Goldman Sachs

Frontrunning: December 7

  • Bundesbank cuts growth outlook as crisis bites (Reuters)
  • Strong quake hits off Japan near Fukushima disaster zone (Reuters)
  • Greece to Buy Debt It Already Owns to Reach Target (BBG)
  • Draghi’s Go-to ECB Seen Risking Credibility Through Overload (BBG)
  • Judge urges Apple and Samsung ‘peace’  (FT) ... Alas only the US government has a Magic Money Tree; others need profit
  • Fed Exit Plan May Be Redrawn as Assets Near $3 Trillion (BBG)... make that $5 trillion this time in 2014
  • Level Global, SAC Fund Managers Ruled Co-Conspirators (BBG)
  • Egypt demonstrators reject Mursi call for dialogue (Reuters)
  • Japanese Dealerships in China Retrench in Wake of Dispute (BBG)
  • Apparel factory fire reveals big brands' shadowy supply chainsa (Reuters)
  • Republican Defectors Weigh Deal on Tax-Rate Increase (BBG)

What Has (And Hasn't) Worked So Far This Year?

As of the end of November, the Consumer Discretionary sectot was the winner year-to-date with financials close behind (both up around 23%). The clear loser across asset classes is Crude Oil (down around 10%). We suspect at the start of the year that very few 'managers' or strategists would have expected anything like the distribution of outcomes that we see here - with EURUSD unchanged and Hedge Funds up just over 3% on average for the year. Some context for what 'could' happen in the remaining three weeks of the year.

On Gold; Morgan Stanley Is Buying What Goldman Is Selling

Just yesterday, Goldman Sachs suggested its clients should sell their gold (to them?) as the precious metal cycle had turned. It seems Morgan Stanley disagrees; the firm's preferred fundamental metal exposure for 20913 is Gold. Expecting Silver to outperform also (given its 'cheaper' store of value), MS believes nothing has changed on the fundamental thesis for owning gold as the adoption of QE 3 (and 4...) and the ECB's commitments (and BoJ) remain the most important factors for a continuation of weakness in the TWI trend for the US Dollar. They also add that low nominal and negative real interest rates, ongoing geopolitical risk in the Middle East and continued mine supply issues are also supportive. From India and ETF demand to central bank buying and USD weakness - MS seems to be buying what GS is selling (or is less about muppet-mauling).

ECB Head Forced To Defend His Goldman "Conflicts Of Interest"

As we have discussed a number of times (most recently here), the infiltration of Goldman Sachs alumni into the highest ranks of political and monetary policy 'running the world' ranks is becoming pandemic. What is perhaps even more surprising is the fact that during the ECB's press conference this morning, the head of the world's 'almost' most powerful entity had to defend himself from such crackpot, tin-foil-hat-wearing, digital-dickweed-esque conspiracy theories that Draghi's affiliation to the Mother Squid is of greater importance than his current professional position. The sadly ironic aspect is that Draghi's membership of the Goldman Sachs-sponsored G-30 warranted more discussion during the press conference than that of Italy's Monti debacle (or Greece's "killer medicine").

Golden Showers As Goldman Tells Clients To Sell Gold

It's around that time of day again - when precious metals are sold hard for whatever reason you care to come up with (collateral requirements, margin calls, alchemy perfected). However, today there is a more mundane reason: Goldman Sachs has suggested its clients sell Gold on the basis that the gold cycle will turn in 2013 thanks to improving US growth offsetting the need for further Fed easing. Of course, Goldman telling its clients to 'sell gold' means Goldman is...

Goldman Releases First Three "Top Trades Of 2013"

  1. Stay short AUD/NOK, opened at 5.90 on 03 Dec 2012, with a target of 5.00 and a stop on a close above 6.35, currently at 5.88.
  2. Stay long risk (sell protection) on the CDX High Yield on-the-run index, opened at 506bp on 04 Dec 2012, with a spread target of 450 and a stop on a close above 550, currently at 516.
  3. Go long the Commodity Carry Basket (Crude, Corn and Base), opened at 100 on 05 Dec 2012, with a target of 112 and a stop on a close below 94, currently at 100.

Frontrunning: December 5

  • LA port workers to return Wednesday (AP)
  • Iran says extracts data from U.S. spy drone (Reuters)
  • Obama to stress need to raise debt limit "without drama" (Reuters)
  • Big Lots Chief Probed by SEC (WSJ)
  • NATO missiles to be sent to Turkey, Syria clashes rage (Reuters)
  • GOP Deficit Plan Irks Conservatives (WSJ)
  • Japan Can End Deflation in Months, Shirakawa Professor Says (BBG) ... almost as good as Bernanke ending inflation in 15 minutes.
  • Osborne Prepares to Breach Fiscal Rules Amid U.K. Growth Slump (BBG)
  • Global Banking Under Siege as Regulators Guard National Interest (BBG)
  • Freeport plans return to energy (FT)
  • Serbian NATO envoy jumps to death at Brussels airport (Reuters)
  • Tide Turns After a Flood of Chinese Listings (WSJ)
  • Australian economy loses steam (FT)
  • Euro Crisis Feeds Corruption as Greece Slides in Rankings (BBG)

