Why gold continues to be a good investment

http://www.hulu.com/watch/198845/charlie-rose-all-about-gold-david-einhorn#s-p1-so-i0

Goldman settles with S.E.C.

S.E.C. Settling Its Complaints With Goldman
By SEWELL CHAN and LOUISE STORY
WASHINGTON — Goldman Sachs has agreed to pay $550 million to settle federal claims that it misled investors in a subprime mortgage product as the housing market began to collapse, officials said Thursday.

If approved by a federal judge in Manhattan, the settlement would rank among the largest in the 76-year history of the Securities and Exchange Commission, but it would represent only a small financial dent for Goldman, which reported $13.39 billion in profit last year.

News of the settlement sent Goldman’s shares 5 percent higher in after-hours trading, adding far more to the firm’s market value than the amount it will have to pay in the settlement.

Even so, the settlement is humbling for Goldman, whose elite reputation and lucrative banking business endured through the financial crisis, only to be battered by government investigations that shed light on potential conflicts of interest in its dealings.

“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said Robert S. Khuzami, the commission’s director of enforcement.

The civil suit brought by the S.E.C. focused on a single mortgage security that Goldman created in 2007, just as cracks appeared in the housing market. That security, called Abacus 2007-AC1, enabled a prominent hedge fund manager, John A. Paulson, to place a bet against mortgage bonds.

The commission contended that Goldman misled investors, who were making a positive bet on housing, because Goldman did not disclose Mr. Paulson’s involvement in creating the deal. Mr. Paulson has not been accused of wrongdoing.

Though Goldman did not formally admit to the S.E.C.’s allegations, it agreed to a judicial order barring it from committing intentional fraud in the future under federal securities laws.

In addition, Goldman acknowledged that the marketing materials for Abacus “contained incomplete information” and that it was “a mistake” not to have disclosed Mr. Paulson’s role. As part of the agreement, the bank also said it “regrets that the marketing materials did not contain that disclosure.”

Goldman’s general counsel, Gregory K. Palm, signed the S.E.C. settlement on Wednesday, though it was not announced until after markets closed on Thursday. Officials said the timing was not affected by the Senate’s approval of an overhaul of financial regulations.

Word that Goldman had settled the case began leaking about 30 minutes before the markets closed and appeared to please investors; some analysts had expected a settlement by this Monday, when Goldman, which had been under pressure by shareholders to reach a settlement, was expected to deliver a formal response to the commission’s complaint.

“We believe that this settlement is the right outcome for our firm, our shareholders and our clients,” Goldman said in a written statement on Thursday.

When the commission filed its case in April, Goldman took a notably defensive stance. The bank had apparently been surprised that investigators did not warn its executives about the case and give them a chance to settle at that time.

Yet Goldman began holding settlement talks with the S.E.C. immediately after the complaint was filed. As the weeks and months dragged on, Goldman executives heard concerns from clients and former executives.

Goldman was bound to face another round of questions from analysts next week, when the bank is scheduled to report its earnings.

The settlement removes a significant problem looming over Goldman, but it could still face other legal problems.

Though Goldman said that it understood the S.E.C. was not planning to bring other cases, the commission continues to investigate collateralized debt obligations, like the Abacus security, issued by Goldman and other banks, and could still take action.

The Justice Department also had been reviewing the Abacus deal, and the S.E.C. could refer other findings to prosecutors.

Goldman faces private lawsuits related to multiple mortgage securities and to its decision not to tell its shareholders last year when it received formal notification that the S.E.C. was investigating the Abacus deal.

“Goldman played fast and loose in the Abacus deal, misled its clients, and got called on it today,” said Senator Carl M. Levin, a Michigan Democrat who led a separate Congressional investigation that examined the Abacus deal.

“A key factor in the settlement is that Goldman acknowledges wrongdoing, in addition to paying a fine and changing its practices,” Mr. Levin said in a written statement. “I hope the Goldman settlement together with the new financial reform law — which prohibits additional unethical practices and conflicts of interest — signal an end to the abusive practices that contributed to the 2008 financial crisis and the beginning of needed Wall Street reforms.”

