Tag Archives: Goldman Sachs

Oil’s Rocky Road

As the week started off, many traders took the Goldman Sachs report on oil to heart. After a reevaluation, GS has reported that crude should return back to the sub $100 level. Selling of the long contracts began immediately on Sunday night as the Asian markets opened, leading to a steep retreat as oil sank from $113 per barrel to $108 for the day. The Monday open showed some strength, but the gains were lost in the afternoon. From the technical angle, this is a natural pull back and the technical traders would remain bullish, noting the bounce off of the 20 day MA, and a positive turnaround in the stochastics.

Interestingly enough, many institutional investors and hedge funds have jumped into oil in the past few weeks. This has led to a prop up in the premium for oil. If oil volatility continues, this premium will come down as quickly as it has run up. News from Libya and the Middle East now has less emphasis, as NATO headlines become third page highlights on the WSJ. As for the rest of the energy sector, uranium and natural gas still look like attractive at these levels.

FRIDAY MARKET EXPECTATIONS 4/15/11 — The Market Continues

HedgeFundLIVE — Market expectations are as follows…

Yesterday was the start of things I’ve described in my previous blogs over the last month. A test of the 1300 level held.  With that said, earnings season is far from over, and a continued slide in commodities is a very real concern. It is very possible that we trade a range of 1300 – 1320 for the rest of the month, as many professionals will be taking time off for the holidays. The banks have found a comfortable level and Goldman looks particularly attractive at 154 – 155. They will survive. Inflation may hold steady, but ultimately that may actually mean a short-term correction, as the dollar will show strength under those circumstances. Yesterday was the first real day air came out of the very high beta names. NFLX seems to be the most logical short as serious competition is on the way, and they continue to sign overpriced deals with studios, which will affect earnings. A miss by NFLX would be disastrous for them as well, like many overpriced Internet names.  A 1254 test and perhaps a low of 1225 would complete an appropriate correction after a tremendous run since the financial crisis. The long-term economic outlook looks good and I still maintain my year-end 1440, which may be even higher if there is a legitimate correction. As was written in my previous blogs, the employment picture is holding steady, but not improving, as the Government would like you to believe. The Obama administration makes me nervous, as he seems emboldened to take on Wall Street again. He seems to have limited concern over any real competition for election year. Keep your eye on 1321 on the S&P futures; a break above it would cause me to reassess the current thesis. In addition any serious corrections will be met by increased buying, as I had misread the investor position previously. The lack of institutional buying and abundance of fast money led me to believe that investors were leveraged and at least fully invested, but JP Morgan’s Deposit growth alters that assessment. At the same time consumer credit is growing and wages are not keeping up with inflation. Not much more to say. I need to go spend $60 filling up my car for a trip out to Connecticut with the family this weekend. There will be a lengthier blog over the weekend.



Overnight Trading - The Battle Begins

HedgeFundLIVE.com — Trading through the night. A new one for me. Like sky diving (which I have never done), or bungee jumping (another I have never done). Tonight felt like the night. Alone in my thoughts. No voices to distract me. Quiet. Pure trading. Instinct. It is 12:36am. I am here. Yet I am not. It is surreal. Lifted at 1308.75, I will bid ¼. What keeps the market up after negative GS news? More importantly, how many other lunatics like me are still trading right now? Oil is flat. I have offered some at 1309. A pack of smokes and tea. A traders dream. Taken at 1309. I will bid 1308.5. Trades at 1309.25. Can they go to new highs? I am intrigued. The trading floor is dark. The light from my MAC shines on me as I listen to some strange alternative music on my iTunes. Dow futures are up 8. The dollar is dropping. Asian markets are flat. I wonder how long I can stay up and stare at the screens. It is both a high like a crack addict, and a depressing sight, like a tortured soul on one last stand. Lifted at 1309. Nearing the highs. Fear sets in. The market is 50 cents wide. I don’t remember the last time I saw that in the futures. Perhaps if I was up at 1 am last night I might have had the same opportunity. Offered at 1309. Senator Levin said Deutsche bank is in trouble! What will the Dax do? The Russell futures just went positive. More fear. They are 09 1/4bid. I am at ½. Why? What a bad close, only to see them rally overnight. NASDAQs are flat. Covered 36 at 1308, average short on 36 1308.42. Bathroom break. I check in on our hits to our site, 100 people in the first half hour of the day. Where are they? Why us?


“Battle not with monsters lest you become one” - Nietzsche


I have become one. It is important to understand the beast you battle. What better way then to become one? It is 1am. I wonder where Goldman Sachs will open. Will executives be accused of perjury? I am offered at 1309.5 and it feels like I will be taken. My nerves are on edge. I am still boggled at how many of us stare at the screens all night. It is a dark world. It reminds me of when Spartacus was relegated to do battle in the bowls of hell. Live or die. No rules. No tears. Just life. Or death. They begin to take the offers at 1309.5, yet a strange calm comes over me. I am taken at 1309.5. I will bid 1309. Futures are at the high of the overnight session. I can feel the wind rush by me as I fall from the plane I dove from. A new high is made at 1310. This was a big level of resistance during the day session. I am tired but I do not desire sleep. I desire the thrill of the battle. There is one contract bid for at 1309.75, but no one will hit it.


