The toils of summer are bygone now. The days grow shorter and America stands in the darkling road of its own prospects like a dumb animal frozen in the blinding light of approaching fury. The White House must be a strange place these days with the management of the USA turned over to astrologasters, alchemists, prayer-wheel spinners, fakirs, viziers, necromancers and other visitors from occult realms unaffiliated with the dominion of reality.
One of these characters, Ms. Christina Romer, at a luncheon celebrating her departure as chief of the White House Council of Economic Advisors (i.e. readers of spilled goat innards) even blurted out that she had no idea what’s been going on in banking and business and how come America can’t be more like it was in 1999. Don’t cry for Christina. A cushy chair awaits her at the Hogwarts Berkeley outpost where she can repose in a trance of unknowing until California slides into its own tar pit of default and disintegration.
It’s all a mystery in Washington. Nobody can figure out what happened to their green-eyed champion called Growth, that savior who rights all wrongs and insures our eternal exception from the sad fates of other less-blessed empires. Isn’t there a book of conjures somewhere in the Harvard Business School that guarantee perpetual growth — even if there are different tomes around the campus that describe the essential tragic nature of life, viz., that there is a beginning, a middle, and an end to everything. And while this might not be the end of the human project in North America, it is certainly the end of the cheap oil abbondanza, and everything spun off of it in the way of mass consumer luxury, with air-conditioning and a cherry on top.
My own view — I might be wrong-- is that we are going through an epochal compressive contraction, which is the opposite of growth. Money is disappearing because debts are being welshed on in such a volume that all the digital dollars conjured out of chief wizard Ben Bernanke’s magic booty box are but empty spells cast into a hurricane of broken promises. This is no Hurricane Earl – which stared into the discharge tube of Lloyd Blankfein’s cappuccino machine and skidded off whimpering into the fogs of Newfoundland. This…
Lloyd Blankfein’s Days Are Numbered as Chairman of Goldman Sachs
It’s a testament to the odd world in which we live that when a Wall Street firm pays a $550 million fine by conceding negligence in how it dealt with clients, its stock surges, adding billions of dollars in market value for the firm’s shareholders.
But that’s what’s happening to Goldman Sachs, as it reached its long awaited settlement with the Securities and Exchange Commission over how it sold a basket of mortgage related debt to investors in 2007.
Back when the SEC brought the case, the conventional wisdom on Wall Street and the financial media was that Goldman didn’t have to settle — the case was weak and Goldman is, after all, Goldman.
As I wrote on these pages back then, Goldman would have to settle because: (a) the SEC dug up some real questionable activity; and (b) no Wall Street firm, not even one with the ties to government that Goldman possesses can go to war with its primary regulator.
Now that Goldman has indeed settled, the news is being spun, again mostly by the financial media, that the deal with the SEC was a victory for Goldman’s CEO Lloyd Blankfein, who survived the investigation largely unscathed, paying a measly $550 million to the government (equivalent to a few days trading gains at Goldman) and without having to give up any power, such as relinquishing his role as chairman of the board, as senior executives both inside Goldman and at competing firms believed would be part of any settlement.
Well, if history is any guide, Blankfein may not go tomorrow, or even next month, but sometime in 2011, Blankfein will at the very least no longer be chairman of Goldman, and may also be forced out of the firm altogether.
If you don’t believe me ask former Citigroup CEO Sandy Weill. Like Blankfein, Weill (at least on paper) was a good CEO from an operational standpoint. Following the creation of Citigroup in 1998, shares of the big bank soared. The bank was what’s known as a Wall Street darling for its strong earnings and a surging stock price, and Weill was regarded as the King of Wall Street, having engineered the largest…
“Geithner’s team spent much of its time during the debate over the Senate bill helping Senate Banking Committee chair Chris Dodd kill off or modify amendments being offered by more-progressive Democrats. A good example was Bernie Sanders’s measure to audit the Fed, which the administration played a key role in getting the senator from Vermont to tone down. Another was the Brown-Kaufman Amendment, which became a cause célèbre among lefty reformers such as former IMF economist Simon Johnson. ‘If enacted, Brown-Kaufman would have broken up the six biggest banks in America,’ says the senior Treasury official. ‘If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.’”
