Goldman Sachs (Building) Shines Brightly Amid Hurricane Sandy Power Outage

A great shot of darkened Manhattan, from Zero Hedge. The building shining golden is the Goldman Sachs building. (They had power generators.)

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Goldman Execs in Senate Hearing

Four GS traders are on the deck. Fabrice Tourre, Daniel Sparks, Michael Swenson, Josh Birnbaum.

So far, it's a civilized ritual.

Difference in brain power is rather obvious, just by looking at the Senators and the traders.

Senator McCaskill (D-Missouri) tries to reduce the whole thing into a bookie business. Oh dear. (And Senator, pull your elbows off the table. Bad manners.)

She doesn't know what she's babbling about...

Live on C-Span: http://www.cspan.org/Watch/C-SPAN3.aspx

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Vampire Squid (Goldman) vs Vampire Squid (US Gov)

The match will be on tomorrow (Tuesday April 27, 2010), at 10:00 AM EST.

The government Vampire Squid is represented by the members of the Senate Permanent Subcommittee on Investigations (chairman Carl Levin (D-Michigan)).

Expect the trading on the US stock exchanges to be extremely thin, as most traders will likely be watching the show.

In February, the US government ganged up on Toyota over Toyota's sticking pedal recalls, which caused the then-world No.1 automaker's share price to plunge. Today, no one talks about Toyota.

Now it is ganging up on the top dog on Wall Street, as it tries to force the financial "reform" through the Senate. Shares of Goldman Sachs has lost 18% since April 16, when the SEC charges were leaked on New York Times ahead of the formal announcement.

The Senators will first beat up on 31-year-old Goldman trader "Fabulous" Fab Tourre, and then on to the showdown with the Vampire Squid incarnate Lloyd Blankfein. The last time he was on Capitol Hill, Mr. Blankfein was rather impatient with the Senators whose CPUs were clearly slower. Let's see how he does this time.

All for our entertainment, so that we can forget about the mountain of new taxes and regulations that are coming our way.

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Did Goldman Sachs Short Itself and Short the Market?

Rumors were circling today. If it did, that's chutzpah at its best (or worst, depending on your perspective). If GS the Vampire Squid is going down, everybody else is going down!

And they did, big time. Major US indices may have bounced back and ended with 1.6% loss at most (S&P500), but individual stocks in the indices went down much, much more, regardless of whether they are financial stocks or not.

Did Goldman Short Itself, Reuters Reports Goldman Was Told In Advance It Faced SEC Action (4/16/2010 Zero Hedge)

"Time for the SEC to take a look at what bets Goldman's prop desk, and material affiliates as well as hedge funds that are close to Goldman's flow traders, were taking on Goldman's stock over the past few days. If indeed Goldman shorted itself, bought SPY puts, bought octuple leveraged negative financial ETFs, or something else of the sort, on material non-public information, it would be time to shut the firm down." [Emphasis is original.]

And:

Talk From The Pits: Goldman Sold 1,000 Large S&Ps Earlier (4/16/2010 Zero Hedge)

"From the open outcry pits:

Goldman sold 1,000 big SP today over 1,200.00. Was it just a hedge because they
KNEW the SEC would do nail them to the cross? Is that insider trading? Who knows
how many tens of thousands they sold in the ES?

"We can hope the SEC still hasn't blocked Zero Hedge and is reading these very pertinent questions. "

For more on what the SEC's action on an Op-Ex cay did to the market, GS share price, and April option prices (someone made an immoral amount of money), take a look at my trading blog.

(And oh BTW, Mercury Retrograde starts on April 17 at Taurus, the bull.)

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Times UK: JP Morgan to face Lehman crash probe

Remember those days in September 2009 when Lehman Brothers went bankrupt and the hell broke loose?

After nearly a year and a half, Lehman creditors are still sorting things out in a bankruptcy court.

