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!

Berkshire Hathaway 50-1 stock split!!

Berkshire Hathaway, Warren Buffet's insurance company, announced that they will be splitting it's company B-stock in a 50-1 split. The notoriously high traded stock will now trade around $65 at these levels making more accessible to everybody. I believe this is now a great pick for your long term portfolio. I imagine it will start to be more aggressively accumulated by institutional money now and will only go up from here.

http://www.marketwatch.com/story/berkshire-approves-50-for-1-class-b-stock-split-2009-11-03

The Weakening Dollar Will Eventually Hurt Us

This opinion in yesterday's FT by Nouriel Roubini helps explain what's been driving up the markets and how it can eventually blow up in our faces when the dollar gets stronger. The slingshot performance of the markets in the last week is a preview of what will happen a few months from now.

Mother of all carry trades faces an inevitable bust
By Nouriel Roubini
Published: November 1 2009 18:44 | Last updated: November 1 2009 18:44
Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply , while government bond yields have gently increased but stayed low and stable.

This recovery in risky assets is in part driven by better economic fundamentals. We avoided a near depression and financial sector meltdown with a massive monetary, fiscal stimulus and bank bail-outs. Whether the recovery is V-shaped, as consensus believes, or U-shaped and anaemic as I have argued, asset prices should be moving gradually higher.

But while the US and global economy have begun a modest recovery, asset prices have gone through the roof since March in a major and synchronised rally. While asset prices were falling sharply in 2008, when the dollar was rallying, they have recovered sharply since March while the dollar is tanking. Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.

Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.

People’s sense of the value at risk (VAR) of their aggregate portfolios ought, instead, to have been increasing due to a rising correlation of the risks between different asset classes, all of which are driven by this common monetary policy and the carry trade. In effect, it has become one big common trade – you short the dollar to buy any global risky assets.

Yet, at the same time, the perceived riskiness of individual asset classes is declining as volatility is diminished due to the Fed’s policy of buying everything in sight – witness its proposed $1,800bn (£1,000bn, €1,200bn) purchase of Treasuries, mortgage-backed securities (bonds guaranteed by a government-sponsored enterprise such as Fannie Mae) and agency debt. By effectively reducing the volatility of individual asset classes, making them behave the same way, there is now little diversification across markets – the VAR again looks low.

So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

While this policy feeds the global asset bubble it is also feeding a new US asset bubble. Easy money, quantitative easing, credit easing and massive inflows of capital into the US via an accumulation of forex reserves by foreign central banks makes US fiscal deficits easier to fund and feeds the US equity and credit bubble. Finally, a weak dollar is good for US equities as it may lead to higher growth and makes the foreign currency profits of US corporations abroad greater in dollar terms.

The reckless US policy that is feeding these carry trades is forcing other countries to follow its easy monetary policy. Near-zero policy rates and quantitative easing were already in place in the UK, eurozone, Japan, Sweden and other advanced economies, but the dollar weakness is making this global monetary easing worse. Central banks in Asia and Latin America are worried about dollar weakness and are aggressively intervening to stop excessive currency appreciation. This is keeping short-term rates lower than is desirable. Central banks may also be forced to lower interest rates through domestic open market operations. Some central banks, concerned about the hot money driving up their currencies, as in Brazil, are imposing controls on capital inflows. Either way, the carry trade bubble will get worse: if there is no forex intervention and foreign currencies appreciate, the negative borrowing cost of the carry trade becomes more negative. If intervention or open market operations control currency appreciation, the ensuing domestic monetary easing feeds an asset bubble in these economies. So the perfectly correlated bubble across all global asset classes gets bigger by the day.

But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.

Why will these carry trades unravel? First, the dollar cannot fall to zero and at some point it will stabilise; when that happens the cost of borrowing in dollars will suddenly become zero, rather than highly negative, and the riskiness of a reversal of dollar movements would induce many to cover their shorts. Second, the Fed cannot suppress volatility forever – its $1,800bn purchase plan will be over by next spring. Third, if US growth surprises on the upside in the third and fourth quarters, markets may start to expect a Fed tightening to come sooner, not later. Fourth, there could be a flight from risk prompted by fear of a double dip recession or geopolitical risks, such as a military confrontation between the US/Israel and Iran. As in 2008, when such a rise in risk aversion was associated with a sharp appreciation of the dollar, as investors sought the safety of US Treasuries, this renewed risk aversion would trigger a dollar rally at a time when huge short dollar positions will have to be closed.