That’s one passage from John Heileman’s juicy article in New York Magazine. It provides a lot of background support for what many of us have been thinking for a while: the administration is happy with the financial reform bill roughly as it turned out, and it got there by taking up an anti-Wall Street tone (e.g., the Volcker Rule), riding a wave of populist anger to the point where the bill was sure of passing, and then quietly pruning back its most far-reaching components. If anything, that’s a testament to the political skill of the White House and, yes, Tim Geithner as well.
There are two other things in the article I thought worth commenting on. Here’s one:
“Obama could be forgiven for expecting greater reciprocity from the bankers—something more than the equivalent of a Hallmark card and a box of penny candy. He had, after all, done more than saved their lives directly by continuing the bailout policies formulated by Paulson and Geithner. He and his team could credibly claim to have kept the world economy from falling off a cliff. Yet with the unemployment rate still near double digits, Obama had (and still has) received scant credit from the public for what was arguably his signal accomplishment. At the same time, the one thing that almost every slice of the electorate would have applauded wildly—the sight of the president landing a few haymakers on Wall Street’s collective jaw—was an opportunity that the president had largely forsworn.”
This is a theme you hear a lot these days — the idea that Obama (or Geithner)…
Just because Goldman refuses to get it, and wishes to inflict even more pain on itself with more and more public appearances, here is Lloyd on Charlie Rose last night. More of the same: "We did well because we had the disciplined hedging [on housing]." Paraphrase: "Thank you Paulson for letting us steal your idea and have our prop book go $10 billion short two months before HSBC and New Century went tits up. Also thank you for reminding us to short hundreds of millions worth of Bear stock." Also, the amount of money put into Goldman by the government was not important for us. Ok Lloyd, please refund all the $2 billion in CDS profits you made by shorting AIG immediately.
And again Lloyd blatantly misrepresents the truth, by saying that doing away with prop trading would only cost the firm 10% of the firm’s revenue (so why the massive fight against the Volcker rule?). Forget all this market maker, liquidity provider generic fallback bs and mumbo jumbo. How about some disclosure on just how you classify prop trading Lloyd? Because something tells us that at least 50% of your flow and correlation desk is purely Prop (and certainly serves to bolster prop profits instead of putting clients "first" as we have disclosed about 10 times in the past week alone), as the 901 pages in Goldman discovery make only all too obvious (we will post on that soon). Hey Lloyd, here’s an idea – how about instituting P&L stop limits on all your OTC FICC prop trades just like RBS? Oh yes, we’ll go there… and in much more detail. Soon.
In the meantime, Goldman will "soul search" as an adjustment for people to "understand that Goldman’s fortunes must be aligned with the interests of its client." We are sure this will take the average Goldman prop trader exactly 2 milliseconds (or longer than it takes a Redi algo to frontrun a flashed block) to begin and end their soulsearching as they take their G-5s to Tahiti for the weekend.
And here is the kicker: "The reason why we get the best people, why we retain the best peopl, is because we get people who are really interested in doing something that they think is good for the public, for the…
Tuesday’s hearings of the Permanent Subcommittee on Investigations laid the groundwork for future criminal prosecutions of Goldman Sachs Chief Executive Lloyd Blankfein and his chief lieutenants whose reckless and self-serving actions helped to precipitate the financial crisis. Committee chairman Senator Carl Levin (a former prosecutor) adroitly managed the proceedings in a way that narrowed their scope and focused on four main areas of concern. Through persistent questioning, which bordered on hectoring, Levin was able to prove his central thesis:
1. That Goldman puts its own interests before those of its clients.
2. That Goldman knowingly misled it clients and sold them "crap" that it was betting against.
3. That Goldman made billions trading securities that pumped up the housing bubble.
4. That Goldman made money trading securities that triggered a market crash and led to the deepest recession in 80 years.