JP Morgan to face Lehman crash probe (2/7/2010 Times UK)

"A COURT-APPOINTED investigator is this week expected to shine fresh light on the role of JP Morgan and other financial institutions in the events running up to the collapse of Lehman Brothers, the American investment house.

"Anton Valukas, a whitecollar crime specialist who played a leading role in the Conrad Black fraud investigation, was recruited by a New York bankruptcy court. His long-awaited report, which is understood to run to more than 1,000 pages, should be published this week.

"It will focus on whether JP Morgan, Lehman’s main short-term lender, dealt a fatal blow to the bank by increasing collateral demands on loans in the days immediately before its demise.

"Valukas’s findings will be pored over by all those who lost money in Lehman’s collapse, and by the Lehman estate, which holds the bank’s residual assets and is charged with recovering money for creditors. According to one source, the estate, which represents the interests of all the bank’s creditors, is planning to launch a $17 billion (£11 billion) claim against JP Morgan.

"That would mirror a complaint lodged with the court by the bank’s creditor committee in the immediate aftermath of the bankruptcy filing. This claim, made in October 2008, cites the $17 billion figure as the amount of Lehman cash and securities that JP Morgan “froze” in its final days, precipitating the largest collapse in corporate history." [Emphasis is mine. The article continues.]

I can almost imagine the JPM's defense: the same as Goldman Sachs as it demanded a cash collateral from A.I.G. It's prudence, it's rigorous risk management.

Lehman Brothers was engaged heavily in highly complex financial assets (derivatives, CDOs, and other structured finance products). And as this blog posted in September 2009, the accountants at PriceWaterhouseCoopers in London were just beginning to attempt to unravel some of those complex deals then, with hardly any major counterparties having reconciled their positions with Lehman.

Just like there is way more to the Goldman's collateral demand from A.I.G. than meets the eye (like Goldman's active destruction of A.I.G, almost), I suspect that JP Morgan's risk management may have involved more than that.

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Major Bank Earnings This Week

"Sell the news" event? We shall see. (The banks below will all report before the market open.)

Wednesday October 14, 2009

• J.P. Morgan Chase (JPM): Estimates: 0.65 0.49 0.32 (High Mean Low)

Thursday October 15, 2009

• Citigroup (C): Estimates: -0.07 -0.21 -0.51 (High Mean Low)
• Goldman Sachs (GS): Estimates: 4.75 4.237 3.82 (High Mean Low)

Friday October 16, 2009

• Bank of America (BAC): Estimates: 0.08 -0.067 -0.33 (High Mean Low)

Morgan Stanley (MS) and Wells Fargo Bank (WFC) will report next week.

I can't see why they would miss. Big fat spread between their borrowing and lending, increased fees and APRs on consumer credits (JPM, C, BAC), profitable trading operations in the bond market, stock market, and commodities market (flash trading is still legal and going strong), LBO coming back...

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What the @#$% Happened in September-November 2008: Part I

For your weekend reading pleasure.

These are the headlines and some snippets from the articles on the front pages of Investor's Business Daily in September, October and November 2008. This is Part I.

I saved the front pages of IBD newspaper which I was subscribing to at that time. Not for any particular reason, but even back then, I felt, as a lot of others did, something was irreparably, irreversibly changing in the U.S. financial market. It felt like the last days of the market, and maybe they were.

(I have a Dow Jones daily chart of September 08 in my other blog's post. It opens a new window.)

Since I'm reading off the physical newspaper pages, the indices' numbers are those of the day prior to the date; the same goes for the news headlines.

