Thursday, April 29, 2010
"“To detached observers, it’s obvious Goldman $GS hearings are a public spectacle designed to draw attn to fin reg. + pandering to US voters.”"
Thanks to BMB for quoting me, and more importantly, for adding his own two cents. I really couldn't summarize the game plan any better than he does.
Obviously, I'm not the only one who thinks the timing or circumstances of Goldman Sach's hearing in Congress are a little staged or convenient.
And it's not that the SEC doesn't have a case against Goldman; that's for the legal system to decide. It's just that we're getting the broad strokes of information on this case in the midst of a circus sideshow, with politicians lashing out at the investment bankers in a blatant effort to appeal to their economically-strained voter base.
I could go on about the timing and merits of the case, and the shameless grandstanding of our elected officials during this latest public spectacle. Instead, we'll post some relevant videos here to lend a bit of added perspective on the Goldman fiasco, and some of the bigger problems our nation currently faces.
Mark Mobius discusses the Goldman hearing (at 8:20) on Bloomberg.
Marc Faber feels the case against Goldman Sachs is "purely for show, to appease the public" (Bloomberg video) and (CNBC video).
Goldman hearings are an argument to short Treasuries, and a distraction from problems at Fannie Mae and Freddie Mac, says Charles Ortel.
Peter Schiff talks with Tech Ticker about the "real crisis" the US is facing, how we got into this mess, and why our Senators have "some nerve" slamming Goldman for running with the policies and incentives they helped create (you'll hear Peter's take on the proposed financial industry regulations as well).
We're sure you're already loaded to the gills with media commentary on these hearings and the case against Goldman Sachs, so we'll just offer up these interviews in the interest of highlighting some of the more detached, and contrary, bigger-picture views on this subject. Hope you get something out of them.
Tuesday, April 27, 2010
If you read James Grant's excellent and succinct piece on banking reform, you might also be interested to see his latest appearance on Bloomberg TV.
Grant recently joined Pimm Foxx on "Taking Stock", where he discussed the economic recovery, the problems of our 21st century 'capitalism', and how to implement truly meaningful banking reform.
I was surprised and delighted to hear Jim bring up Brown Brothers Harriman as an example of a long-lived investment banking firm that had survived this crisis due its prudence and its more conservative partnership structure, in which owners are personally accountable for losses.
In recent weeks, I had been half-jokingly mulling over this very example of a private bank which stuck to its roots and sailed through the crisis unimpeded. Great to hear Grant bring up this point and elaborate on it so nicely; be sure to listen for it.
Monday, April 26, 2010
Here's an excerpt from Jim's essay:
"The trouble with Wall Street isn't that too many bankers get rich in the booms. The trouble, rather, is that too few get poor -- really, suitably poor -- in the busts. To the titans of finance go the upside. To we, the people, nowadays, goes the downside. How much better it would be if the bankers took the losses just as they do the profits.
Happily, there's a ready-made and time-tested solution. Let the senior financiers keep their salaries and bonuses, and let them do with their banks what they will. If, however, their bank fails, let the bankers themselves fail. Let the value of their houses, cars, yachts, paintings, etc. be assigned to the firm's creditors..."
You can see why I like it already. Be sure to read the whole thing if you haven't already, and pass it on to your friends and colleagues.
You might even want to send it on to some of the politicians in your state, some of whom are just dying to provide their own monstrous legislative "solutions" to problems they probably helped to create.
Related articles and posts:
1. James Grant on "Taking Stock" with Pimm Foxx - Bloomberg.
Friday, April 23, 2010
1. Obama challenges financial industry to join regulatory overhaul - Bloomberg.
2. Marc Faber says China exhibits 'Danger Signals', symptoms of bubble building (w/ video) - Bloomberg.
3. Jeremy Grantham on bubbles - FT.com.
4. Renegonomics: are deadbeat borrowers fueling consumption? - Laurence Hunt's Blog.
5. Rail traffic recovery continues - PragCap.
6. John Paulson turns bullish on housing, economy - MarketWatch.
7. View From the Top: Mohamed El-Erian talks to FT about economic recovery, the US dollar, and the state of financial markets - FT.com
Thanks for checking in at Finance Trends; you can keep up with our posts and musings via RSS and Twitter. Have a great weekend, and be excellent to each other.
Wednesday, April 21, 2010
"Dr. Phil" Pearlman examines some of the important psychological trading themes at work in Greg Zuckerman's book, The Greatest Trade Ever, in this latest episode of Market Shrinkology on Stocktwits TV.