“To conquer oneself is a greater victory than to conquer thousands in battle” - Buddha


I have a long way to go.

I love the silence of the trading floor at 1:10 am.

They threaten the highs again. They are picking away at 1310. I definitely shorted prematurely, but this battle has just begun. The battle wages at 1009 ¾. Had the Goldman news come out at 3:45 today, this would be a different night. Timing is everything. I am sure my partners think I have lost my mind. But they are wrong. I am in my element. Against the odds, in a battle I have never lived though.

30 seconds between trades feels like an eternity. It is a pause in the middle of a firefight. Someone please fire a shot.


“Be kind, for everyone you meet is fighting a harder battle” - Plato


Plato is correct. Mine is but a tiny battle in the entire scheme of other battles that are fought every day. But it is my battle, and I cherish it. It seems like the buyers are using up a great deal of artillery. It feels like the sellers are luring them in. Russell futures make a new high as the dollar continues to trade down. Oil is quiet. New high in the Russell. New high at 1310.25. New high in Gold futures. Another few ticks and I will accept defeat for now, and cover a batch. New high in Dow futures. Sold 5 at 1310.25, will bid back 1309.75. It’s been quite a while since I saw a downtick. New high in silver futures. It is 1:30, I am tired, but want to battle on. My body aches, no it is more that tingly feeling, when you have crossed beyond your normal comfort zone and are beyond emotions. No down tick, the enemy pushes forward. New highs in silver.  I pity my opponents as I pity myself. It feels like algorithms are pushing it higher, but when will they stop?  NASDAQ futures hit a new high. I have no choice but to fight this battle, I have too much money on the line. All war is fought over ideological issues or financial. The dollar makes new lows breaking 75 support levels. Gold makes new highs. I sold 2 more S&P at 1310.5. Bidding 1310. Not a single pullback. They are relentless in their march forward up over 5 handles from the lows. I have used up my last match. From here on in, it is the stove. Silver hits new highs. It is 1 45am.  Just hit at 1310. My first kill. 50cents on 2 contacts. Luck? Or a change of the tide? New highs gold. Dollar new lows. Fatigue is setting in. It feels like the algos have backed away.



“It is impossible to win the race unless you venture to run, impossible to win the victory unless you dare to do battle” - Richard DeVos


I dare.

Silver and gold make new highs. Nasdaq pulls in a bit more and turns negative. I am hit at 1309.5. Another kill for .75 cents on 5 contracts. I am reinvigorated. Nasdaq down a point. It has become a war of attrition. Oil is up 34cents at 107.45


I feel stronger shorting at 1310.5. Minutes go by without a trade. It feels like an eternity. Staring. Waiting. Another new low on the dollar. Oil at new highs. I definitely feel nauseous. It is like running a marathon. 1 minute and 30 seconds since last trade.


Offering 2 at 13.10.25. I am lifted. I will bid back a point. New highs on gold. It is 2am. Nadsdaq feels heavy, if one can even use that term at 2am. The Nikkei is closing marginally up. Soon Europe will open and all will become clear. Downticks in silver and gold. And just like that, silver makes a new high. I am starting to lose my mind. I think I need to rest. Russells go negative. Another kill I am hit at 1309.25 on 2.


It is 2 15am. I have set my alarm for 1 hour. It is time to rest.


2:30, I cannot fall asleep. It is like being alone in a foxhole, there is nobody to take watch while I get shuteye.

Silver makes new highs. And the dollar makes new lows by a penny. I feel nauseous.

I have to bid for some at 1309 as it is a trend line. If we break it, I will back away until 1308. My partners will arrive in the office at 6 am.


“Now if you are going to win any battle, you have to do one thing. You have to make the mind run the body. Never let the body tell the mind what to do. The body will always give up. It is always tired – morning, noon, and night. But the mind is never tired.” - General George S Patton


I am hit at 1309 on the trend line. I will reoffer them at 1310. The dollar marginally upticks as the S&P trades at 1308.75. They seem to tick down as we get closer to civilization awakening. They are through the trend line. They trade at 1308,25. My blood begins to heat up again. They’re now trading at 1308. I have a 1307.75 bid against sales at 1308.8. NASDAQ pulls in 1.75 handles. I can feel the kill upon me. Hit, my first real kill of the night!


It is 3 am. And the dollar is strengthening. Oil has made a complete turn around and is now down 11 cents. It is going lower.  Bidding 1306 for 1. The desk refers to that as a soldier. They are trading actively at 1306.75. The battle is heating up again. It is 3:15. The nausea has become delirium. If they break 1305, they should see 1300. Or perhaps the delirium is really setting in. They bounced off the Bollinger band with a long wick, although my eyes are crusted over, so I could be making that up. The size has increased as Europe awakens. I think I just ashed in my tea. I am reading headlines about further damage to Japan’s nuclear reactors, and Goldman being brought to the DOJ.  I figure I will take a shower at 4am. The trading floor has its own private spa. 1306.5 is vulnerable.