The hearings lasted for 8 hours and included interviews with seven Goldman executives. Every senator had the opportunity to make a statement and question the Goldman employees. But the day belonged to Carl Levin. Levin was well-prepared, articulate and relentless. He had a game-plan and he stuck to it. He peppered Goldman’s Blankfein with question after question like a prosecuting attorney cross-examining a witness. He never let up and never veered off topic. He knew what he wanted to achieve and he succeeded. Here’s a clip from his opening statement:
"The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients and our communities…..It profited by taking advantage of its clients’ reasonable expectation that it would not sell products that it didn’t want to succeed….
Goldman’s actions demonstrate that it often saw its clients not as valuable customers, but as objects for its own profit….Goldman documents make clear that in 2007 it was betting heavily against the housing market while it was selling investments in that market to its clients. It sold those clients high-risk mortgage-backed securities and CDOs that it wanted to get off its books in transactions that created a conflict of interest between Goldman’s bottom line and its clients’ interests." (Senator Carl Levin’s opening statement for the Permanent Subcommittee on Investigations)
Ironically, "Frankenstein" was the name of the inventor not the monster, though we often associate that name with the creature. Frankenstein’s monster lacked identity. His lack of identity and abandonment by his maker fueled his vile behavior. According to Wikipedia:
Part of Frankenstein’s rejection of his creation is the fact that he does not give it a name, which gives it a lack of identity. Instead it is referred to by words such as "monster", "demon", "fiend", "wretch" and "it". When Frankenstein converses with the monster in Chapter 10, he addresses it as "vile insect", "abhorred monster", "fiend", "wretched devil" and "abhorred devil".
During a telling of Frankenstein, Shelley referred to the creature as "Adam". Shelley was referring to the first man in the Garden of Eden, as in her epigraph:
April 25 (Bloomberg) -- Fabrice Tourre, a Goldman Sachs Group Inc. executive director facing a fraud lawsuit in the sale of a mortgage-linked investment, said an index that facilitated derivatives trading in the market was “like Frankenstein.”
The so-called ABX index is “the type of thing which you invent telling yourself: ‘Well, what if we created a ‘thing,’
Tonight on the PBS newshour, business and economics correspondent Paul Solman takes a look at Goldman Sachs and how they’ve made a profit over the past several years. Solman explores whether Goldman Sachs is an investment bank "doing God’s work," as CEO Lloyd Blankfein claims, or actually a hedge fund. Solman looks at the issue and practice of front-running at the investment bank, and risk management.
Perhaps the most interesting segment comes when former Reagan administration budget guru David Stockman and former Goldman trading strategist explain how Goldman Sachs makes so much money trading. Here’s snippet of the transcript:
Narrator: But consider HOW they’re making those bucks, says Nomi Prins. On knowledge that, as when she was there, comes in with every trade a client asks Goldman to make.
Nomi Prins: And just by evidence from the profits they make and where they make them, what divisions they make them in, they’re not sitting on that knowledge. They are trading on that knowledge.
Paul Solomon: So they know somebody is going to buy a commodity or currency so they either buy that commodity or currency first or a commodity and currency very much like it.
Nomi Prins: Any information that you get, particularly if it’s going to move the markets a lot, is going to filter into the trading positions you take.
Narrator: But isn’t this "front running" — trading ahead of your clients (to profit from the price changes that will come from the clients’ trades) for your OWN firm’s benefit? And isn’t that, strictly speaking, illegal?
David Stockman: The long and ancient secret of Wall Street is they’ve always been front running their clients! In other words when you’re in the customer trading business and then you’re in the proprietary business, which trade are you making first? I don’t know and if it’s in milliseconds how’s anybody going to figure it out? So I don’t know if you ought to get all exercised on that or not but the fact they make all this money in proprietary trading is clearly part and parcel of being a massive player and dealer in the markets for both customer trades and house trades.
Karl speaks out again and suggests some sort of taxpayer strike. If you ask people in real estate and lending industries, many will admit knowing that lies and deception were ubiquitous. For example, see my interview with J.S. Kim:
Ilene: What did you learn while working in the banking industry?
