hints at move to strengthen Communist rule (Reuters)... well everyone else is doing it
  • Euro-Area Bailout Fund Faces Challenge at EU’s Highest Court (Bloomberg)
  • Obama, Romney now tied in presidential race: Reuters/Ipsos poll (Reuters)
  • Former China Leader Jiang Resurfaces Before Political Transition (Bloomberg)
  • Some in Congress look to $55 billion fiscal cliff 'fallback' (Reuters)
  • CLOs stage comeback in US (FT)
  • TXU Teeters as Firms Reap $528 Million Fees (Bloomberg)
  • China’s Factories Losing Pricing Power in Earnings Threat (Bloomberg)

Global Debt Repudiation? IMF’s Paper On The Chicago Plan Continues To Stir Opinions

The International Monetary Fund’s paper, “The Chicago Plan Revisited” by Jaromir Benes and Michael Kumhof highlighted a means to wipe out debt by legislation by using state created money to replace the private banking system and was commented on in The Telegraph by journalist Ambrose Evans-Prichard. The full paper can be read here. In sum, the paper illuminates on a plan created in 1936 by professors Henry Simons and Irving Fisher during the aftermath of the US Depression. It examines how money  created by credit cycles leads to a damaging creation of wealth.   Authors, Benes and Kumhof argue that credit-cycle trauma - caused by private money creation – has been around forever and lies at the root of debt catastrophes as far back as ancient Mesopotia and the Middle East. They claim that not only harvest cycles lead to defaults but rather the concentration of wealth in the hands of lenders would have augmented the outcome.

Goldman's Releases Walkthru "Toolkit" Of How It Will Respond To Second Coming Of Greg Smith's Muppetgate

Greg Smith's "tell all" book about Goldman is out, and as a result Smith, Goldman, and the infamous muppets are about to get their second half-life of 15 minute fame, starting with Smith's interview by the just as dramatic Anderson Cooper in this weekend's episode of 60 Minutes. The result is that after having to write a memo to his employees once already providing marching orders on how to handle the first iteration of muppetgate, a few hours ago Goldman again released a "briefing toolkit" titled "Media Interest in Greg Smith's Book" in which it prepares its employees for the coming brief if acute storm of renewed public criticism as a result of Goldman once again being in the headlines, if only for another 15 or so minutes.

What Did Goldman's Heather Bellini Know About GOOG That Noone Else Did?

44 analysts cover Google. 82% are Buys. Average Target Price is $811. The lowest and least herd-like was Heather Bellini of Goldman Sachs who has had a $660 price target (which is where GOOG is implied to trade currently) since 8/13/12. We wonder what Capstone's Rory Maher is thinking today with his $910 target?

How '125' Became The Most Important Number For The US Economy

The unending efforts of our glorious central-banking planners to raise asset prices and encourage 'animal spirits' through the trickle-down of unicorn-tears via the wealth effect have side-effects. Unintended consequences of 'leaking liquidity' finding its way into hard assets and 'things that have relatively limited supply' have stalled hopes of a stimulus in China (food inflation) and caused refis to mysteriously lag on misplaced future rate expectations in the US (ZIRP). The biggest 'problem' the central-bankers face, however, is energy prices. The liquidity surges directly impact the price of oil (which is already under pressure from the ever-igniting fears of Middle-East flare-ups). Critically, as Goldman notes, once the price of Brent crude reaches $125, global economic growth becomes challenged and ultimately makes QE self-defeating. This means Bernanke and his cohorts are threading an ever-narrowing needle as crude's price range remains high enough to motivate supply, but not so high as to undermine the global economic recovery - and with a tight physical market, any disruption or 'anomaly' will be hard to jawbone us back from (SPR rumors aside).

Frontrunning: October 18

  • Germany will pay Greek aid (Spiegel)
  • Spain Banks Face More Pain as Worst-Case Scenario Turns Real (Bloomberg)
  • China’s Growth Continues to Slow (WSJ)
  • Executives Lack Confidence in U.S. Competitiveness (WSJ)
  • Poor Market Conditions will See 180 Solar Manufacturers Fail by 2015 (OilPrice)
  • Wen upbeat on China’s economy (FT)
  • Gold remains popular, despite the doubts of economists (Economist)
  • Armstrong Stands to Lose $30 Million as Sponsors Flee (Bloomberg)
  • IMF urges aid for Italy, Spain but Rome baulking (Reuters)
  • EU Summit Highlights Financial Divide (WSJ)
  • FOMC Straying on Price Target, Former Fed Officials Say (Bloomberg)
  • Putin defiant over weapons sales (FT)