“I firmly believe that any man’s finest hour, the greatest fulfillment of all that he holds dear, is the moment when he has worked his heart out for a good cause and lies exhausted on the field of battle – vitorious” - Vince Lombardi.


I am hit at 1306. Soldier, well spent! Hit at 105.75. They are a half point to breaking new lows in the overnight. it is 3:40am. Size bid for at 1305.5. Here is where the enemy makes its stand. I am bidding 1305 for 5. Bathroom break. False alarm.


It looks like it may take some time for them to break this level. The last time I saw this level was 8 pm yesterday. I will offer my 2 soldiers back out at 1307. Taken at 1307. Next point of resistance looks like 1308, I will offer 5 and bid back at 1306 for my 2 soldiers. Japan’s now saying it will take 3 months to figure out how to solve their nuclear reactor problems. I feel stoned. But without the smell. It is 3:48am . Hit at 1306 on 2.  Reoffering 2 at 1307.25, bidding for 3 at lows of overnight. Russells are feeling weaker. I am feeling weaker. I am starting to hear things on the trading floor, noises from other rooms. It’s a bit unnerving. Headlines crossing about Obama raising taxes. This all cant bode well for the market. 5 minutes to shower. Ticking at 1307. Stocks are starting to populate in my Redi. They are stuck in a range. It is shower time. 4am.


Nothing has changed in 10minutes. Hit at 5 ¾ on 1. Offering at 6 ¾. They are holding that 1305.5 level firmly. That was the second attempt at breaking it. I will not be bidding for it on the third attempt. If I don’t get lifted at 6 ¾ then we are putting in lower high pattern. Taken at 6 ¾. Biddig 1305.5 for 5. Bidding 1306 for 2.  Hit at 06, offering up .75. They are flirting with the lows and I am starting to flirt with imaginary people on the desk. It is 4:30 am. I am starting to talk to myself.  Lifted at 6 ¾. I will bid 6 again for 4. Lifted at 7 ¼. Bidding 6.5 for 2. Bought 1. Things are heating up, I have a terrible headache.


It is 5am , I have sold 68 contracts at 1308.52 and bought 68 at 1306.9 I am no longer tired, I look forward to the day ahead. I expect them to make a new low and break 1305.



Deja Vu All Over Again… Senator Carl Levin is Planning to Refer Goldman Officials to the DOJ for Possible Prosecution

HedgeFundLIVE.com — This story seems to never end.  I’m sitting at home on Wednesday night enjoying my evening when I receive a phone call alerting me to the fact that Goldman is in trouble again.  Specifically, Michigan Democratic Senator Carl Levin of “Shitty Shitty Shitty” fame, newly emboldened by the completion of his two year bipartisan investigation into the financial crisis, is on the verge of refering Goldman officials and possibly officials from other firms to the DOJ for possible prosecution and to the SEC for possible civil proceedings.  From one of the articles covering the story:

The chairman of the U.S. Senate’s investigative subcommittee said he believes Goldman Sachs officials made misleading statements about their trading during the financial crisis and should be investigated criminally.

Sen. Carl Levin (D-Mich.) said on Wednesday that he plans to refer Goldman officials, and potentially officials from other organizations, to the Justice Department for possible prosecution and to the Securities and Exchange Commission for possible civil proceedings.

“In my judgment, Goldman clearly misled their clients and they misled the Congress,” said Levin, the chairman of the Senate Permanent Subcommittee on Investigations.

Levin’s statement came after a two-year, bipartisan investigation by his subcommittee. In one widely covered hearing in April 2010, as part of the investigation, senators sparred with Goldman officials over a mortgage-related product that a Goldman executive had referred to in an e-mail as a “shitty deal.”

Now, you may be thinking, “didn’t this already happen…?”  Well, sort of.  It was about one year ago, that Mary Shapiro and her band of merry regulators filed the Abacus complaint against Goldman and the fabulous Fabrice Tourre which was followed shortly by the Senate hearings where Sen. Carl Levin uttered his now famously desciptive adjective when referring to the “shitty deal” done by GS.  Within a few short days after that very hearing, the DOJ announced that it had opened a probe into Goldman, which, according to the Manhattan US Attorney’s office, by that point had been going on for weeks.  The announcement of the DOJ criminal probe took GS stock down by around 9.4% or $15 per share that day… OUCH!

Nice Haircut!

The new information out on Wednesday is very similar but just a bit more specific.  The DOJ probe from last year was very broad and seemed like a fishing expedition that was politically-driven.  As a matter of fact, I still to this day don’t know what happened to that probe.  It just seemed to fade away.  Goldman has a mastery of making bad things go away.  Anyway, regarding the current situation, Sen. Levin has said he plans to refer Goldman officials, which in my mind must include CEO Lloyd Blankfein and Mortgage head Daniel Sparks among others, to the DOJ for misleading investors and possibly lying to Congress.  Sen. Levin appears to have very specific and damning information.  Enough to actually give him enough confidence to refer the case.  According to the Wall Street Journal article:

“Sen. Carl Levin, D-Mich., said Wednesday the subcommittee has found new evidence that shows Goldman’s misleading of investors went beyond that one case. He raised doubts about the testimony given last year by a half-dozen Goldman executives. Goldman CEO Lloyd Blankfein was among those who testified.”