The settlement announced on Thursday awaits approval by a federal judge, Barbara S. Jones, in the Southern District of New York. A year ago, the S.E.C. suffered a black eye when a different judge in that district rejected a settlement between the commission and Bank of America. The commission settled with the bank later on, after substantially increasing the fine.

Under the proposed settlement, Goldman would pay back the $15 million in profit it made from the Abacus deal and also pay a civil penalty of $535 million. The money would be given to the two banks that had losses on the deal — $150 million to IKB Deutsche Industriebank and $100 million to the Royal Bank of Scotland Group — with the rest, $300 million, going to the United States Treasury as a fine.

Goldman’s settlement requires it to make changes in how it reviews and approves offerings of certain mortgage securities.

Cornelius K. Hurley, director of the Morin Center for Banking and Financial Law at Boston University and a former Federal Reserve lawyer, said the dollar amount would not dent the public anger at the banks.

“You have to consider the symbolism of the S.E.C.’s case. When it was filed back in April, it completely changed the dynamic on Capitol Hill,” Mr. Hurley said. “Now comes the settlement and it’s $550 million. Well, two weeks ago we were talking about a $19 billion tax on the likes of Goldman. The public wanted to see either more financial pain or actually have a trial.”

Goldman was not the only Wall Street firm to create complex mortgage securities that allowed investors to make negative bets, and the commission continues to look at other deals from across the industry.

Fabrice P. Tourre, the Goldman vice president who was named in the S.E.C. case, was not included in the settlement.

Mr. Tourre took a leave from Goldman after the case was filed. When he appeared before a Senate committee in April, he said he should have pointed out Mr. Paulson’s involvement in Abacus in the deal’s marketing materials. The lawyer for Mr. Tourre did not return a phone call seeking comment on Thursday.

The Goldman settlement would be larger than the $400 million the mortgage giant Fannie Mae, accused of inflating its earnings while lavishing its executives with bonuses, agreed to pay in 2006, but smaller than the $750 million the telecommunications company WorldCom was ordered to pay in 2003 after an accounting scandal. Fannie Mae was seized by the government in 2008, and WorldCom, after emerging from bankruptcy, eventually became part of Verizon.

Sewell Chan reported from Washington, and Louise Story from New York. Edward Wyatt contributed reporting.

GS Fraud (continued)

http://www.latimes.com/business/la-fi-hiltzik-20100516,0,770128.column
latimes.com

Investment banks aren't required to act in clients' best interest

Goldman Sachs' conflict of interest might have been evident to buyers if they had been dealing in plain-vanilla securities, rather than the tutti-frutti mishmash Goldman helped concoct.

Michael Hiltzik

May 16, 2010


At a congressional hearing a couple of weeks ago, Sen. Susan Collins of Maine asked a lineup of current and former Goldman Sachs executives a simple question: Did they have a duty to act in their clients', not their firm's, best interest?

The query elicited some impressive verbal contortions. "I believe we have a duty to serve our clients well," one witness replied to the Republican senator. "It's our responsibility . . . in helping them transact at levels that are fair market prices and help meet their needs," said another. "Conceptually it seems like an interesting idea," said a third.

The witnesses could have avoided their discomfiture by sticking to the simple truth. The correct answer to the question of whether investment bankers have a duty to act in their clients' best interest is "no."

We may have put our finger here on one of the major problems with the state of our financial rules and regulations. Investment bankers and their professional cousins, broker-dealers, don't generally owe what's known as a "fiduciary duty" to their clients under federal or state laws (New York's state law is what normally applies).

Efforts in Washington to expand the fiduciary rule beyond its existing application to registered investment advisors have been consistently fought off by Wall Street and the insurance industry. But a new effort to add it to the financial reform bill now being debated by Congress is being mounted by Sen. Ted Kaufman (D-Del.), among others.

Acting in a client's best interest wasn't a burning issue in simpler times, when investment bankers raised capital for their clients through stock or bond offerings, and brokers brought buyers and sellers together for deals in conventional securities. Everyone knew where the dividing line ran between the client's interest and the firm's interest, and how to stay on the right side.

