Posts Tagged ‘financial innovation’

More On Yesterday’s Plunge

More On Yesterday’s Plunge

Courtesy of Karl Denninger, The Market Ticker 

If you had any doubt about what I have been talking about during this entire ramp job off 666 – that the so-called "bull market" was in fact not much more than a handful of institutions buying shares with free Fed money and passing them between one another hoping to distribute them to you - you should be thoroughly disabused of your skepticism after yesterday.

"Revenge of the algorithms" writ large, basically.

We keep talking about how financial innovation has "helped consumers", "helped businesses" and "made markets more efficient."

Let me put this in nice, large letters for you:

That claim is one big fat LIE.

If you need anything more after yesterday to understand that all these "algos" have done is create systemic risk and permit a handful of very large institutions to siphon off more and more of your money into their pockets like an insane hoover vacuum cleaner on steroids, you need a lobotomy.

The crooners are of course out in force this morning, among them Jeff Immelt:

“This is a point in time when the world needs the U.S. to be a beacon of stability, a beacon of reliability,” Immelt said during an interview at the 92nd Street Y in New York with Norman Pearlstine, chairman of Bloomberg Businessweek. “The world doesn’t need the U.S. in a food fight right now, with everything that’s going on in Europe. We should be the safe harbor.”

But what’s his definition of this?  Why, to make sure GE can continue to siphon off more and more money from the productive economy via GE Capital!

“Financial services is a very important industry in this country,” Immelt said. “Goldman Sachs has been a partner to GE for a long time. We trust them, they’ve done great work for us.”

Yep – hinky derivatives deals are great for Goldman, and might be great for GE as well.  For the rest of the world that actually produces something?  Not so much.

“This point about damning Wall Street isn’t good for the American economy,” Immelt said.

“Some theoreticians that convinced themselves that you can have a great, productive country


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Responding to Goldman Sachs

Janet Tavakoli is president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors, and author of Credit Derivatives & Synthetic Structures, Structured Finance & Collateralized Debt Obligations, and Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street.Ilene

Responding to Goldman Sachs

Janet TavakoliCourtesy of Janet Tavakoli (originally published in the Huffington Post)

The New York Times published a Christmas Eve expose of Goldman Sachs’s so-called "Abacus" synthetic collateralized debt obligations (CDOs). They were created with credit derivatives instead of cash securities. Goldman used credit derivatives to create short bets that gain in value when CDOs lose value. Goldman did this for both protection and profit and marketed the idea to hedge funds.

Goldman responded to the New York Times saying many of these deals were the result of demand from investing clients seeking long exposure. In an earlier Huffington Post article, I wrote about Goldman’s key role in the AIG crisis; it traded or originated $33 billion of AIG’s $80 billion CDOs. AIG was long the majority of six of Goldman’s Abacus deals. These value-destroying CDOs were stuffed with BBB-rated (the lowest "investment grade" rating) portions of other deals. These BBB-rated portions were overrated from the start. Many of them eventually exploded like firecrackers.

Goldman said it suffered losses due to the deterioration of the housing market and disclosed $1.7 billion in residential mortgage exposure write-downs in 2008. These losses would have been substantially higher had it not hedged. Goldman describes its activities as prudent risk management. Many Wall Street firms wound up taking losses. The question is, however, how did they manage to get through a couple of bonus cycles without taking accounting losses while showing "profits?"

The answer is that they sold a lot of "hot air" disguised as valuable securities. Goldman claims this was prudent risk management. In reality, Goldman created products that it knew or should have known were overrated and overpriced.

If Wall Street had not manufactured value-destroying securities and related credit derivatives, the money supply for bad loans would have been choked off years earlier. Instead, Wall Street was chiefly responsible for the "financial innovation" that did massive damage to the U.S. economy.

Earlier, Goldman denied it could have known this was a problem, yet acknowledged I…
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ValueWalk

The Classic Harbinger Of A Recession

By Louis Navellier. Originally published at ValueWalk.

In his Daily Market Notes report to investors, while commenting on recession, Louis Navellier wrote:

Goodbye and good riddance to the 1st half of ’22, as the focus shifts from inflation to growth.

Harbinger of Recession

Stocks were modestly in the green on the open after a tough week, but have since headed firmly into the red.  The big concern today is how much interest rates have dropped, reflecting a fear of recession.

...

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Zero Hedge

Xi Hails Hong Kong's "Rising From The Ashes" In 1st Visit Since Pro-Democracy Crackdown

Courtesy of ZeroHedge View original post here.