“I believe they misled the Congress,” Levin told reporters. Goldman “gained at the expense of their clients and they used abusive practices to do it,” he said.

So what’s the difference between now and a year ago.  Well, a year ago, Sen. Levin had the following to say:

“It’s not really up to us to get into whether there should be criminal indictments or SEC actions. Our role is an oversight role and to help inform the legislative process, so I really do not get involved in the question of criminal actions.

There may or may not be a reference from us to the Justice Department or the SEC, but I don’t know whether that’s going to happen yet. It won’t, until the dust settles a little and we can analyze the record and the transcripts and look for very specific questions that may or may not lead to a reference.”

So a year ago he was non-committal and now he’s a fire breathing Goldman-eating dragon about to blow through 200 West Street.  What does this all mean for Goldman’s stock price.  Well, like I said, last time the stock dropped by $15.  Will it drop that much this time?  I gotta tell you, given how many Wall Street scandels we have all endured over the last year I have to believe that the Street will be at least slightly less bothered with today’s news but who knows?  I guess we’ll see in a few hours.

Looks like a Shitty Deal to Me.


GS and Carl Levin are at it Again: Is this the Greatest Shorting Opportunity in a Year?

At 7:00 PM Jeremy returned to the office to check on the futures citing that Dean Machado was in his head and he felt uncomfortable about his short position.  At 7:05 Jeremy returned to Yoga and then at 7:19 the news hit the tape that Levin was pushing the GS case to the Justice Department.  The story is as follows:

Goldman Sachs Group Inc. (GS) misled clients and Congress about the firm’s investments in securities tied to mortgages, the chairman of the Senate panel that investigated the causes of the financial crisis said.

Senator Carl Levin, releasing the findings of a two-year inquiry, said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm was betting they would fall in value.

The Michigan Democrat also said federal prosecutors should review whether to bring perjury charges against Goldman Sachs Chief Executive Officer Lloyd Blankfein and other current and former employees who testified in Congress last year. Levin said they denied under oath that the firm took a financial position against the mortgage market solely for its own profit, statements the senator said were untrue.

“In my judgment, Goldman clearly misled their clients and they misled the Congress,” Levin said at a press briefing today where he and Senator Tom Coburn, an Oklahoma Republican, discussed the 640-page report from the Permanent Subcommittee on Investigations.

Much of the blame for the 2008 market collapse belongs to banks that earned billions of dollars in profits creating and selling financial products that imploded along with the housing market, according to the report. The Levin-Coburn panel levied its harshest criticism at investment banks, in particular accusing Goldman Sachs and Deutsche Bank AG (DB) of peddling collateralized debt obligations backed by risky loans that the banks’ own traders believed were likely to lose value.

Goldman Statement

In a statement, New York-based Goldman Sachs denied that it had misled anyone about its activities. “The testimony we gave was truthful and accurate and this is confirmed by the subcommittee’s own report,” Goldman Sachs spokesman Lucas van Praag said.

“The report references testimony from Goldman Sachs witnesses who repeatedly and consistently acknowledged that we were intermittently net short during 2007. We did not have a massive net short position because our short positions were largely offset by our long positions, and our financial results clearly demonstrate this point,” van Praag said.

In a statement, Deutsche Bank spokeswoman Michele Allison said, “As the PSI report correctly states, there were divergent views within the bank about the U.S. housing market. Moreover, the bank’s views were fully communicated to the market through research reports, industry events, trading desk commentary and press coverage. Despite the bearish views held by some, Deutsche Bank was long the housing market and endured significant losses.”

Credit Raters

The panel’s report also examined the role of credit-rating firms in the meltdown, lax oversight byWashington regulators and the drop in lending standards that fueled the mortgage bubble and ultimately caused hundreds of bank failures.

The subcommittee’s findings show “without a doubt the lack of ethics in some of our financial institutions who embraced known conflicts of interest to accomplish wealth for themselves, not caring about the outcome for their customers,” said Coburn. “When that happens, no country can survive and neither can their financial institutions.”

The report is likely Washington’s final official assessment of the turmoil beginning in 2007 that froze credit markets, took down investment banks Bear Stearns Cos. and Lehman Brothers Holdings Inc. (LEHMQ), sent housing finance giants Fannie Mae and Freddie Mac into government conservatorship and caused the worst economic collapse in the U.S. since the Great Depression.

Populist Anger

The $700 billion taxpayer bailout that followed in October 2008 upended the relationship between Wall Street and the federal government, turning CEOs like Blankfein and Lehman’s Richard Fuld into political punching bags. Populist anger at high-paid bank leaders helped fuel the passage of last year’s Dodd-Frank law, which set out the biggest changes to financial oversight since the 1930s.

The Senate report comes less than a year after Goldman Sachs paid $550 million to resolve SEC claims that it failed to disclose that hedge fund Paulson & Co was betting against, and influenced the selection of, CDOs the company was packaging and selling.