Those days are past. In 2001, Goldman Sachs reported pre-tax earnings of $719 million from investment banking (helping clients raise capital), $2.1 billion from providing brokerage services and $1.2 billion from trading.

Last year, it reported $1.3 billion from investment banking, $1.3 billion from brokerage and $17.3 billion from trading. Anyone detect a trend line there?

A great deal of that trading involved derivatives, which are financial instruments so esoteric that their buyers' and sellers' investment goals, and even the size of their holdings, can be concealed.

"Conflicts of interest have been exponentially exacerbated by the rise of derivatives trading," says John C. Coffee Jr., a Columbia University law professor who recently testified before Congress on the need to tighten fiduciary rules on Wall Street. "Investment banks are no longer in the old world of raising capital. Now you can have a party in a transaction who wants the price to go down."

There's nothing wrong with taking a negative view of the market. Nor, when you're buying or selling, is there anything wrong with obscuring what you really think an asset is worth — skill in doing so is what makes some people better dealmakers, or salespersons, than others.

The problem arises when the broker or banker is the creator of the asset or the deal, and misleads clients about what he thinks is its true nature or true value. This is the sort of thing the Securities and Exchange Commission has accused Goldman Sachs of doing when it marketed a billion-dollar investment linked to subprime mortgage securities without divulging that the deal had been partially crafted by a client who wanted the package to fail.

In that case, the SEC said in its lawsuit over the so-called Abacus deal, Goldman yoked its fortunes to one client at the expense of another. The firm's conflict of interest might have been evident to the buyers if they had been dealing in plain-vanilla securities, an SEC official said, rather than the tutti-frutti mishmash Goldman helped concoct.

That's just the latest example. In 2008, New York Atty. Gen. Andrew Cuomo and the SEC extracted settlements worth more than $50 billion from Bank of America, Goldman Sachs and other institutions over their sales of auction-rate securities. These were investments the banks suggested were as liquid as cash or money-market funds, until the banks pulled the rug out from under the auction-rate market, rendering the securities about as liquid as concrete.

There's no dearth of evidence that Wall Street's definition of "conflict of interest" has gotten looser over the years, like an old sweater stretched hopelessly out of shape. Investment firms' growth strategies call for them to be in so many businesses at once that it's almost inevitable that one department is undermining the interests of the clients of another.

Sometimes the firms admit this is troubling, sometimes they say it's progress. In his testimony, Coffee cited a famous observation by Jack Grubman — who played the dual role of telecom dealmaker and "independent" telecom stock analyst at Salomon Smith Barney during the go-go 1990s — that "what used to be a conflict is now a synergy."

Advocates of extending the fiduciary rule to brokers and investment bankers say the goal is to reacquaint them with traditional morality. Fiduciary duty is not always easy to define, but lawyers often cite the words of Supreme Court Justice Benjamin Cardozo, who described it in 1928 as "not honesty alone, but the punctilio of an honor the most sensitive."

They also maintain that the "suitability" or "know your customer" standard customarily applied to brokers and bankers isn't enough anymore. That rule is designed to keep brokers from putting customers into deals they can't afford or can't understand — like selling an options straddle to an elderly widow, say.

The suitability rule wouldn't stop Goldman Sachs from selling a bucket of subprime mortgage investments to a supposedly sophisticated major European bank with billions in assets, as it did in the Abacus deal. But a fiduciary standard might lead the firm to think twice before forgetting to mention that some of the securities involved in the deal might have been picked because they were expected to lose money.

Not everybody thinks a fiduciary standard will work. "Fiduciary rules are much too vague to have a deterrent effect," says Larry Ribstein, a law professor at the University of Illinois, who testified at the same hearing as Coffee. "They're too nebulous to apply across the board in a statute that applies to the spectrum of relationships" in the financial industry. He says that's particularly true if, as Congress is contemplating, you're going to impose criminal penalties for violations. "There you have a special need to be clear."

Ribstein also contends that applying fiduciary standards to investment bankers would be solving a problem that doesn't exist. If Goldman Sachs withheld from its Abacus clients information it should have disclosed (as the SEC contends), that's fraud, and laws exist to punish it.

