Why not?
Peter Fisher managing director at Black Rock talks about Goldman Sachs.
He says Goldman’s profit last quarter was a byproduct of AIG postions unwound. Follow the links and listen for yourself.
A recently released report from Goldman is making the rounds and is amping up the buying temperature for a perennial institutional favorite, the carry trade. Even Bloomberg has picked up the story and is running with the theme. They specifically call out two ZH favorites, the BRL (Brazilian Rial) and the AUD (Australian Dollar) – however we think this move is really too early/too late, depending on how you look at it.
As seen below, the BRL would have been a great buy right after our last post on it. However, we now expect a major turn around after the current market situation “resolves” itself and investors return to their bunkers. As we have posted extensively on the reasons why we see the market correcting in the near term, we won’t rehash the details but suffice to say that you don’t want to be caught short on the unwind. If not a direct directional bet, going long vol on the BRL in particular and EM baskets in general seems the smartest play in currency right now. Additionally, look for unrelated casualties (GBP) as the US equity correlation across some of the majors brings down some of the recent gainers.
Carry trades are when investors borrow funds in low interest rate countries such as the US (.25%), Japan (.1% and the Eurozone (1.25%) and invest those funds in high interest rate countries such as Russia or Brazil (11.25%). If the currency values are stable, it’s easy money. Problems start when those values start flying all over the place; you can lose everything in a day.
Goldman, they just made $5 billion, they can afford to lose it speculating in carry trades.
HA HA Funny! That’s a JOKE!
The Treasury and the Fed are committing trillions to shore up the US financial system, one would think the institutions would use the funds to invest in US businesses … not doing what amounts to risky currency speculation in Brazil and Australia! Yen to Australian Dollar carry trades were a favorite during Japan’s ‘Lost Decade’. The BOJ would lend at1%. Yen would go through the front doors of Japanese banks then … out the back door to be ‘invested’ in Australia. The 7 or 8% yield would go to a handful of investors but the principal would stay in Australia while Japan itself remained mired in deflation.
American workers who are sweating bullets about their futures are simply unaware that funds that might put them to work at home are being invested in Brazil and … another investment favorite … Russia. If Goldman is involved the amounts are likely to be substantial.
How substantial? Here is a view of the size of Goldman’s equity operations, that is Goldman’s trading to itself in the name of ‘increasing market liquidity:
A very interesting data point, also provided by the NYSE, implicates none other than administration darling Goldman Sachs in yet another potentially troubling development. The chart below demonstrates the program trading broken down by the top 15 most active NYSE member firms. I bring your attention to the total, principal, customer facilitation and agency columns.
Key to note here is that Goldman’s program trading principal to agency+customer facilitation ratio is a staggering 5x, which is multiples higher than both the second most active program trader and the average ratio of the NYSE, both at or below 1x. The implication is that Goldman Sachs, due to its preeminent position not only as one of the world’s largest broker/dealers (pardon, Bank Holding Companies), but also as being on the top of the high-frequency trading/liquidity provision “food chain”, trades much more often for its own (principal) benefit, likely in tandem with the other top dogs on the list: RenTec, Highbridge (JP Morgan), and GETCO.
Keep in mind, Goldman will prompt something in the media so as to generate more activity in the investment, that activity helps moderate volatility – makes nice for Goldman. Goldman can also broker the trades for you … for a very moderate fee!
Leaving out the conspiracy nonsense about the government cooking the stock markets to help them ‘look cool’ (by financing the trading of the same securities back and forth with other insiders), the fact is these banks (Citi, JPM, GS and BoA) are doing this with bailout money; churning the stock market is almost as pointless as the US investing in Brazil.
I don’t think anyone in the Treasury gets it …
More Goldman: I was just looking up the bonafides of William Dudley, the incoming New York Fed director. Dudley is Tim Geithner’s replacement (and always a likely candidate for promotion to an exalted government post) :
William C. Dudley became the 10th president and chief executive officer of the Federal Reserve Bank of New York on January 27, 2009. In that capacity, he serves as the vice chairman and a permanent member of the Federal Open Market Committee, the group responsible for formulating the nation’s monetary policy.
Mr. Dudley had been executive vice president of the Markets Group at the New York Fed, where he also managed the System Open Market Account for the Federal Open Market Committee. The Markets Group oversees domestic open market and foreign exchange trading operations and the provisions of account services to foreign central banks.
Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm’s chief U.S. economist for a decade. Earlier in his career at Goldman Sachs, he had a variety of roles including a period when he was responsible for the firm’s foreign exchange forecasts. Prior to joining Goldman Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley was an economist at the Federal Reserve Board from 1981 to 1983.
He was a member of the Technical Consultants Group to the Congressional Budget Office from 1999 to 2005.
Mr. Dudley received his doctorate in economics from the University of California, Berkeley in 1982 and a Bachelor of Arts degree from New College, Sarasota, Florida in 1974.
The real story behind the scenes in Washington is the rivalry between FDIC’s Sheila Bair and Tim Geithner. Is there a rivalry? Dudley would be an ally to the Summers/Geithner clique and help keep; the hawks on the FOMC in line perpetuating the titular supremacy of Goldman Sachs:
Federal Reserve Bank of Dallas President Richard Fisher said “grim” figures indicate the world’s largest economy shrank steeply last quarter.
“The economic data in the U.S. is quite grim, and I expect a contraction at an equally dismal rate in the first quarter,” Fisher said in a speech today in Hong Kong. He reiterated his prediction that the jobless rate may exceed 10 percent this year.
The bank president’s remarks come as U.S. policy makers continue an unprecedented campaign to increase the money supplied to the economy. Fisher, 60, is among the most hawkish members of the Federal Open Market Committee, having voted five times last year in favor of tighter policy.
The central bank’s policies are likely to help end the U.S. recession, Fisher said in the speech at a luncheon sponsored by the Asian Society of Hong Kong. Government stimulus measures should also start to have an impact on the world’s largest economy from the second quarter, he said later in an interview with Bloomberg Television.
What is interesting is Fisher indicates he disagrees with the Bernanke regime of spewing money in the general direction of the economy and praying, that would be where he voted in favor of tighter policy. At the same time he feels that the policy he voted against five time might actually work! That is where he indicates stimulus measures should start to have an impact. Perhaps he feels that Treasury actions needed a policy counterbalance from the Fed and less grease for carry trades. But with Dudley in the NYF it will likely be more of the same spewing liquidity @ Goldman Sachs and more praying.
Right now, Goldman is the beneficiary of bailouts to AIG and lower interest rates support Goldman’s carry positions; its alumni roam the corridors of the Treasury building like Flying Dutchmen.
Apparently Goldman is being sued by some Dude in Florida who is using Goldman Sachs in a critical website URL:
Mike Morgan, who opened goldmansachs666.com a few weeks ago, is a registered investment adviser. The website includes such posts as “Does Goldman Sachs Control the U.S. Government?” and “If Goldman Sachs Robbed Your House? What Would You Do?” It should also be mentioned, that the URL has a mark of the beast.
The Dude will likely lose, but why care? He at least gets some cheap publicity. Filing a Federal Complaint only costs $375.
Here’s another Goldman … David Goldman @ Asia Times. I love reading about what is REALLY going on in China and Japan. Maybe when I grow up I can visit. I would love to be banned from China or Japan, what an honor! Goldman is a super- bear and even more bearish than Mike Nolan or Mish. Goldman’s take is different from the usual ‘common sense‘ prognosticators since he understands the current realities require – not just ‘would like to have’ but absolutely need a functioning banking system for the government to financially function. He has an interesting take on the current defensive establishment strategy of robbing Peter to pay Paul:
There is clearly concern that nationalization is a possibility. Just look at the preferreds of some of the banks: Bank of America’s [BAC 3.94
-0.63 (-13.79%)
] J-share 7.25 percent non-cumulative preferred stock is currently yielding 30 percent—a clear indication that there is concern that preferreds could get wiped out, which is what would likely happen in the event of nationalization.
This is the downside of nationalization—particularly for insurance companies, which are the largest holders of preferred financial stocks.
The Treasury has painted itself into a corner, it cannot act without being bashed by the reaction that would appear elsewhere. By nationalizing banks, it would destroy the insurance industry which has bought lots of bank equity. It is similar to the Fed’s position re Treasury debt; it cannot raise interest rates to give itself some rate maneuvering room or bolster the dollar (or counter rising energy costs) because of government financing concerns. Time passes and the corners get tighter and tighter.