Goldman Sachs, in its settlement with the SEC, acknowledged that marketing materials for the 2007 CDO deal contained “incomplete information.”

Documents and Footnotes

The Senate subcommittee’s bipartisan report, buttressed by 2,800 footnotes and thousands of internal documents from Goldman Sachs and other firms, may have more impact than previous investigations into the crisis.

It’s an open question whether the Justice Department and the SEC will review its findings. Levin does not have the power to refer the allegations to federal authorities on his own. The subcommittee has a formal process for making referrals, which requires Levin to get the support of Coburn before making an official referral. Levin is going to recommend that the subcommittee make referrals, though he has not done it yet, staff members said.

The Levin report will be examined by policy makers including the SEC and Commodity Futures Trading Commission, which are writing hundreds of Dodd-Frank rules governing derivatives, mortgage securities and proprietary trading.

Coburn, the senior Republican on the subcommittee, said the review carries more heft than the three separate reports issued earlier this year by a politically divided Financial Crisis Inquiry Commission.

Goldman Practices

“We don’t need commissions to do our job and this proves it,” Coburn said. The FCIC “spent $8 million and 15 months” on its inquiry and “didn’t report anything of significance.”

The panel said Goldman Sachs relied on “abusive” sales practices and was rife with conflicts of interest that encouraged putting profits ahead of clients.

“While we disagree with many of the conclusions of the report, we take seriously the issues explored by the subcommittee,” van Praag said.

Van Praag pointed to the firm’s recent examination of its business practices that prompted it to make “significant changes that will strengthen relationships with clients, improve transparency and disclosure and enhance standards for the review, approval and suitability of complex instruments.”

In the case of one CDO, Hudson Mezzanine Funding 2006-1, Goldman Sachs told investors its interests were “aligned” with theirs while the firm held 100 percent of the short side, according to the report.

Gemstone CDO

The report detailed a $1.1 billion Deutsche Bank CDO known as Gemstone VII, which was backed with subprime loans that its then-top trader, Greg Lippmann, referred to as “crap.” The head of the bank’s CDO group, Michael Lamont, said in an e-mail cited in the report that he would try to sell the CDO “before the market falls off a cliff.”

On lending, the panel alleges that executives at failed thrift Washington Mutual Inc. (WAMUQ)dumped its bad loans on clients while misleading them about their value.

“WaMu selected delinquency-prone loans for sale in order to move risk from the banks’ books to the investors in WaMu securities,” Levin said.

Compounding that problem, the subcommittee found, was an apparently cozy relationship between WaMu and its regulator, the Office of Thrift Supervision.

WaMu E-Mail

The report cited a July 2008 e-mail from then-OTS director John Reich to WaMu CEO Kerry Killinger, in which Reich said the regulator would issue a memorandum of understanding regarding the bank’s problems.

“If someone were looking over our shoulders, they would probably be surprised we don’t already have one in place,” Reich wrote, apologizing twice for communicating the decision in an e-mail.

Under the Dodd-Frank regulatory overhaul, the OTS will be folded into other regulators in July.

“The head of OTS knew his agency had been providing preferential treatment to the bank,” Levin said. “The OTS was abolished by Dodd-Frank, and for good reasons.”

At today’s press briefing Levin called credit rating firms Moody’s Investors Service and Standard & Poor’s “a key cause to the crisis.”

The raters, which the report says stamped the highest Triple-A grades on securities they knew were souring, were hamstrung by a system that has a built-in conflict of interest, Levin said. The Wall Street banks pay the firms for their ratings, leading to competitive pressure between the firms that may have pushed them to more readily place a high rating on a product.

Mass Downgrades

The panel released nine “findings of fact” on the failures of the credit raters, including inadequate resources, inaccurate rating models and a failure to reevaluate old ratings when they recognized they might be inaccurate.

The raters also “shocked the financial markets” with mass downgrades of thousands of residential mortgage-backed securities and CDO ratings, according to the report.

“Perhaps more than any other single event, the sudden mass downgrades of RMBS and CDO ratings were the immediate trigger for the financial crisis,” the report said.

I didn’t even react to the news at first because the futures didn’t react, but, when Jeremy got to the office and asked what was going on with Goldman Sachs (GS) I started taking a closer look.  After contacting all members of the firm and getting there opinion (while the futures held stead above 1305) we concluded that there are only two questions to ask yourself: 1) Is this the greatest (inefficient) shorting opportunity of the last year or 2) Is the tape telling the truth and no one really cares and this is just another slap on the wrist for GS?

It’s 11:45 and with the futures at 1309 it seems that as of now no one cares, considering we just bounced off support at 1305 and are now trading just below resistance you might have to lean on the tape, but, join HedgeFundLIVE.com tomorrow morning to get your play by play on how the market is really interpreting this news.

Goldman Sachs and the US Congress

Well here we go again as Michigan Senator Carl Levin stated today that a subcommittee has found that Goldman Sachs misled investors on more than one occasion in regards to investments similar to the packaged mortgages they created for John Paulson & Co.  Senator Levin is asserting that Goldman Sachs took the other side of these risky investments and then 6 top level executives of the behemoth investment bank lied about it to Congress, most importantly Lloyd Blankfein among them.