Coffee responds that any new law can give financial regulators the power to define how fiduciary rules should apply in any given category of transactions. "Any time you come up with a new statutory scheme you can imagine problems," he told me. "But this is a way for the SEC to get a handle on the growing problem of conflicts of interest."

Banks make a profit trading 61 days in a row

http://www.nytimes.com/2010/05/12/business/12bank.html?ref=business
4 Big Banks Score Perfect 61-Day Run
By ERIC DASH
It is the Wall Street equivalent of a perfect game of baseball — 27 up, 27 down, the final score measured in millions of dollars a day.

Despite the running unease in world markets, four giants of American finance managed to make money from trading every single day during the first three months of the year.

Their remarkable 61-day streak is one for the record books. Perfect trading quarters on Wall Street are about as rare as perfect games in Major League Baseball. On Sunday, Dallas Braden of the Oakland Athletics pitched what was only the 19th perfect game in baseball history.

But Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase & Company produced the equivalent of four perfect games during the first quarter. Each one finished the period without losing money for even one day.

Their showing, disclosed in quarterly financial filings, underscored the outsize — and controversial — role that trading has assumed at major financial institutions. It also drives home the widening lead that a handful of big banks are enjoying over lesser rivals on post-bailout Wall Street.

Experts said it would be difficult to repeat such a remarkable feat this quarter. Even so, the performance could feed the debate in Washington over the role of proprietary trading at banks, as well as sometimes conflicted roles banks play as market makers in matching buy and sell orders.

Risk management experts said the four banks, as well as other Wall Street players, reaped big rewards without necessarily placing big bets that stocks or bonds would go up or down. Instead, they mostly played matchmaker, profiting from the difference between the prices at which clients were willing to buy and sell. Banks said that customer order flows were particularly strong during the period.

“This is not about hitting home runs,” said Jaidev Iyer, who runs his own risk management consulting firm, J-Risk Advisors. “This is just, as we call it, milking the market and your captive client base.”

Still, the quarterly showing was highly unusual. Bank of America said that its trading revenue surpassed $100 million on 26 days, or almost 43 percent of the 61 trading days in the first quarter. It was the first time Bank of America had a perfect quarter since acquiring Merrill Lynch in early 2009.

JPMorgan said that its trading revenue hit $90 million on 39 days during the first quarter, and exceeded $180 million on nine days, or about 14 percent of the time.

A JPMorgan spokesman said the last time the bank had a perfect run was the first quarter of 2003. “The high level of trading and securities gains in the first quarter of 2010 is not likely to continue throughout 2010,” Morgan said in a regular filing with the Securities and Exchange Commission this week.

Goldman Sachs — which is fighting an S.E.C. suit claiming the bank defrauded customers on a complex mortgage investment — posted its first perfect quarter ever. Goldman made at least $100 million on 35 days during the quarter, and at least $25 million on the remaining trading days.

In the wake of the S.E.C. suit, Goldman’s role as a market maker has come under scrutiny on Capitol Hill. It has staunchly defended its business practices and said it had done nothing wrong.

Gary D. Cohn, Goldman’s president, said Tuesday that the standout quarter highlighted the strength of the trading that Goldman executed for its customers, particularly its fixed income, currency and commodities unit, known as FICC. “Our FICC and equities businesses are largely global market-making businesses where we intermediate flows and commit capital and liquidity and in the process generate revenue including bid-offer spreads,” Mr. Cohn said at a UBS conference in New York. “These franchises create numerous opportunities for the firm.”

Citigroup also had a loss-free first quarter, according to a person briefed on the situation. The bank discloses its trading performance on an annual basis, but big daily losses have been a regular occurrence over the last few years. In 2008, it lost $400 million on 21 of its 260 trading days.

This year, even those that lost money from time to time, performed very well during the quarter. Morgan Stanley said its losses reached as much as $30 million only four days in an otherwise profitable quarter. A Morgan Stanley spokesman said the firm’s last perfect run was the second quarter of 2007.