J.S.: I was seeing an unsettling picture of industry excesses. I saw problems developing, for example, with mortgages – no document loans or liar loans. If the loan application didn’t support a mortgage, the loan might be denied at first, but then it was sent through a special process to convert it to a no document loan. Every bank did it. This was not specific to Wells Fargo. All the major U.S. banks had this “don’t ask, don’t tell” policy, so they could say they didn’t know. They either should have known from the start that the mortgages couldn’t be paid back, or they didn’t care because they were making huge commissions up front. So they would make the loans and then slice and dice them up and quickly sell them off.
Ilene: The banks knew what they were doing and knew they’d be bailed out as well?
J.S.: Yes, this happened before in the 1920s and I believe they knew it would happen again. The process of taking the clients’ money and making loans that are gambles (heads I win, tails the taxpayer pays) has a history that goes back to the Great Depression. They have the best of both worlds. The reward for risks stays with the banks top executives, but losses are shifted to the taxpayers. [more here>>]
Jan. 13 (Bloomberg) — Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein testified today that he was never asked to accept a discount on investment contracts his firm had with American International Group Inc….
The New York Fed said it had to make the payments after banks refused to accept so-called haircuts, according to a November audit from Neil Barofsky, the special inspector of the U.S. Troubled Asset Relief Program.
It looks like Goldman Sachs was starting to worry about all those stories claiming that the firm trades against clients’ interest, takes positions that are different from what they told clients, and favors some clients with advance word of its market views.
So it sent an email making it perfect clear: Goldman is totally doing those things.
A senior Goldman executive sent an e-mail to clients on Tuesday warning that the firm may have shared investment ideas with the firm’s proprietary trading group or some clients before sharing them with others. It said it may trade ahead of disclosing those idea to clients, and may trade out of positions or change its mind about the ideas without warning.
Andrew Ross Sorkin at the New York Times obtained a copy of the email.
It was basically a big fat caveat emptor to clients. Some highlights:
"We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you."
"We will also discuss Trading Ideas with other clients, both before and after we have discussed them with you."
"You should not consider Trading Ideas as objective or independent research or as investment advice."
"Any opinions that we express when we discuss Trading Ideas with you will be our present opinions only and we will not have any obligation to update you in the event of a change of circumstances or a change of our opinion."
We may from time to time discuss with you Trading Ideas generated by our Fundamental Strategies Group. As part of our commitment to managing conflicts of interest appropriately, this message is to explain how the Fundamental Strategies Group interacts with other parts of our organisation and how that impacts on the Trading Ideas.
The Fundamental Strategies Group is a group of cross-capital structure desk analysts employed by our Securities Divisions to assist our traders. They develop Trading Ideas in conjunction with traders. We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you. We may continue to act on Trading Ideas, and may trade out of any position, based on Trading
How fitting, to mark the high tide of the will to power of the Anglo-American banking cartel. No better symbol of hubris, of the overreach driven by obdurate insensitivity and sociopathic greed, of the cult of ego and the darker impulses of the human heart, that creates nothing.
Honoring the man as the epitome of 2009, a man whose bank helped to precipitate one of the greatest financial crises, if not crimes, of the century, and used it as a means of profit for their own ends. No matter what damage was caused in the process, what corruption was required to undermine the nation’s well-being, thereby sowing the seeds of their own eventual destruction.
And no better day for it, than on the eve of the commemoration of the renewal of life, of genuine value, of the perennial yearning of the human spirit from within the images and the shadows, a turning away from the stench of corruption and decay, and into the light.
"For what shall it profit a man, if he gains the whole world, but loses himself?
Not even the whole world, but bragging rights, a false bravado, and a bonus.
The man of the year indeed. King of the ash heap, almost universally held in contempt. And in the end, alone. Not even rising to the level of high tragedy, but merely furtive, grasping, manipulative, pathetic. A monument to banality, and the hollowness of Western materialism.