This story is every bit as big as one might think.  Wall Street already has a serious black eye as they borrowed hundreds of billions of taxpayer money to get bailed out, then paid out large bonuses as many Americans struggle with their own finances.  Couple that with all of the insider trading cases being tried and the white shoe world of big finance has gotten a lot of scuff marks.

Perception is often worse than reality and we have a Democrat senator who seems hell bent on making an example of Goldman Sachs.  The stock traded down to $158.50 before closing.  $157.40 is the 200 day SMA and $155 is just an important level dating back a year.  I know one thing for sure, I will be trading this name aggressively tomorrow.



HedgeFundLive.com — What follows is a hypothetical, purely fictitious conversation between hedge fund magnate, Steven A. Cohen, and Fred Wilpon, principal owner of the New York Mets.   As a long suffering Mets fan, I hope this dream comes true.

SAC: I don’t care what it takes Fred, but I want to buy the New York Mets and I want to buy them right now!

WILPON:  Stevey, listen to me my old friend.  You are acting like Veruca Salt in Willy Wanka and the Chocolate Factory, this is not an Oompa Loompa you are bidding on.  These are the New York Mets.

SAC:   Fred, with all due respect to you and your son, Jeff, this team sucks. Your attendance is way down, Johan Santana has a bad arm, Jose Reyes will be a free agent you can’t afford to keep, and your closer is a wife beater.   For Christ’s sake, Fred, R A Dickey is your best pitcher.  My daughter throws harder than him.

Wilpon.   None of that matters, Steve.  This is still a bidding process.  Half of Wall Street is evaluating the team right now.  These guys are absolute vultures.  Can you imagine if David Heller from Goldman Sachs buys the team?  That will not go over well with our fan base in Flushing.

SAC.  Well, Fred, you don’t have to worry about that with me.  Nobody knows me outside of the hedge fund world, and I have 8 billion to throw at the team.  I will make the Steinbrenners look like Ebenezer Scrooge.

Wilpon:  So you will put a lot of your own money into the team?

SAC:  Absolutely.  We will build a new stadium with state of the art locker rooms, new uniforms, a television deal with a cable company people have actually heard of.  I may even decide to move the team to Greenwich.

Wilpon: I hope you are kidding?  We have a new stadium.  Do you even follow baseball at all?

SAC:  Mostly stocks, Fred.  Baseball bores me.

Wilpon:  Well you should know that we are only selling a minority stake in the team, and we intend to keep complete control over the team’s finances and operations.  More importantly, we are obligated to evaluate all the offers and determine what is best for both the family and the organization as a whole.

SAC: Fred, you are bankrupt.  Stop kidding yourself.  After Irving Picard finishes with you there will be nothing left.  You must sell the whole team.  For Christ’s sake, wake up already!  How about this, I will give you 1 billion cash right now.

Wilpon:   Steve, seriously, if I sold the Mets to you, how would you make them a team better?

SAC: Well, first of all I would perhaps change the name.  The METS?   It is very seventies.  At the very least, we would need to spruce it up a bit.

Wilpon.  “Meet the Mets, meet the mets, step right up and greet the mets” is such a catchy jingle.

SAC:  I like, “Mets baseball, we play hard, WE HAVE SAC”.

Wilpon.  Interesting.

SAC I think it’s great.  You see, my initials are S A C, my hedge fund is called SAC capital, and it’s a very macho catch phrase.  The Latinos and the women will eat that stuff up.

Wilpon.  Well, I admit there is quite a lot you can do with that promotionally.  Jockstrap giveaways, condom night.  The opportunities are limitless.

SAC.   Exactly my point, Fred.  I also think we need to add some diversity into the front office.  I like Sandy Alderson but he is so bland.  A seventy year old white man running a baseball team in New York.  Give me a break.

Wilpon.   We just hired Sandy.  He is a Money Ball genius.  He took a cash strapped Oakland As team to the World Series three years in a row.  We also just fired Omar Minaya, who made all the wrong moves and pretty much ruined our team.

SAC:  Alderson is white bread, Fred.  I am thinking globally.  A guy with contacts, lots of expert networks around the entire baseball world, a guy who will do whatever it takes to get the best information about players first.  A guy like my good friend Raj Rajaratnam.

Wilpon:  You want Raj to run the Mets?

SAC: If he is not in prison, why not?

Wilpon:  I see, do you have any other plans to improve the ball club’s operations?

SAC:   Absolutely.  We need to have more security around our baseball operations.  We can’t let the darn reporters from the NY Post into the locker room asking our players all those questions after the game.  That is ridiculous.  Where is the security?

Wilpon.  But the fans want to hear from the players after the game.

SAC.  Those days are over.  The players can tweet or post on facebook.  Get with the program old man.

Wilpon:  Fascinating.  I have never used the internet.  Does it really work?

SAC:   I also think we need to penetrate other team’s clubhouses.  You know, infiltrate their organizations from the bottom up, starting with the ticket taker at the turnstile all the way to the bat boy in the dugout.  We must gather all material nonpublic information available to us before we make any trades.