Given the recent turmoil, last quarter’s strong showing will be hard to replicate. In 2009, the banks posted losses on less than 20 percent of the trading days; during the turmoil of 2008, losses occurred as much as 40 percent of the time.

“It was pretty smooth sailing last quarter,” said William Tanona, an analyst at Collins Stewart. “I would be very surprised to see history repeat.”

Goldman Sachs defends itself well

It appears like nothing got solved today on Capitol Hill as Senators from the Permanent Subcommittee on Investigations grilled several Goldman Sachs traders and risk managers about their role in selling mortgage backed securities to clients while failing to disclose that they and John Paulson's hedge fund took the opposite side of the trade and shorted (or bought protection, however you wanna word it) the portfolio. Unlike in previous congressional hearings, the lawmakers actually seemed fairly well versed in the financial lingo and seemed to understand what was going on, but they failed in their attempt to get one of the Goldman witnesses to crack and admit that it was wrong what they did. The witnesses were well 'lawyered' by their firm and managed to waste a lot of time saying things like, "can you repeat the question?," or "what exhibit was that again?," throughly frustrating the members of the committee.

How this whole thing got started was, Paulson called up GS and said he was interested in shorting (betting that they will default and go down in value) certain mortgage backed securities that he thought risky. Goldman's job is to find someone that would take the opposite side of that trade and make money off the transaction. Back in 2006, before the bubble burst, the view that the real estate market would crash was a small minority view. Insurance companies and other firms who bought these AAA securities had years of data to back up that these instruments were relatively safe and carried a nice interest rate with them. Some were even backed by the government. If a client is willing to pay 20 cents on the dollar for a crappy MBS, then who are they to stop them? These companies have their own advisors and analysts that are telling them they're ok to buy. On a basic level GS are a bunch of salesman that want to get the deal closed. Do you think a car salesman tells you every negative thing about the car, how much you should pay for it, before you buy it? Do you think a real estate agent tells you every bad thing about the house so you don't buy it? No, they disclose only what they're required to disclose.

When it comes down to it, it seems no law was broken. In this case, Goldman Sachs merely acted as a market maker and was not required to disclose how they managed the risk on their books or that Paulson was involved in choosing some of the securities in the portfolio. Were they aggressive salesman? Yes. Did they think what they were selling was gonna blow up in their clients faces? No. Investors on the institutional level know that you need a buyer and a seller to make the transaction happen, most of the time it doesn't matter who's on the other side. Back in 2006 John Paulson was not the John Paulson of today. He was a relatively small hedge fund running $300 million (he's now one of the biggest managing $30 billion). When he called Goldman, it shouldn't have set off alarm bells that this whale of a trader wants to do this, so maybe we should watch out. Many hedge funds had the same opportunity to do what he did, but they thought it was too risky. Many did take the long side of the trade, because they thought that prices were good and the market would come back (they got burned).

Now on the other side of the equation, should it be unethical for an investment bank to sell a product to a client that might not know any better before fully giving their opinion? It's a tough question. Part of an investment bank's job is to provide liquidity to markets and find new ways for clients to leverage their assets to get more money to do more things and that's how the economy keeps growing. Maybe the clients should have bought more insurance on their investments or done more due diligence into what they were buying and not just go by that AAA rating which could be manipulated. I'm sure Goldman will walk away paying a relatively small fine, but the industry will surely face more regulation and legislation as a repercussion of this fiasco.

http://www.nytimes.com/2010/04/28/business/28goldman.html?ref=business

March Update--It's Lookin Pretty Good

Well, we've sustained a minor sell-off of about 7% and the risk trade is back on. I believe the leading sectors in the 2nd quarter will be Technology and Financials, as that's where the prospects for growth are the strongest. Goldman (GS) and Citi (C) are leading the charge and BAC, JPM, and a couple foreign banks will follow. Goldman reported good earnings, but the stock tumbled due to speculation of Congressional action banning banks from proprietary trading. As soon as that talk bogged down, Wall St. propped GS back up to the 170's. Citi has been a stale fish for months until it received some positive news :

http://www.americanbankingnews.com/2010/03/10/citibank-stock-hits-fourth-month-high-nyse-c/



It went from $3.50 to near $4.20 in a couple days and continues to climb. Meanwhile, anticipation of Apple's ipad and new iphone coming out in the summer has shot the stock http://www.google.com/finance?q=aapl from under 190 to 225.