The Financial Times has chosen Lloyd C. Blankfein as its person of the year. The Goldman Sachs chief has become the public face of Wall Street during its most testing period since the 1930s, the newspaper said, and Mr. Blankfein’s position and his personality were the basis of his selection.
Goldman Sachs, said the newspaper, “navigated the 2008 global financial crisis better than others,” and is about to make record profits while paying up to $23 billion in bonuses to its 31,700 staff.
The newspaper called Mr. Blankfein “a tough, bright, funny financier who reoriented Goldman. Under his leadership, trading and risk-taking have pushed to the fore, reducing the influence of its investment banking advisers.”
Most Americans today have but two connections with those who serve and have served in the military, and especially those who have perished in that service. The first is the hollow seconds it takes to utter “Thank you for your service,” an seemingly autonomic reflex when seeing someone in uniform. The other occurs should they see a film about any of our many conflicts. Since America’s last declared war, which ended 70 years ago, Memorial Day has become an annual celebration of patriotic hypocrisy, when people might notice that the American flag th...
Friday didn't bring a flourish of buying or selling into the long weekend, so it's up to Tuesday to price in weekend news. Opportunities are available for both bulls and bears. Bulls will be looking to the S&P to push from 5-day days of tight, sideways pattern in an effort to put some distance to 2120. Technicals are mixed, with a strong 'buy' in the MACD and bullish momentum, offset by a 'sell' trigger in On-Balance-Volume and some mixed action in the ADX. One point of note is the bullish cross in relative performance against the Russell 2000. In the bears camp is the Nasdaq. While it has managed to hold 5038 support it has resistance at 5096 to contend with. This may give bea...
There’s no denying the effect that fees have on investments. While the difference between a fee of 0.5% and 0.25% looks tiny on paper, apply it to an index fund over a quarter-century or more of investing and let the effects of compounding work on it and you can easily see a worker winding up with tens of thousands of dollars less on account at retirement.
So it’s easy to see how and why the case protects workers and retirement savers.
The potential problems from the ruling are much harder to see, but they’re just beneath the surface now and likely to surface a...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Understanding the new normal of a business model is key to the success of any company. The managment of companies need to adapt to the changing demand, but first they must recognize what changes are taking place. Big Pharma's business model is changing rapidly, and much like the airline industry, there will be but a handful of pharma companies left at the end of this path.
Most Big Pharma companies have traditionally done everything from research and development (R&D) through to commercialisation themselves. Research was proprietary, and diseases were cherry picked on the back of academic research that was done using NIH grants. This was in the heyday of research, where multiple companies had drugs for the same target (Mevocor, Zocor, Crestor, Lipitor), and could reap the rewards on multiple scales. However, in the c...
Stocks closed last week on a strong note, with the S&P 500 notching a new high, despite lackluster economic data and growth. I have been suggesting in previous articles that stocks appeared to be coiling for a significant move but that the ingredients were not yet in place for either a major breakout or a corrective selloff. However, bulls appear to be losing patience awaiting their next definitive catalyst, and the higher-likelihood upside move may now be underway. Yet despite the bullish technical picture, this week’s fundamentals-based Outlook rankings look even more defensive.
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
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Bitcoin, the virtual digital currency, has been called the future of banking, a dangerous fad, and almost everything in between, but we're finally about to get some solid data to help settle the debate.
On Monday, the Nasdaq (NDAQ) stock exchange said it would ...
Chris Kimble likes the idea of shorting the US dollar if it bounces higher. Phil's likes the dollar better long here. These views are not inconsistent, actually, the dollar could bounce and drop again. We'll be watching.
Phil writes: If the Fed begins to tighten OR if Greece defaults OR if China begins to fall apart OR if Japan begins to unwind, then the Dollar could move 10% higher. Without any of those things happening – you still have the Fed pursuing a relatively stronger currency policy than the rest of the G8. So, if anything, I think the pressure should be up, not down.
UNLESS that 95 line does ultimately fail (as opposed to this being bullish consolidation at the prior breakout point), then I'd prefer to sell the UUP Jan $25 puts for $0.85 and buy the Sept $24 call...
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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