President Xi Jinping on Friday wrapped up a two-day visit to to Hong Kong which marked the city's 25th anniversary of its turn to Chinese rule by giving a speech seen as a "vigorous endorsement" of the 'one countr...



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Kimble Charting Solutions

Nvidia Stock On The Ropes As Semiconductors Leadership Tested!

Courtesy of Chris Kimble

It is imperative for active investors to understand the importance of market leadership, both on the way up and down.

And this is proving to be very true of the Semiconductors sector. The Semis played a HUGE role in the tech bull market, helping to push the Nasdaq and Nasdaq 100 higher and higher over more than a decade.

But, as we have covered several times this year (click here for our latest article on Semis), tech turned lower late last year… and the Semis were the warning as a leader to the downside.

So t...



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Phil's Favorites

Kremlin tightens control over Russians' online lives - threatening domestic freedoms and the global internet

 

Kremlin tightens control over Russians’ online lives – threatening domestic freedoms and the global internet

Russia has pioneered the concept of digital sovereignty and used it to severely restrict Russians’ access to the internet. NurPhoto via Getty Images

Courtesy of Stanislav Budnitsky, Indiana University

Since the start of Russia’s war on Ukraine in late February 2022, Russian internet users have experienced what has been dubbed the descent of a “...



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Politics

Kremlin tightens control over Russians' online lives - threatening domestic freedoms and the global internet

 

Kremlin tightens control over Russians’ online lives – threatening domestic freedoms and the global internet

Russia has pioneered the concept of digital sovereignty and used it to severely restrict Russians’ access to the internet. NurPhoto via Getty Images

Courtesy of Stanislav Budnitsky, Indiana University

Since the start of Russia’s war on Ukraine in late February 2022, Russian internet users have experienced what has been dubbed the descent of a “...



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Chart School

Gold Stocks Review

Courtesy of Read the Ticker

Gold miners do well when gold is higher, and borrowing and gasoline costs are lower.

Lets start with a question: Why do governments own gold?

1) The need it to support their economy during an energy crisis. If their currency is collapsing oil producers will not take fiat for settlement, but they will accept gold.
2) While the US prints money the purchasing power of the US dollar is declining, hence gold is a hedge.

A particular market action which forces traders to move gold higher is when oil moves higher while the US dollar falls. This means the US dollar is losing purchasing power against oil, therefore gold will go higher as the demand for (1) above explodes. Some history, gold moved higher sharply in these years 2007, 2011, 2016, 2020. All ...

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Digital Currencies

Scams and cryptocurrency can go hand in hand - here's how they work and what to watch out for

 

Scams and cryptocurrency can go hand in hand – here’s how they work and what to watch out for

The anonymous nature of cryptocurrency transactions is ideal for con artists. seksan Mongkhonkhamsao/Moment via Getty Images

Courtesy of Yaniv Hanoch, University of Southampton and Stacey Wood, Scripps College

When one of our students told us they were going to drop out of college ...



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Biotech/COVID-19

At last, COVID-19 shots for little kids - 5 essential reads

 

At last, COVID-19 shots for little kids – 5 essential reads

Millions of U.S. children between the ages of 6 months and 4 years will soon be eligible for COVID-19 shots. FatCamera/E+ via Getty Images

Courtesy of Amanda Mascarelli, The Conversation

For many parents of kids under age 5, a safe and effective COVID-19 vaccine could not come soon enough. A full year and a half after shots first became available for adults, their wait is nearly over.

On June 17, 2022, the Food and Drug Administration ...



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Promotions

Phil: Be the House Not the Gambler at the Fintech Conference in Vegas

 

Phil gave an excellent, educational presentation called "Be the House Not the Gambler: Using Stock Options to Significantly Boost Your Portfolio Performance" at the FinTwit Conference hosted by Lupton Capital and Benzinga on May 14 in Las Vegas. The video is set to start playing at 5:30:45, when Phil takes the stage (but you can see previous presentations by backtracking).

AGENDA 
9:00 AM Opening Remarks with Jonah Lupton, Entrepreneur & Investor
9:05 AM Wagging the Dog: How to Profit From Derivative Driven Moves in the Market with Steven Place, Founder, Investingwithoptions.com
10:00 AM The MarketWebs & The Path of Least Resistance, Christian Fromhertz, CEO, The Tribeca Trade Group
10:55 AM Fireside Chat with Gareth Mann, Founder & CEO, AlphaStream & Spencer Israel, Executive Producer, Benzinga
11:25 AM Sponsor Pitch: Carolyn Bao, VP of Marke...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.