The only thing missing from this bull run is the strong presence of the energy and oil & gas sector. For that to significantly run, the economy must mount a significant strong comeback which I'm not sure it's ready to do yet. Financials have been beaten up so badly that they have room to run up just on the basis that they're getting their shit together, selling off some bad assets, issuing tons of debt which eager investors are eating up, and not making so many bad loans anymore! That is why I think that the market as a whole can't move forward until the Federal Reserve begins the process of slowly raising rates. This probably has no chance of happening till at least the end of the year or early next year, but if the economy is truly improving, and that's what everyone says is happening, then the FED must raise rates, even if it's just a quarter of a point. I believe if this happens the market will sell off for a day, but then CONITNUE to move upwards and all sectors will participate!!

Looking for Action? Look at China!!

This year has been an ideal market for traders. The volatility has made it possible for professionals and amateurs alike to get their accounts back to even and beyond. Emerging market stocks have been rampant all year and in some cases this is just beginning. China is still growing and it's companies service the rising populations in all Southeast Asia. There's a need for more cars and energy especially. Below see some of the companies in the automotive, solar and other energy companies. These aren't buy and hold stocks. Once you take a position, try to figure out the trading range of the stock...if it goes significantly lower from where you bought it, buy more...if you make some money...take profits and buy again when it goes lower. This trend should continue for quite some time. Happy trading!


Where to Profit From China's Pops

By the tickerspy.com Staff
On 11:45 am EST, Monday November 30, 2009
Whether Dubai's debt problems persist is to be determined, but analysts say the impact on Asian banks is minimal.

On U.S. exchanges, Chinese stocks and ADRs are among today's top performers. According to a report by Forbes.com, analysts said Asian banks have limited exposure to Dubai and continued turmoil in the Middle East could lead to additional business from other emerging markets. Meanwhile, isolated news is accelerating select China sectors to massive gains to start the week.

The Chinese Auto Parts Stocks Index is surging by 7% today after the country's largest automaker jumped by 7.5% in Shanghai. According to Bloomberg, a report in the Shanghai Securities News said the Chinese government may extend auto-friendly tax policies into 2010.

Parts players China Automotive Systems (NASDAQ: CAAS - News) and Sorl Auto Parts (NASDAQ: SORL - News) are shooting higher on the news. Wonder Auto Tech (NASDAQ: WATG - News) is also up after reaffirming its goal to achieve 31% compounded annual pro forma net income growth from 2009 to 2011.

In other automotive news, Berkshire Hathaway (NYSE: BRK-A - News, BRK-B - News) earned 6.2% on its Hong Kong-listed BYD (OTC: BYDDF - News) investment following an upgrade to equal-weight from underweight at Morgan Stanley.

Hong Kong Highpower Technology (AMEX: HPJ - News) and China BAK Battery (NASDAQ: CBAK - News) are trailing BYD for the session, but remain among the Energy Storage and Battery Technology Stocks Index's top performers.

The Chinese Solar Stocks Index's largest players are all moving higher today as investors digest the prospects of the country's pledge to cut emissions. According to last week's Bloomberg report, China plans to more than double its environmental protection spending to $454 billion through 2015.

LDK Solar (NYSE: LDK - News), Trina Solar (NYSE: TSL - News), and Yingli Green Energy (NYSE: YGE - News) are all up by more than 2.5% to start the week.

For more performance data and a suite of other metrics on tickerspy's seven Chinese subsector Indexes visit tickerspy.com.

Fun and informative, tickerspy.com is a free investing website where you can track multiple stock portfolios and compare against 250 proprietary Indexes tracking themes from stem cells to green energy to precious metals. Best of all, tickerspy.com lets you spy on the portfolios of nearly 3,000 Wall Street institutions and hedge funds and see graphs of their performance. Try tickerspy.com today and find out how you stack up against investing legends like Warren Buffett!