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11,740 posts
msg #93196
Ignore johnpaulca
5/27/2010 9:11:19 AM

Golden Sucks

Although this story came out a few weeks ago, I thought many of you would find it interesting. Goldman Sachs wants you to believe that it is completely innocent of all fraud and bid rigging changes; that it is completely innocent of market manipulation; that it is completely neutral in any political leanings; that it does not manipulate the market via its HFT (High Frequency Trading) desks; that it is just another company or person - like you and me.

Uh - huh. Non-manipulative, non-politically connected regular folk like us regularly make statistically impossible returns too. Whatever.

From Eric Fry at the Daily Reckoning

04/20/10 Laguna Beach, California – If you flip a penny 1,000 times, it’ll land “heads” about half the time and “tails” about half the time. If you bet on “Even” 1,000 times at a roulette table, you’d win a little less than half the time (thanks to the “0” and “00” slots on the wheel). These probabilities are relatively simple and intuitive.

Stock market probabilities differ somewhat. Insight improves the odds. Lots of insight improves the odds greatly…over a long-term timeframe. But over the short-term, insight provides a very limited and unreliable benefit. “The markets can stay irrational,” John Maynard Keynes famously observed, “for much longer than you can stay solvent.”

That said, successful stock market traders tend to “win” about 55% to 60% of the time. This win percentage is not so different from that of successful sports bettors. Again, these probabilities make sense. If you possess relevant insights into the “markets” you are trading – be they S&P 500 futures or professional football games – you can improve your odds of success…a little. Chance and pure, dumb luck still play a prominent role…unless you happen to be a trader at Goldman Sachs. For reasons that neither logic nor probabilities can explain, Goldman’s trading desk “wins” more than 90% of the time…or at least it did during 2009.

The inexplicably successful Wall Street firm lost money on only 19 trading days last year, which means it made money on 244 days out of 263. And Goldman did not simply makesome money, it made lots of money. The firm booked a daily profit of more than $100 million on 131 trading days – that’s almost ten times the number of $100 million days it booked in 2004.

Even during the rough and tumble days of 2008, Goldman still managed to amass an implausible record of success by booking a daily trading profit 63% of the time and racking up $100 million profits on 90 trading days. A cynical observer could easily deduce that: 1) the “level playing field” on which Goldman purports to operate is as crooked as can be and that; 2) Goldman’s miraculous trading success in 2009 may have something to do with the disappearance and/or emasculation of former competitors like Bear Stearns, Lehman Bros. and Merrill Lynch.

“Traders are supposed to live by their wits, making judicious bets on the market,” observes financial commentator, Sean Paul Kelley. “Good traders who don’t have inside information tend to win about 55% of the time and lose money 45% of the time, the difference being their profit resulting from their trading acumen.

“Goldman Sachs doesn’t work this way,” says Kelley. “They have bright people no doubt, and somewhere on the trading floor these people on occasion make good and bad judgment calls. From what it looks like, however, their traders are benefiting from two advantages: information not available to the market, and muscle. These two things give the firm an edge that almost guarantees substantial ‘trading profits’ quarter after quarter.

“The information part comes from a variety of sources,” Kelley continues. “We’ve seen the scandal over High Frequency Trading, where Goldman and other firms have computers positioned at the New York Stock Exchange, getting information on trades a millisecond before they are posted publicly. Goldman sees where the market is going second by second, positions itself for very short term profits, and in effect extracts a tax on trading by individual investors and mutual funds. Goldman Sachs is the biggest player in this business… For credit products, mortgage securities, and equity derivatives, Goldman Sachs extracts similar information from its clients interested in buying or selling these products…

“None of these information sources or uses are illegal at this point,” Kelley concludes, “but this is hardly the profile of your typical day-trader pitting his wits against the fickleness of the market; this is the profile of a hedge fund with critical information and size advantages, using them to maximize profit.”

As Kelley correctly observes, none of Goldman’s known trading practices are illegal. On the other hand, legal trading practices have never before generated such a sustained record of improbable success. So just maybe, Goldman’s brilliant trading record emerges from something other than gee-whiz computer programs and the brilliant instincts of trading jocks.

Remember, Goldman generates its trading results from the activities of hundreds of traders, operating in dozens of different financial markets. And yet, somehow, the collective activities of this gun-slinging diaspora produce a daily profit 93% of the time. That’s either very impressive or very illegal.

The truth will come to light eventually.

109 posts
msg #93200
Ignore TrendSurfer
5/27/2010 11:20:24 AM

From Article: The Two Sides of Goldman Sachs

For the first three months of 2010, Goldman Sachs Group Inc. (NYSE: GS) didn't have a single losing trade. To outside viewers it may seem as though Goldman is playing by different rules.