Wilpon:   Steve, this is not Wall Street.  The baseball Commissioner Bud Selig might frown upon that type of behavior.

SAC.   Nonsense.  I have thirteen guys already working in the Commissioner’s office just in case I buy the team.  I can assure you that they will all be on board.  After all, these are the same clowns that failed to investigate steroids in baseball when guys started growing two heads and hitting 80 homers a year.

Wilpon:  That ‘s a good point.

SAC :  The way I see it, Fred, baseball is a game of statistics, trades and information.  Statistics are just numbers, and trading is my game.  We simply need to get all the available information first, no matter what the cost, and winning will be easy.  Not much different from the hedge fund game.

Wilpon: Well, Stevie, I really am impressed.  You do have a terrific plan for the team .  You remind me a lot of my old friend Bernie Madoff.   I think the Mets would be in great hands with you as the new owner.


JPM Earnings Report Expectations: Fundamental and Technical

HedgeFundLIVE.com — JP Morgan the second largest American bank by assets, will share its first quarter earnings report early Wednesday morning. With the exception of Alcoa on Monday, JPM really kicks off the earnings season. Analysts and traders will scrutinize this report against expectations. If the numbers are down, JPM will move lower, taking the market lower with it. The giant bank is one of the most traded and watched names in the market.

There are a few aspects to consider when the news come out tomorrow. First off, lending is typically lower in the first quarter, analysts have gauged for this, but some believe it may have slowed more than usual.  Lending may have slowed for economic reasons as well as other factors. Second, new restrictions on fees for overdrafts and debit cards may play a factor in profits shrinking. In the past, these fees could pile up, energizing revenue for big banks. Finally, proprietary trading restrictions will undoubtedly lower revenue, but it remains to be seen how much exposure JPM will actually have/had to the practice. Firms such as Goldman Sachs, which are trading based, have much more exposure to the prop trading legislation than JPM. Those are the main factors that will be paid attention to by Fundamental analysts.

3 month chart of JPM price action, nearing 20 and 50 day moving averages.

Technical investors on the other hand, will likely be watching the price action and how it interacts with the 20 and 50 day moving averages. They are both located just above the 46.00 price level, and if the stock convincingly crosses them it may spell trouble for the market and financial sector in general. Pay close attention to where the stock closes Wednesday in relation to the averages, it may be a sign of things to come. Above is a daily chart of the 3 month price action for JPM, 20 and 50 day MA are included.


Hedge Fund Rap Battle Round I

The best traders at Norman, Wasserstein, and Abramowitz

HedgeFundLive.com —  They call me Gut Instinctz and I’m lookin’ out for green,

My daily P&L is always mad obscene.

I size up to the max when I’m trading Goldman Sachs.

The IRS cant believe what I pay in cap gains tax.

Watch me tradin’ overseas, cashin’ in on the short squeeze,

I never use a VWAP but I crush the MOCs.

Then I get lifted like an offer and hit the clubs like a bid,

You better watch your back when im tradin’ Cisco kid.

The ladies drop their clothes when I leverage up in Lowe’s,

And you know I’m havin’ sex while im shortin’ FCX.

And don’t you dare call me a scalper ’cause I play for major rips,

Got Stevie Cohen on the line askin’ me for hot stock tips.

It’s no cause for alarm, when I decide to bet the farm,

Show up at Dorsia with Margaret Brennan on my arm.

All these pikers think they’re fly, thinkin’ they can sell and buy

But I just tell ‘em, check out my ROI.  Word to your mother.

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Alleged Insider Traders Bauer and Kluger Arrested- Skadden Arps, Cravath, and Wilson Sonsini Names Tarnished: Are All Traders Criminals?

HedgeFundLive.com —  WOW! The FBI has just arrested two more people for alleged insider trading, and this is a big one, replete with burnt cash, prepaid cell phone destruction, wiretaps and all.  All that is missing is a great nickname like “Octopussy”.

According to CNBC, a trader named Garrett Bauer is alleged to have made over $32 million trading on tips recieved from Matthew Kluger, a lawyer who has worked at some of the worlds most pretigious law firms over a seventeen year legal career.  According to US Attorney Paul Fishman, Mr. Kluger, currently a Washington, D.C. based mergers and acquisiton lawyer with Wilson Sonsini Goodrich & Rosatii PC, allegedly “stole trusted secrets” and passed along the stolen information to an unknown tippee, who passed the information on to Mr. Bauer.  Kluger allegedly obtained the prized deal information by seaching the law firms’ computer systems.  According to Mr. Fishman, before Wilson Sonsini, Mr. Kluger previously stole and passed along inside information from two of the world’s most prestigious mergers and acquisition law firms:  Skadden, Arps, Slate, Meagher and Flom, and Cravath, Swaine & Moore.

If  this is all true, Kluger and Bauer (hey, isn’t that a great name for a law firm?)  are big-time criminals, and certainly deserve to rot in prison.  Time will tell with these two guys.  I ask myself, is this just the tip of the iceberg?  Sure seems that way if you believe what you see on televison and read in the papers.   Can there be any doubt that we will soon here about another expert network arrest, or the unwinding of another big hedge fund unable to survive investor redemption requests after being raided by the F.B.I?   All of this begs the question:  Why are so many hedge funds managers and traders being arrested for insider trading?