Frontrunning: December 4

  • Two weeks ago here: The Latest Greek "Bailout" In A Nutshell: AAA-Rated Euro Countries To Fund Massive Hedge Fund Profits... and now on Bloomberg: "Hedge Funds Win as Europe Will Pay More for Greek Bonds" (BBG)
  • Oracle sends shareholders cash as tax uncertainty looms (Reuters)
  • GOP Makes Counteroffer In Cliff Talks (WSJ)
  • Iran says captures U.S. drone in its airspace (Reuters)
  • IMF drops opposition to capital controls (FT)
  • Vogue Editor Wintour Said to Be Possible Appointee as U.K. Envoy (BBG)
  • Juncker Stepping Down French Finance Minister to Head Euro Group? (Spiegel)
  • Australia cuts rates to three-year low (FT)
  • Europe’s banking union ambitions under strain (Reuters)
  • EU Nations Eye New ECB Bank Supervisor Amid German Doubts (BBG)
  • Frankfurt's Ambitions Get Cut Back (WSJ)
  • House Republicans Propose $2.2 Trillion Fiscal-Cliff Plan (BBG)

BOE's Andy Haldane Finds Impact Of Central Bank Policies As Bad As A "World War"

Those curious why Goldman Sachs felt compelled to undertake a quiet an unexpected by most (if not us) peaceful coup of the Bank of England, it is because the oldest central bank still has among its ranks people such as Andy Haldane, who in a world populated by deranged textbook economists who don't understand that it is the central bank policies' fault the world will be forever mired in substandard growth and soaring unemployment, is a lone voice of reason (recall BOE's Andy Haldane Channels Zero Hedge, Reveals The Liquidity Mirage And The Collateral Crunch). And since the BOE has no choice but to join all its peers in a global race to the bottom (largely futile in a world in which currencies exist in a closed loop, and in which if everyone devalues, nobody devalues as even Bill Gross figured out yesterday), it is prudent to listen to Haldane's warnings while he is still in the employ of Her Majesty the Queen. Such as his latest one, in which he says that the scale of the loss of income and output as a result of the crisis started by the banks was as damaging as a "world war."

Frontrunning: December 3

  • Union solidarity rubs up against slow economy in LA port strike (Reuters)
  • Geithner predicts Republicans will allow higher tax rates (Reuters). And "no risk" of a US downgrade, "no risk"
  • Geithner takes hard line on fiscal cliff (FT)
  • Narrowing LDP lead points to Japan post-election confusion (Reuters) - not to mention, USDJPY plunges if LDP loses
  • Vietnam Says China Must Avoid Trade Weapon in Maritime Spat (Bloomberg)...  and real one, one hopes
  • Greece unveils bond buyback plan (FT)
  • ECB Can’t Deliver Spain Spread Rajoy Wants, Wellink Says (Bloomberg)
  • UK’s euro trade supremacy under attack (FT)
  • Merkel Signals Debt Write-Off Possible as Buyback Begins (Bloomberg)
  • ECB's Noyer Says Bond-Buying Plan 'Is Bearing Fruit' (WSJ) - as long as just plan, and not execution.

Yelling 'Fundamentals' In A Crowded 'Corporate Bond Market'

Thanks in large part to the supply-constructing yield-compressing repression of a few 'apparently well meaning' bad men running the central banks of the world, the divergence between fundamental weakness and credit spread 'strength' is at record levels. The overwhelming 'technical' flow of funds from investors combined with an 'end of equity' cult and belief that tail-risks have been removed (OMT) juxtaposes with earnings crumbling, ratings downgrades, and the exogenous fact that a complex system means a systemic crisis is inevitable (especially after such ongoing volatility suppression). As Citi's Matt King notes, while "it is almost impossible to predict exactly when they start," the desperation for yield has led to highly unstable equilibria - as what investors can't earn they will lever; via lower-quality 'levered' assets (PIKs and BB/CCCs for example) or 'levered' vehicles (CLOs and structured credit). Sure enough, margins (street repo haircuts are low and NYSE margin accounts high) look very 2007-like. While yelling 'fire' in a crowded theater will typically get the people moving, it seems the movie that is playing in corporate credit is simply too engrossing for many to listen.

Workers Of The World, Unite!... But First Consider This

The conflict between labor and capital is a long and illustrious one, and one in which ideology and politics have played a far greater role than simple economics and math. And while labor enjoyed a brief period of growth in the the past 100 years first due to the anti-trust and anti-monopoly, and pro-union laws and regulations taking place in the early 20th century US, and subsequently due to the era of "Great Moderation"-driven "trickling down" abnormal growth in the developed world, it is precisely the unwind of this latest period of prosperity, loosely known as "The New Normal", and in which economic growth will persist at well sub-optimal (<2%) rates for the foreseeable future, that is pushing the precarious balance between labor and capital costs - in their purest economic sense, and stripped of all ethics and ideology - to a point in which labor will likely find itself at a persistent disadvantage, leading to the same social upheaval that ushered in pure Marxist ideology in the late 19th century. Only this time there will be a peculiar twist, because while in relative terms labor costs as a percentage of all operating expenses are declining around the world, when accounting for benefits, and entitlement funding, labor costs are rising in absolute terms if at uneven rates and are now at record highs. Which sets the stage for what may probably be the biggest push-pull tension of the 21st century for the simple worker: declining relative wages, which however are increasing in absolute terms when factoring in the self-funded components paid into an insolvent welfare system. But the rub comes when one considers the biggest disequilibrium creator of all: central bank predicated cost of capital "planning", whereby Fed policies may be the most insidious and stealth destroyer of all of labor's hard won gains over the past century.