Some investors may wonder why a construct such as a bank can borrow at near zero interest from the Federal Reserve when regular Americans aren't extended the same courtesy. But even worse than that, Goldman has not been quite so lucky with its officially recommended investments for 2010.

In fact, seven of Goldman's nine recommended trades for 2010 are currently in the red. So, Goldman is able to make every right decision with its own money, but when it comes to outside advice, they're only batting .222?

That sounds like more of the same "heads I win, tails you lose" nonsense from America's best worst business: banking.

And Goldman appears to be the worst of the worst. According to an article in Bloomberg, "Goldman Sachs makes more money from trading than any other Wall Street firm. In the first quarter, the bank's $7.39 billion in revenue from trading fixed-income, currencies and commodities..."

It's of small consolation that the SEC filed a lawsuit against Goldman for allegedly misleading investors with regard to mortgage backed securities. In the event that Goldman is found guilty, it's not likely that the sanctions will be significant.

This news from Goldman came just before their partner in crime: the Federal Reserve announced they would backstop debt concerns in Europe. It's bad enough that the Fed bails out shady banks, now they're propping up lousy currencies in far away countries?

11,740 posts
msg #93671
Ignore johnpaulca
6/9/2010 6:46:56 PM

When it comes to investment bank Goldman Sachs, hardly anything would surprise me anymore.

For instance, to illustrate a point, why not tell me that Goldman Sachs is actually a manufacturer of testicular fashion wear for men made of gold? Tell me that the fine blokes that make up GS upper management are actually a band of merry men who deem it their calling in life to redistribute the money of the wealthy to the poor. Tell me that this entire financial crisis, for which GS has been in part blamed, is all one big misunderstanding, a September 15th fools’ day joke from two years ago gone horribly awry. Tell me anything at all, because I’m sure it would be more believable than news circulating yesterday that the firm is not cooperating with Washington, choosing not to answer the questions of the United States government, as if keeping its collective mouth shut will prevent the truth from coming out eventually.

Imagine my surprise, why don’t you, when I began reading exactly that was in the midst of transpiring across the pond. Flabbergastment (if that is even a word; if it isn’t, it should be) does not even begin to describe the shock and awe I experienced as the individual words floated off the Internet, from the computer screen, to my eyes, to my brain, and finally out of my mouth in the form of: “Those cocky arses! They’re absolute nutters, those ones!”

To those gentlemen who seem too tight-lipped for no real reason, let me provide you with a news flash: the Securities and Exchange Commission already charged you with financial fraud. This happened two months ago. If you need to jog your memory, that was the day your stock fell $23.57 to $160.70. It’s now over $20 lower.

The story, believe me, was in all the papers, all the websites, and all the television shows... and I mean all the television shows. I was watching an episode of Mr. Bean the other day and I swear this pick-pocketing bit was made to be an allegory of the whole GS scandal just as The Crucible was of McCarthyism. Sure, Mr. Bean’s been off the air for 15 years, but the parallels were undeniable!
In any case, the point is there is no point in hiding any longer. They should come clean, admit all, and try their best to look ashamed while doing it, because anything less will completely blow whatever low level credibility they’ve got left to kingdom come. Denying works in the short term, but when you’re being subpoenaed, as GS was on Tuesday, you’re just screwing yourself in the long term.
The case against them, which strongly alleges that the company packaged collateralized debt obligations (packages of bound-to-default mortgages), hyping them up in the process and then selling them to investors despite knowing that they were trash, has been made public for all to see and hear. It continues to build as we speak.

On Wednesday, an Australian hedge fund was reported to be suing GS for much the same thing, pitching them on the now infamous Timberwolf CDO and then selling them $100 million of securities in it. The hedge fund, Basis Yield Alpha, which went under soon thereafter, is suing GS to help recoup the $56 million it lost as a result of the deal.

At this point, whether the hedge fund gets the money back is not the point (unfortunately for them). What is, however, is what becomes of GS once the dust settles following this entire mess. One can only hope that, if GS is found out as being the money-hungry greed machine everyone is led to believe it is, the punishment fits the crime. Suggestions anyone?

4,689 posts
msg #93673
Ignore Eman93
6/9/2010 8:17:34 PM

“All that is necessary for the triumph of evil is that good men do nothing.” Edmond Burke

2,025 posts
msg #93675
Ignore alf44
6/9/2010 8:54:15 PM

jp ... is that a cut n paste ... or, did you actually write that post ?


No offense intended ... just askin' !


11,740 posts
msg #93679
Ignore johnpaulca
6/10/2010 12:14:02 AM was a cut and paste, sorry I forgot to list the source.

2,025 posts
msg #93680
Ignore alf44
6/10/2010 12:45:26 AM

ahhh ...


I was about to nominate you for a Pulitzer !

Thx for clearing that up !

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