In my opinion, this battle to clean up Wall Street is being led by S.E.C. Chairman Mary Schapiro and her Director of Enforcement Robert Khuzami.  To win the propaganda war, and to secure the necessary funding it needs for further enforcement actions, the average Joe on Main Street needs to believe this scourge of Wall Street is rampant, and believe that it somehow threatens his livelihood.  Enter U.S. Attorney for the Southern District of New York, Preet Bharara, who is continuing to wage war against traders, hedge funds and other proprietary trading shops.   According to Mr. Bharara (derisively referred to as “Tweet Piranha” by those who believe that his trademark tenacity and seeming voracious appetite for Wall Street trader meat has gone a bit too far), “illegal insider trading is rampant and may even be on the rise”.  Consequently, Mr. Bharara is on a self-professed mission to catch all those modern day Gordon Gekko’s, and prove to the world that, in fact, “sometimes, greed is not good.”

I simply cannot agree with Mr. Bhahara’s contention that insider trading is rampant and on the rise, notwithstanding today’s arrests.   To me, that is a specious claim which both defies logic and smacks of politics.  As a simple matter of supply and demand, there are substantially less traders today, and the demand for all kinds of trading-related information has decreased as a result of both increased enforcement and vague laws.  Moreover, legislation emanating from the financial crisis of 2008 has made it much more difficult for firms to deploy capital and engage in proprietary trading, though as Michael Lewis has pointed out, poor drafting and loopholes in the Dodd-Frank bill have allowed the big banks to skirt the legislative intent, and continue to make their massive bets on the markets.   While big banks such as Goldman Sachs and Morgan Stanley may be able to figure out ways to continue to make enormous and risky bets, the legislation and increased scrutiny of trading has dramatically affected the livelihood of smaller proprietary traders and hedge funds (eg, the guys being arrested for insider trading).

The fact is, the short term proprietary stock trading business is rapidly going the way of the dinosaur.   Over the past three years, scores of traders have left the business, unable to compete with the black boxes and unable to gather the requisite market information (ie, material public information) needed to make a living trading.  Many traders have been fired for losing money, and now count themselves amongst the structurally unemployed.   The harsh reality of the proprietary trading business was driven home last year by Steven Schonfeld, a pioneer in the day trading industry (and a billionaire with his own “personal” not “private” golf course).  His firm fired the majority of his proprietary traders because it was “getting much tougher for traders to make a living…” and he noted that “the direct competition from black boxes, stat arb (sic) and high frequency trading which continue to grow at exponential rates is here to stay”.   Trust me on this one Mr. Bharara, for most short-term proprietary day traders, day trading is truly dead.

With respect to the hedge funds, market data clearly demonstrates that stock picking as an investment strategy is rapidly declining, and that traditional long/short equity funds, while still popular, have had difficulty generating excess returns without additional risk.  This makes perfect sense, since without the free flow of information it is that much more difficult for markets to react to changes in underlying fundamentals.  In sum, markets are less efficient.

The end result for traders who work hard and spend a great deal of time and money following markets is that there is no “edge”, and generating alpha (ie, making money) has become nearly impossible.  As a consequence, many of the biggest hedge funds have decided that they are better off focusing their time and capital on the global macro investment arena, where there is most definitely still a discernable “edge”.   In this investment space, hedge fund managers are free to make leveraged bets on all aspects of the global macro economy using a wide variety of instruments including currencies, commodities, interest rates and derivatives.

In sum, the practical result of stepped up enforcement, together with notoriously ambiguous insider trading laws themselves (which regulators refuse to adequately define) is that most equity traders are petrified to exchange any information whatsoever.  This has made a difficult and stressful profession even harder.  We are scared (or prevented by our compliance departments) to exchange tidbits of information that historically was the lifeblood of the trading arena.  We don’t send as many instant messages about the goings on of the marketplace, we don’t gather as much research, we don’t talk to as many people (heaven forbid we had a contact who was part of the dreaded “expert networks”), we don’t even share funny YouTube videos or sexy Barstool Sports pictures anymore for fear that somebody in those videos or pictures may have some connection to a company or a stock we might trade, and we might find ourselves woken up early one morning by a team of FBI agents eager for some fresh Wall Street meat.

The end result is that the proprietary trading business is not only less profitable, it is also much less fun than it used to be.  In fact, it really stinks.  Traders are, for the most part, miserable.  While prosecutors like Mr. Bharara and Mr. Fishman occasionally arrest notorious and flagrant insider traders like Raj Rajaratnam and Garrett Bauer, they are certainly guilty of selectively enforcing the insider trading laws.  If they continue to view all traders as criminals, and round up all those traders who dance along the grey area of extremely vague statutes, one day all that will be left are high frequency trading shops obsessed with capturing fleeting price discrepancies using collocation and other arguable illegal trading strategies –think FLASH CRASH. The Government may be winning the public-relations battle, but may ultimately lose the war.

This blog originally appeared in Clearandpresent.com


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