This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall.

The writer is a professor at New York University’s Stern School of Business and chairman of Roubini Global Economics
http://www.ft.com/cms/s/0/9a5b3216-c70b-11de-bb6f-00144feab49a.html

Las Vegas Sands up 17% on earnings

Wynn Resorts Ltd. (NASDAQ: WYNN) may have set a high bar for Las Vegas Sands Corp. (NYSE: LVS) and its earnings report today, but cost cuts helped the company to beat its estimates. Las Vegas Sands reported GAAP net income of $62.4 million, but the non-GAAP operating income was $0.03 EPS and revenue was $1.14 billion. Thomson Reuters had estimates pegged at -$0.01 EPS and $1.17 billion in revenues. That is another instance of cost savings helping the bottom-line more than the top-line seeing improvements.

In the Vegas set it seems that cost savings helped to overcome weak table revenues. What is interesting is that the company said it had a record quarter regarding future group room night bookings. It also noted that it has more groups already on the books for 2010 than it expects to realize for all of 2009.

The company’s annualized cost savings will exceed $500 million across the company and it continues to look for opportunities on the cost front. That was 90% realized for the year as of September 30. Las Vegas Sands’ unrestricted cash balance at the end of the quarter was $3.09 billion and total debt outstanding was $11.76 billion.

Shares closed up 12% at $14.76 today, and shares are trading around $15.48 (5%) shortly after the report in the after-hours session!!
http://247wallst.com/2009/10/29/les-vegas-sands-wins-on-cost-cuts-lvs-wynn/

BP's up 5% after earnings report

BP buoys petroleum shares in sector rebound
By Steve Gelsi, MarketWatch
NEW YORK (MarketWatch) -- BP shares paced gainers in the petroleum sector as energy stocks rebounded Tuesday from two straight days of losses and crude prices rose on an expected drop in weekly petroleum inventories.

BP 57.97, +2.49, +4.49%

XOI 1,096, +9.84, +0.91%

Investors sifted through better-than-expected earnings from BP (NYSE:BP) and a steep loss from refining giant Valero (NYSE:VLO) .

Crude oil for December delivery rose 48 cents, or 0.5%, to $79.09 a barrel, rebounding from morning weakness.

Analysts expect a build of 900,000 barrels in U.S. commercial crude stocks for the week ended Oct. 23, according to analysts polled by Platts. They also project a decline of 1 million barrels in gasoline stocks and a drop of 1.1 million barrels in distillate inventories

The NYSE Arca Oil Index (INDEX:XOI) rose 1.6% to 1,104.

The NYSE Arca Natural Gas Index (INDEX:XNG) rose 1.7% to 520.

The Philadelphia Oil Service Index (INDEX:OSX) fell 0.1% to 200.

BP rallied 5.7% to $58.63 after the company's adjusted profit of $4.98 billion soundly beat the analyst estimate of $3.2 billion. Adjusted production rose 4%, and BP's tax rate fell to 29% from 36%.

"BP's contribution to what is becoming a strong third quarter earnings season is likely to meet with broker upgrades, potentially strengthening the current market consensus even further from its current buy status," Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers, told the Houston Chronicle. See full story.

Meanwhile, shares of Valero fell 4.4% to $19.37 after the refiner said it lost nearly $500 million in the third quarter on costs for scaling back operations, and weak margins in the refining sector. See full story.

Among stocks in the spotlight, Cabot Oil & Gas (NYSE:COG) drew an upgrade to overweight from neutral at J. P. Morgan, following the company's third-quarter earnings.

Analysts cited the company's results in the Marcellus and Haynesville regions, as well as its above-average production growth. Cabot's third-quarter operating earnings of 38 cents a share topped J.P. Morgan's forecast of 36 cents a share.

Shares of Cabot rose 10% to $42.13.

National Oilwell Varco (NYSE:NOV) fell 2% to $43.38 after the company drew a downgrade from Tudor Pickering Holt to hold from accumulate.

After an 81% rise so far this year, the stock has reached Tudor Pickering's target valuation. A slower build up in orders from Brazil also removes a potential near-term catalyst to buy the stock, Tudor Pickering said.

"Good company, executing exceptionally, but we've gotten paid for it and now time to wait for re-entry point (maybe high $30's)," the analysts wrote in a note to clients.
http://www.marketwatch.com/story/bp-up-valero-down-in-mixed-energy-sector-action-2009-10-27?siteid=yhoof