September 9, 2008 (Tuesday)
(S&P 500 Index 1,268, Dow Jones Industrial 11,511, Nasdaq 2,520)

• U.S. Takeover of Fannie, Freddie Still Doesn't End Troubled Saga
• Builders And Banks Rally Over Seizure of Freddie, Fannie
• Fannie's stock tumbled 90%, Freddie 83%
• Picture of anxious specialists on NYSE floor
• Lehman Brothers Down On Uncertainty: the stock lost 13%
• Delivery Firms Reduce Speed To Save Fuel: UPS eliminates left turn
• S&P cuts Wamu to junk
• Russian troops were still in Georgia

September 16, 2008 (Tuesday)
(S&P 1,192, Dow 10,917, Nasdaq 2,179)

• Stocks Dive On Wall St. Woes, S&P Off 4.7% to 3-Year Low (1192.70)
• Lehman Failure Tests Limits of U.S. Bailouts, "Moral hazard" seen as driving force behind credit system's excesses
• Picture of a Lehman Brother's Market Maker with her hands over her brow
• (Lehman Brothers filed for bankruptcy on September 15, Merrill Lynch sold to Bank of America.)
• Crude Oil Plunges Below $100: the first sub-$100 since March 4.
• The acquisition of Merrill "creates the premier financial company in the world. It was an opportunity of a lifetime." - Ken Lewis, Bank of America CEO and chairman

September 17, 2008 (Wednesday)
(S&P 1,213, Dow 11,059

• AIG Falls As Rumors About Insurer Swirl; Many Banks Climb
• AIG Falls Day and Night, Goldman Not So Golden
• Fed Keeps Interest Rate Steady at 2% After Pushing $50 Bil To Banking System
• Picture of Presidential helicopter flying over Galveston Texas, after Hurricane Ike
• "The Fed's non-action [not cutting the rate further] suggests that things might have reached a bottom," said Richard Yamarone, Argus Research's director of economic research.

September 18, 2008 (Thursday)
(S&P 1,156, Dow 10,609, Nasdaq 2,098)

• Stocks Dive Despite AIG Bailout, worldwide stock markets plunged
• Credit Default Swaps At Meltdown's Heart, Everybody's A Suspect
• Congress Consideres Ways To Aid Market And Ailing Economy
• Chart of CDR Counterparty Risk Index showing huge spike on AIG bailout
• Buyout rumors swirl around Morgan Stanley and WaMu
• Fed Maneuvers Fail to Placate World Markets: Who's Holding Toxic Assets?
• Treasury Steps In To Finance Fed: The first auction on Wed netted $40 bil. Treasury officials insisted the Fed isn't short of resources
• Market Woes Whip Up Gold, Oil: gold blasted to its biggest one-day gain ever, vaulting $70 to settle at $850.50
• SEC Clamps Down On Short Sales: new limits on naked short selling

September 19, 2008 (Friday)
(S&P 1,206, Dow 11,019, Nasdaq 2,199)

• Market Takes Heart From Talk of Fund To Hold Bad Assets [That was the beginning of TARP]
• Government May Absorb Banks' Sour Securities; S&L Crisis RTC Is the Model
• Fed Adds $105 Bil To U.S. System, another $180 bil made available to lend to banks [Discount Window]
• Congress Lies Low To Avoid Bailout Blame; Lawmakers fear wrath of voters as cost of crisis soars to $ 1 tril or more
• Gold Surges, Reverses, Crashes on Treasury plan to create RTC-like entity. Gold fell $50 in one hour.
• Shares of Morgan Stanley, Goldman Sachs went free-fall on Thursday, then violently reversed when the news of short sale ban in Britain reached the U.S. Morgan Stanley's share went to $11, ended the day at $22. Goldman Sachs, low $85, closed at $108.
• Putnam's Prime Money Market Fund folded, a day after Reserve Primary Fund broke a buck
• Picture of President Bush, making a statement regarding the Federal Reserve's action

September 22, 2008 (Monday) [but paper was issued on September 20, Saturday, as IBD always does)
(S&P 1,255, Dow 11,388, Nasdaq 2,273)

• Paulson announces bailout plan on Friday, gives few details
• Stocks Buy Into Rescue Plan, S&P Soars 4% as U.S. Acts. Government backs money funds ($50 billion), bans shorting financials (799 of them); big mortgage trust seen.
• Questions Abound Over Bailout; Who, What And How Much? Devil will be in the details; Dems likely to demand aid for ailing homeowners.
• "There will be ample opportunity to debate the origins of this problem. Now is the time to solve it." - President Bush
• "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy" - Treasury Secretary Hank Paulson
• "We've got to deal with the foreclosure issue. This plan must include that." - Chris Dodd, Senate Banking Committee chairman
• S&P 500 5-day chart titled "From Meltdown to Rebound" [hindsight is 20-20]

How's that for one week and a day?

