We are initiating our most recent monthly overview piece, which will provide a digested analysis of Las Vegas gaming trends. And while we develop a working model, we will crib a little here and there from Goldman's Kevin Coyne who is probably one of the best analysts on the street in the space (with a credit bent, of course). Incidentally we picked a month when the double dip in the general economy is starting to seep into the ultimate gambling mecca. "Total Nevada gaming revenue was down 5.7% yoy in April, a drop-off from the 3% yoy increase in 1Q2010." And an interesting observation: it appears MIT has sent a crack team to rob Vegas silly once again. That or the HFT brigade has abandoned the NYSE and is now operating out of collocated servers next to the Bellagio fountains. A last possibility is that the recent dramatic growth in Boaz Weinstein's Saba hedge fund was due entirely to counting cards - "Bacarrat win percentage was only 8.5% in April, the second consecutive month of worse-than-expected performance for the house. March Bacarrat win was 8.4%, which is well below the trailing twelve month average of 12%." That's ok, Vegas - just invite Goldman Sachs to teach you how to get 100% win percentage on every single table.
Abacus, Timberwolf, and now Hudson, pretty soon there won't be a CDO underwritten by Goldman that is not the object of some civil or criminal legal battle. The FT is reports that the SEC has launched a brand new investigation into Goldman Sachs, this time into its $2 billion Hudson Mezzanine Funding CDO. According to the FT: "People familiar with the matter said that in recent weeks the SEC had been gathering information on Hudson Mezzanine, which featured prominently in an 11-hour grilling of Goldman’s executives in the US Senate in April. The SEC and Goldman declined to comment." It is unclear if Goldman has received a separate Wells Notice for this second probing iteration, but since as Goldman notified its shareholders, these things are immaterial, we won't hold our breath to find out. As was repeatedly hammered during the Congressional grilling of Blankfein and his henchmen two months ago, Hudson is precisely the "junk" deal that AIB was “too smart to buy"which in turn forced Tourre and the other salespeople to keep pushing Eastward to Taiwan and Korea (Marc Faber beware).
IG is at its widest (on-the-run adjusted) since 5/28/09 today (and we note that the last time IG was here, HY was over 1000bps) - but different portfolios make the comps a little tricky. Across the broad universe of credit, 5Y was pretty much unch on aggregate as 3Y underperformed with APC, RIG, and HAL the worst performers on a DV01-adjusted basis (along with UAL and CONTI). No clear ratings-related theme today as cohorts were very mixed as we saw bond volumes low once again but underperforming where we did see them (smells like Monty Python's Holy Grail - investors bringing out the dead as markets show any appetite for risk). FINLs and Energy were the worst performing sectors by far today with Utilities and Capital Goods the best performers. One day to go til the greatest sporting event in the world (aside from my eldest daughter's U10 Soccer matches) and we have started to prepare ourselves - bets placed (in my home country of course or that would be illegal) and Fantasy Squad selected. Ennngggeeerrrrlaaannnddd.
Some reality to go with your reported fiction?
From the lawsuit: "Goldman intentionally failed to provide correct information regarding the state of the market in Timberwolf and/or intentionally failed to provide correct information concerning Goldman's actual opinion concerning the state of the market for the Timberwolf security and its quality and value. At the time Goldman made these statements to BYAFM, Goldman was actively shorting both Timberwolf and comparable securities because Goldman's internal assessment of the market for such securities was that their value would drop. In order to reduce Goldman's exposure to CDOs, Goldman personnel made false and misleading statements of material fact, knowing such statements were false and misleading... and with knowledge that BYAFM would rely on them in making the decision to purchase an interest in Timberwolf. Moreover, Goldman personnel failed to disclose material information knowing that, by this omission, information that they did disclose was rendered misleading, or they acted with reckless disregard as to whether the omission of the information rendered other disclosures misleading."
One of the highlights pointed out by those demonstrating the "resurgence" of the US consumer has been the increasing SAAR of car sales in the US. To be sure, May's SAAR of 11.6 million in light vehicle sales was the highest since September of 2008, when it was at 12.5 million (as seen on the chart below). Yet one item often ignored is that the incentives, especially by the Big 3, as reported by Autodata have reached record highs in May 2010, averaging $3,470 per car for the Detroit 3. Not surprisingly, the one company that is not bankrupt or a ward of the state, Ford is the one providing the lest amount of subsidies. And even as the D-3 capture market share, Asian automakers have not only not followed suit with a comparable ramp up in incentives, but some are in fact doing the prudent thing and cutting back on subsidies. Furthermore, the recent million car+ recalls by Chrysler and GM have not been mentioned even once by CNBC Phil Lebeau, even as the latter spearheaded a governmentally-mandated crusade against Toyota, fully intent on discrediting the Asian carmaker. Lack of free market dynamics aside, here is a snapshot of the most recent car sale trends in the US, coupled with inventory, incentive and granular D-3 sales data.
The SNB has released provisional data indicating FX investments on its balance sheet have exploded by 50% in just the last month, to CHF 232 billion from CHF 153 billion, is indicative of a rate of FX intervention in the market more than double the prior record set in April! All this has occurred as the SNB has tried to keep the EURCHF above 1.40. It has now officially failed at this attempt, as the Euro just hit a fresh all time low against the Franc of 1.3763. Furthermore, recent market talk indicates that the SNB will no longer directly intervene in the pair, thus confirming that there is likely much more room for CHF appreciation in the near term, and more pain for Eastern European countries, where the bulk of real estate bubble borrowing has been denominated in CHFs. In the meantime the side effects of consistent SNB intervention are hard to miss: the Swiss balance sheet has increased to 3 times its pre-2009 average. Unlike the US, it is not loaded up with toxic GSE filth but merely with currencies increasingly backed by such filth, such as euros.