This particular episode happened to come at an interesting time, given the recent uproar over Goldman Sach's alleged impropriety in structuring and selling certain CDO deals to institutional clients, which Paulson & Co. (John Paulson is the central figure of Zuckerman's book) helped structure as a subprime vehicle they could sell short.
I think Phil does a great job of addressing not only some of the ethical questions that have cropped up around Paulson's trade in recent days, but the psychological factors (namely, "disposition effect") that were at work for investors like Paulson, Michael Burry, Andrew Lahde, and others who made their foray into this subprime short trade.
What does it take to enter and hold on to a big longer-term winning trade when almost everyone (including some of your investors) tells you you're wrong? Have a look as "(the real) Dr. Phil" deconstructs the psychology behind the Greatest Trade Ever.
Related articles and posts:
1. Interview: Greg Zuckerman (Greatest Trade Ever) - Fin. Trends.
2. Michael Burry: Betting the Blind Side - Vanity Fair.
3. FSN interview: Richard Eckert (Lahde Capital) - Finance Trends.
Monday, April 19, 2010
Here's an excerpt from the lead-in:
"I believe serious investors are always trying to improve themselves. One of the ways to do this is through constant reading...
...I recently came across a book written in 1998 that a few smart hedge fund managers that I respect said had a great influence on them. I summarize its key points below, but don't let that stop you from reading the book yourself.
"Contrarian Investing" By Anthony Gallea. Written 1998.
In 1998, Anthony Gallea, a Portfolio Manager at Smith Barney, with help from William Patalon, a professional writer, wrote the classic “Contrarian Investing.” Jim Rogers wrote the forward to the book. Many successful investors have cited this book as a book that greatly influenced them. This volume, like Ben Graham’s “The Intelligent Investor” is at times dated, yet full of classic investing principles that stand the test of time. Every serious stock market investor must read this book... "
Dasan provides a summary of some of the main contrarian investing themes and key points from the book's chapters. If you have an interest in fundamental value investing strategies or contrary investing methods, it should be worth your time to take a look at the info assembled here.
I've never read Gallea's book, though I have seen it sitting on the library and bookstore shelves and read the similarly titled, Contrarian Investment Strategies by fund manager, David Dremen. Maybe I'll pick up Dasan's recommendation at some point to brush up on some value and fundamental analysis knowledge.
If you like the post, check out Dasan's new follow up, "Contrarian Investing Mania Checklist: Is China a Mania?".
Related articles and posts:
1. Dasan on poker & investing - Finance Trends.
2. Jim Chanos on Charlie Rose Show - Finance Trends.
Friday, April 16, 2010
According to the SEC complaint, Goldman let a large hedge fund (Paulson & Co.) influence its structuring of synthetic CDOs, which were subsequently sold on to bullish clients (buyers such as pension funds and other large investors) under the premise of their being assembled by an independent party.
Wall Street Journal has the details:
"According to the SEC, Goldman structured and marketed a synthetic collateralized-debt obligation, or CDO, that hinged on the performance of subprime residential-mortgage-backed securities. The CDO was created in early 2007 when the U.S. housing market and related securities were beginning to show signs of distress, the SEC complaint said.
"Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc., with economic interests directly adverse to investors in the [CDO], played a significant role in the portfolio selection process," the complaint said.
The complaint said Paulson had an incentive to stuff the CDO with mortgage-backed securities that were likely to get into trouble. SEC enforcement chief Robert Khuzami alleged that Goldman misled investors by telling them that the securities "were selected by an independent, objective third party..."
People want to discuss the political implications of the story, as well as forecast what is likely to happen to the principal parties involved: will there be a large fine/settlement, who will be thrown under the bus, why did this news just happen to come out on an option expiration Friday, and so on. Business Insider has even dedicated a special section to the Goldman Sachs story.
Meanwhile, it's interesting to note that the details of Goldman's CDO deals with Paulson & Co. were openly detailed in chapter 9 of Greg Zuckerman's book, The Greatest Trade Ever. John Paulson and his team met with various Wall Street firms (Deutsche Bank, Goldman Sachs, Bear Stearns) to discuss and negotiate the creation of new CDOs from pools of risky mortgages.
Paulson & Co. were open about their desire to short most tranches of the CDOs through the purchase of credit default swaps (CDS) on these CDO instruments. Some bankers (Scott Eichel at Bear Stearns, among others) turned down Paulson's proposed deals, while others (like Goldman) gladly accepted and negotiated with Paulson on the collateral backing the deals.
According to Zuckerman's book and Paulson's quotes, the bankers were ultimately responsible for what went into the CD0s that were sold to investors. It's worth pointing out that all those who took the bullish side of the trade did so of their own accord, and that "some investors were even consulted as the mortgage debt was picked for the CDOs to make sure it would appeal to them." (Zuckerman, page 181).