The day I remember most vividly is September 18, Thursday (the news of the day under September 19, of course). The market was constantly selling off, and the selloff suddenly accelerated around 12:00pm. It was like a dark abyss opened up in front of you. Then, all of a sudden around 1:00pm, it violently reversed, paused for a while, then went crazy when the rumor of financial bailout by the government started to float in.

(I read on the net some time later that when that abyss opened up and Goldman's stock was free-falling, someone somewhere on the Goldman's floor played Star Spangled Banner on the internal broadcast system. Many traders stood up with their hand over their chest. "... and the home of the brave" - the music ended, and suddenly the market started to reverse to the wild cheers from everyone. Too good to be true, perhaps. But this is what I remembered reading.)

The next day, Friday, the market continue to go up thanks to bailout talk and ban on shorting (not just naked shorting) on financials, managed to end the week, up. I remember that day, too. The trading of SKF, double short financial ETF was suspended for several hours. When it opened, it gapped down to $87 from the previous close of $115, although it managed to end the day exactly at $100.

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1-Month Gold Lease Rate Is Negative

I've never seen anything like this. The chart is from Kitco.com, showing gold lease rates for various duration since May 2008 to present. 1-Month lease rate is negative. So the entity that lend gold (usually a central bank, in the case of the US it is Federal Reserve) effectively gives you money so that you borrow gold from them and sell it in the open market. Borrowers are bullion banks (including Goldman Sachs, JP Morgan Chase, Deutsche Bank), large mining companies, and jewelry manufacturers. The latter two do this as a hedging operation, and the bullion banks claim they are also doing it as a hedging operation. (Gold bugs are always suspicious of their claim, though.)

These bullion banks and other firms borrow gold at a very low lease rate and sell it in the open market (= short gold), and invest the proceed in securities that yield higher returns. Sound familiar? It should; this is a carry trade. Lease rates have never been high, but now the shortest duration lease rate is negative. What does that mean? I don't know. Anyone know? Any guess?

Here's my guess: Federal Reserve, by charging negative lease rate for 1-month lease of gold, seems to want to encourage gold shorting. They want the physical gold price down. So they can sell short-term Treasuries at a higher price? From the chart, 1-month lease rate went below zero around mid March. Looking at the gold chart, it seems to have been successful in driving down the price of gold until mid April. Since then, gold is slowly edging up again.

I also read the rumor that Goldman Sachs and JP Morgan Chase are accumulating call option positions on gold and silver futures contracts. Hedge against their short position? Now I'm really confused...

**More on the topic, I found this article by James Turk, founder of Goldmoney.com:
A Short History of the Gold Cartel

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Goldman Sachs upgrades auto makers

Goldman Sachs upgraded US and Japanese auto makers on Wednesday (4/22):

Ford Motor Company (F) : from Neutral to Buy
Honda Motor (HMC, 7267.T) : from Neutral to Buy
Nissan Motor (NSANY, 7201.T) : from Sell to Neutral
Toyota Motor (TM, 7203.T) : from Neutral to Buy

F went to $1.01 on November 21. (Currently trading at $4.38)
HMC went to $17.35 on December 5. (Currently trading at $28.13)
NSANY went to $5.59 on February 23. (Currently trading at $10.60)

TM went to $55.41 on December 5. (Currently trading at $79.47)

Are easy trades on these stocks over? I wonder...with chatter about GM and Chrysler Chapter 11 bankruptcy getting louder by the day.

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