Goldman’s Hit List: Bear, Moody’s, NatCity, PMI, WaMu And Capital One
by ilene - April 28th, 2010 12:11 pm
Goldman’s Hit List: Bear, Moody’s, NatCity, PMI, WaMu And Capital One
Courtesy of Tyler Durden
As Bruce Krasting disclosed yesterday, Goldman’s Josh Birnbaum "slipped" when disclosing the firm’s prop equity positions, in listing the companies his firm was actively shorting. We hope none of these were naked shorts as that would not reinforce the case of prudent risk management by Goldman’s discount window-accessible hedge fund (in other words, the entire firm). Today, via the full exhibit list, we learn that in addition to Bear Stearns, in July 2007 the firm, via Josh, was also actively shorting a variety of other mortgage-related firms at the Structured Products Group via puts, which in addition to Bear, included Moody’s, National City, PMI, WaMu, and Capital One. The firm only had a micro S&P long offset. As the list demonstrates, the firm had a big delta short in fins offset with no financial longs, thus refuting Josh’s testimony that this was a "hedge" when in reality this was nothing than a directional short bet on fins. What is more troubling is that Josh was planning on expanding the list to a whole slew of other firms, and specifically competitors, most of which eventually going under: including Lehman, Merrill, and Morgan Stanley.
We are confident that sooner or later AIG made the list, if not so much on the equity short side, as long CDS. If anyone wants to make the conspiratorial case that Goldman may have had the upper hand on these firms by knowing their liquidity situation and profited from it by shorting them as each bank in turn experienced a bank run, this could be a good place to start. It also begs the question if Dodd’s worthless bill has anything to see about predatory practices by Wall Street firms which actively short each other, potentially leading to a destabilization of the system.
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SEC Charges Goldman Sachs With Fraud On Subprime Mortgages, Paulson & Co. Implicated
by ilene - April 16th, 2010 12:33 pm
SEC Charges Goldman Sachs With Fraud On Subprime Mortgages, Paulson & Co. Implicated
Courtesy of Zero Hedge
Washington, D.C., April 16, 2010 — The Securities and Exchange Commission today charged Goldman, Sachs & Co. and one of its vice presidents for defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter.
The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.
"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, Director of the Division of Enforcement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party."
Kenneth Lench, Chief of the SEC’s Structured and New Products Unit, added, "The SEC continues to investigate the practices of investment banks and others involved in the securitization of complex financial products tied to the U.S. housing market as it was beginning to show signs of distress."
The SEC alleges that one of the world’s largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.
According to the SEC’s complaint, filed in U.S. District Court for the Southern District of New York, the marketing materials for the CDO known as ABACUS 2007-AC1 (ABACUS) all represented that the RMBS portfolio underlying the CDO was selected by ACA Management LLC (ACA), a third party with expertise in analyzing credit risk in RMBS. The SEC alleges that undisclosed in the marketing materials and unbeknownst to investors, the Paulson & Co. hedge fund, which was poised to benefit if the RMBS defaulted, played a significant role in selecting which RMBS should make up the portfolio.
The SEC’s complaint alleges that after participating in the…
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Short Interest At Lowest Levels In Over 2 Years
by Chart School - September 15th, 2009 1:48 pm
Short Interest At Lowest Levels In Over 2 Years
Courtesy of Market Folly (and Bespoke)
Thanks to the fine folks over at Bespoke as always for flagging this data. We now see that short interest in the S&P 1500 is at the lowest levels since February 2007, sitting currently at 6.6%. Take it for what it’s worth:
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SENTIMENT UPDATE – INVESTORS ARE COMPLACENT
by ilene - August 14th, 2009 4:13 pm
SENTIMENT UPDATE – INVESTORS ARE COMPLACENT
Courtesy of The Pragmatic Capitalist
Earlier this week we mentioned the sharp change in short interest over the prior months. I wrote:
Much of the fuel for the 50% rally in the S&P 500 has come from short covering. The general skepticism surrounding the recovery has actually resulted in price gains. But as the rally gets long in the tooth we could be seeing signs that short covering will have a much smaller impact.
The huge declines in short interest are a sign of capitulation in short selling. The bears have been truly slaughtered during this bull run. The change in short interest should be viewed as a contrarian indicator at this juncture. This is also a clear sign of a major change in investor sentiment.
In addition to major changes in short interest, this weeks AAII poll displayed a remarkably bullish reading of 51%. We haven’t seen a reading this high since May 2008 just after the government intervened in Bear Stearns and the market rallied. At the time, everyone was bullish and was declaring that a recession was off the table and a second half recovery was a near certainty. Of course, when everyone is on the same side of the boat, it’s wise to either move to the other side or simply jump off. The bullish side of the trade, in terms of sentiment is incredibly crowded. Positive sentiment can remain high for extended periods of time and can be a major driver in higher prices, however, these environments make for very poor risk/reward scenarios. If any element of doubt or uncertainty creeps into the market we could easily see a sharp and dramatic correction.
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RUNNING OUT OF FUEL FOR THE RALLY?
by Chart School - August 12th, 2009 5:50 pm
RUNNING OUT OF FUEL FOR THE RALLY?
Courtesy of The Pragmatic Capitalist
Much of the fuel for the 50% rally in the S&P 500 has come from short covering. The general skepticism surrounding the recovery has actually resulted in price gains. But as the rally gets long in the tooth we could be seeing signs that short covering will have a much smaller impact. Bespoke Investment Group reports:
Following July’s leg higher, it seems that traders on the short side have cut and run. As shown in the chart below, the average stock in the S&P 500 had 4.97% of its float sold short as of the end of July. This is the lowest level since January 30th, and marks a decline of 17% from the peak levels in July 2008. Bears will cite this number as proof that investors are crowded on the long side. While bulls would probably prefer to see higher levels of short interest, they are likely to note that short interest still remains high from a longer-term perspective.
Source: Bespoke
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WAS IT JUST A SHORT COVERING RALLY?
by ilene - July 16th, 2009 11:00 pm
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WAS IT JUST A SHORT COVERING RALLY?
Courtesy of The Pragmatic Capitalist
The light volume, poor breadth and quick surge in the market over the last three days has a lot of people calling this nothing more than a short covering rally. I went back and looked at the list of the S&P 500 stocks with the highest short interest to see how they’ve performed over the last three days. The results are pretty good. The average stock on the list has returned 10.5% over the last three days with none of them turning in a negative return. The S&P is up 6% over the same period. The Nasdaq 100 is up 5% and the Russell 2000 is up 7% over the same period which would imply that beta has had little to do with the overall return of these names and that this has indeed been a short covering rally.
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site