Having said that, Goldman probably should have been more forthright in dealing with its clients, instead of telling them (as the SEC complaint alleges) that the mortgage-backed CDOs they were buying were structured with the help of an "independent, third party".
Update: NPR interviewed Greg Zuckerman to get his thoughts on the Goldman Sachs charges and John Paulson's role in the CDO deals. Do check this out, as he quickly fills us in on some main points that people were guessing about (or just wildly wrong about) on Friday.
Related articles and posts:
1. Michael Burry explains his subprime CDS trade - Finance Trends.
2. FSN interview: Richard Eckert (Lahde Capital) - Finance Trends.
3. Lessons from John Paulson - Finance Trends.
4. NPR talks to Greg Zuckerman (Greatest Trade Ever) - NPR.org.
Thursday, April 15, 2010
Charlie Rose interviews investor Jim Chanos, the noted short-seller and hedge fund manager (Kynikos) who now insists there is a property bubble of epic proportions in China.
We shared this interview link on Twitter earlier in the week, but I wanted to post this here for everyone to see. If you've seen some of Chanos' past presentations on China, you'll be familiar with some of his arguments on the real estate bubble, but this interview provides an excellent update to, and clarification of, his thoughts.
Enjoy the discussion, and see our related links for more on this theme.
Related articles and posts:
1. Jim Chanos: "Overheating in China" - Finance Trends.
2. Pivot Capital report: China's investment boom - Finance Trends.
Monday, April 12, 2010
1. Bank profits dimmed by prospect of home equity losses.
2. Trader blows whistle on gold and silver price manipulation (Jesse's Cafe).
3. Check out copper's run back up to $3.50 over the past year.
4. The Wall St. Journal sees a light at the end of the bailout tunnel.
5. Economist special report: America's economy set to shift from consumption and debt, towards saving and exports.
6. Gregor MacDonald and Stocktwits combine forces for the Macro Weekly letter.
Thanks for checking in. Reminder: you can also keep up with our latest links and thoughts on Twitter or subscribe to our RSS blog feed to keep posted with our market musings.
Thursday, April 8, 2010
"A big hat tip to Greenbackd for originally bringing this to our attention. Below you will find a very interesting primer on credit default swaps and the subprime mortgage short from Scion Capital's hedge fund manager Michael Burry.
Burry of course was recently featured in Michael Lewis' latest book, The Big Short (which we highly recommend reading) for his notable early short position in subprime mortgages.
Michael Burry penned his primer back on November 7th, 2006 and it's almost comical now to think about how he was running a value fund focused on equities and then all of a sudden has to explain his short subprime trade and complex derivatives to his certainly surprised and confused investors..."
Head on over there to read the full embedded document. Should make for very interesting reading, as by now I've read and heard several accounts of how difficult it was for Burry to hold on to his famous trade in the face of overwhelming resistance from his investors.
While you're at it, you can also check out Michael Burry's recent op-ed in the NY Times deflating the great Greenspan myth that "no one saw the crisis coming". Essential reading for those who believe the endless barrage of lies coming from the econo-political "elites".
Related articles and posts:
1. FSN interview: Richard Eckert (Lahde Capital) - Finance Trends.
2. Michael Lewis on Charlie Rose: The Big Short - Finance Trends.
Tuesday, April 6, 2010
The interview topic: "The Greatest Trade Ever: An insider's behind the scene view of how a hedge fund made millions out of the credit collapse."
For those who don't recall, Lahde Capital is the small Santa Monica hedge fund set up by Andrew Lahde, which profited mightily from short bets on the subprime housing market. After raking in his dough, Lahde famously kissed the hedge fund world goodbye in a widely circulated, and widely discussed, farewell letter to clients.
Lahde is also one of the main investors profiled in Gregory Zuckerman's book, The Greatest Trade Ever, a treasure trove of information on the subprime crash and the hedge fund managers who profited in the downturn.
As I come to the end of Zuckerman's book, one thing that I'm totally struck by are the obstacles that investors like Andrew Lahde, Michael Burry, and John Paulson met in executing their subprime trades and keeping those trades on in the face of financial worries, personal doubts, and total opposition to their ideas from nearly everyone they came in contact with (including their own investors).
How did they maintain their vision and stay with their winning trades until the end? That's an interesting subject, and perhaps FSN's interview with Richard Eckert will shine a little added light on that, and other aspects of Lahde's trade as well. Enjoy.
1. Michael Lewis on Charlie Rose: The Big Short - Finance Trends.
2. Michael Burry: Betting the Blind Side - Finance Trends.