Gold gained overnight, rising to new records off heavy demand in Asian & European trading. August gold rose as high as $1254 before retracing to more modest levels. Precious metals are finally becoming their own asset class at the banking level . Investment firms loathe to state it outright because they haven't completed their financialization efforts yet. There is just too much fragmentation on the demand side, and therefore for them gold as a product is not as profitable to pitch yet. I guess it's tough when some of the fish aren't in the barrel. But when Goldman Sachs worries that the US dollar is weaker than it appears, is bearish on the Euro, and doesn't come out preaching the virtues of the yen what is left to tell people to buy?
A team at Goldman, decidedly different team from the one which this morning said the EUR could drop to a 1.16 level shortly, looks at recent fund flow data and notes that with the US now perceived as a safe haven to the rest of the world, particularly Europe, a fact which implicitly is a huge benefit to the treasury supply onslaught as buyers for USTs no matter the yield or maturity, are easily found in this environment of insecurity. No surprise there: it is almost as if Europe's problems were engineered, courtesy of a EURUSD which was kept too high, for too long, by too many market participants. Goldman's conclusion is that the dollar is not the fundamental safe haven it is portrayed to be, but is, once again, merely the best of the worst. As Goldman's Robin Brooks highlights: "non-Treasury portfolio inflows are still falling short of covering the monthly trade deficit, in contrast to before the crisis when they were more than enough. This is consistent with our often repeated view that the BBoP (broad basic balance) for the US remains weak and is why – even in the face of strong foreign inflows into Treasuries – we remain cautious about the USD outlook." The primary reason for the increasingly strong bid for gold is explained by Brooks' observation: while unwinds in existing FX carry pairs continue to implicitly benefit the dollar, when it comes to allocating capital to a safe haven, the only recourse continue to be gold. And as FX is fickle, all it takes is one massive short covering spree to invert the balance of power once again in the direction of the EUR: all that would be needed is a wholesale realization that the consolidated US balance sheet is in far worse shape than that of Europe, and for the herd to shift from one side of the boat to the other.Yet should more volatility come into FX markets, gold would benefit even more.
From Bloomberg: The Financial Crisis Inquiry Commission has submitted a subpoena to Goldman Sachs Group Inc., according to a spokesman for the panel. The subpoena requests documents and e-mails from Goldman Sachs, FCIC spokesman Tucker Warren said today in an interview. The subpoena was sent because Goldman Sachs hasn’t complied with requests for documents, Warren said.
Goldman Sachs, which as we disclosed had upgraded BP to Buy from Neutral in December of 2009, just in time for Goldman Sachs Asset Management to sell 40% of its holdings in the infamous firm, has finally had a chance to check out one of those spillcams. The result: Michele della Vigna has removed the firm from the Pan-European Buy list, moved it to Neutral, and lowered his price target from GBP 7 to GBP 6. The commentary: "BP’s attempt to fit a cap on the top half of the blow-out preventer known as the lower marine riser package (LMRP) has been successful; currently it is collecting c.11 kbls/d of a total spill of 12-19 kbls/d and BP expects it to collect the vast majority of the spill once an additional containment system is in place. [What we earlier said about him having looked at those spillcams... we take it back.] However, after incorporating potential costs to BP, we believe the shares no longer provide materially more potential upside than the median for the sector. We downgrade BP to Neutral from Buy. Since adding BP to the Buy list on December 17, 2009 its shares are down 13.8%, versus the FTSE World Europe’s 8.5% fall (on 12 months -2.6% and +9.6%)." Look for Goldman to now be waving every share of BP it can find.
And you thought Goldman had it bad in the US. The FT reports: "Many people believe Goldman Sachs, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US,” read the opening lines of an article in the China Youth Daily, a state-owned daily newspaper, last week." Matt Taibbi - you have met your match, and the outcome is picturesque indeed - a vampire squid that slurps and sucks its way to every loose ounce of gold and silver. But fear not, all those millions of ounces in GLD are perfectly safe and sound.
While David Kostin's increase of his EPS outlook for 2010 last week may now seem a little "naive" at best, that doesn't mean that his crew of analysts doesn't have good insights into the market now and then. In the most recent weekly recap piece, Kostin suggests "portfolio managers should focus on expected changes to sector and constituent weightings in the Russell 1000 growth and value style benchmarks at the end of June." Hopefully this analysis performs a little better than Kostin's other 2010 recommendations: "Our recommended sector weightings have generated -23 bps of alpha YTD." Well, at least Goldman is good at generating beta.
Gold was weaker yesterday, as markets favored equities over safe havens (with BP as a notable exception).
The market opened down around $5.00 yesterday and traded sideways for most of the morning. Then around 11:00 AM EDT, a quick selloff occurred taking the August contract from a high during that period of 1219.60 to a low of 1202.40. The selling stopped and futures stabilized in the1208 area, but we feel the damage was done. Hot money and speculative longs are losing patience or new shorts are punting in expectations of bearish info this morning. With the employment numbers due out at 8:30, Nervous Nellies will square books everywhere. We might add that this is about the time that the stock market began in its own sell-off. Gold and equities are moving in lockstep approaching the NFP.
Goldman Sachs: "Nothing is f*$&ed here dude, those CDS traders are just a bunch of f*$&ing amateurs"