GoldMan Sachs senate testimony:
This morning, star line from goldman descended to capitol hill and started firing at senators. It has clarified the meaning of market maker, complicated mortgage markets and its multifaceted relations with rating agencies. In the end what has happened senate helped goldman to explain their situation live on tv.
From Calculatedriskblog.com there is a wonderful summary of what has happened this morning
"You want the truth? You can't handle the truth. Son, we live in a country with an investment gap. And that gap needs to be filled by men with money. Who's gonna do it? You? You, Middle Class Consumer? Goldman Sachs has a greater responsibility than you can possibly fathom. You weep for Lehman and you curse derivatives. You have that luxury. You have the luxury of not knowing what we know: that Lehman's death, while tragic, probably saved the financial system. And that Goldman's existence, while grotesque and incomprehensible to you, saves pension funds. You don't want the truth. Because deep down, in places you don't talk about at parties, you want us to fill that investment gap. You need us to fill that gap. "We use words like credit default swaps, collateralized debt obligation, and securitization? We use these words as the backbone of a life spent investing in something. You use 'em as a punchline. We have neither the time nor the inclination to explain ourselves to a commoner who rises and sleeps under the blanket of the very credit we provide, and then questions the manner in which we provide it! We'd rather you just said thank you and paid your taxes on time. Otherwise, we suggest you get an account and start trading. Either way, we don't give a damn what you think you're entitled to!"
I have executed bear put spreads hoping senate will grill our famous ABACUS originators. At the end of day my trade went into red as senators got trained investing in CDOS. Most important irony today is Greek crisis tanked markets around the world. World took refuge in Gold (precious metal). Coincidentally, Goldman stock rose 2%/.
This proves Goldman is equivalent of Gold. Any doubts?
Tuesday, April 27, 2010
Wednesday, April 21, 2010
Market Movements
Markets react to daily news like humans react to various events daily. For instance, we greet a person warmly if we like him and give a look of grin when we dislike a person. These are very natural reactions. Markets also react in the same way. If dollar strengthens oil goes down, good earnings follows good equity market response etc. These reactions are like explaining the market movements in terms of events happened on the day. But markets are like flowing river that musters its force from the under currents it is accumulating. This under current is determined by the fundamental demand and supply factors. For instance Gold Markets. Gold was trading at under 1000 dollars but today it is looking for direction at 1150 levels.
Great Recession has brought unprecedented crisis mitigating efforts by governments around the world. In this effort, huge fiscal stimulus has been pumped into the economy. This stimulus is due to creation of money by central banks. This binge printing made investors scared of loosing value of their paper assets. Investors felt may be world is heading towards the direction of Zimbabwe. So, everybody wanted to convert their assets to physical assets and Gold satiated their appetite. So the price shift that occurred in the Gold is due to this fear of loss of asset values. This did not happen in a day. This process took place over a period of few months. Some days when dollar is rising due to Greece crisis, Gold has risen and other days when Dollar was falling due to Fed’s FOMC statements gold has fallen due to lack of demand in Asia.
Therefore, Gold price movements needs to be viewed in a much higher window and analyzed in the light of both fundamental and technical factors that are driving the price. One thing is definitely sure, in the short run focus on technical movements and long run focus on fundamental factors. This short run and long run determination is an art not science.
Have fun.
Great Recession has brought unprecedented crisis mitigating efforts by governments around the world. In this effort, huge fiscal stimulus has been pumped into the economy. This stimulus is due to creation of money by central banks. This binge printing made investors scared of loosing value of their paper assets. Investors felt may be world is heading towards the direction of Zimbabwe. So, everybody wanted to convert their assets to physical assets and Gold satiated their appetite. So the price shift that occurred in the Gold is due to this fear of loss of asset values. This did not happen in a day. This process took place over a period of few months. Some days when dollar is rising due to Greece crisis, Gold has risen and other days when Dollar was falling due to Fed’s FOMC statements gold has fallen due to lack of demand in Asia.
Therefore, Gold price movements needs to be viewed in a much higher window and analyzed in the light of both fundamental and technical factors that are driving the price. One thing is definitely sure, in the short run focus on technical movements and long run focus on fundamental factors. This short run and long run determination is an art not science.
Have fun.
Tuesday, April 20, 2010
Market summary - April 20-2010
Today has been a tumultuous day in equity markets. Earnings reports are driving the market into positive territory. Technology sector is telling a recovery story in the markets. Financials are rising up driven by stronger earnings report by Goldman. Investor fraud case still looms over Goldman. Market legal experts are in the view that this legal battle will be adding another feather to Gold man’s cap.
S&P 500 traded above 1200. On Friday, it staged a decline in reaction to SEC accusation on the Goldman. I thought may be a pull back and this might persist probably for couple of days. But like a sprint runner who slipped down and picked up his pace, financial markets have resumed their march higher at the behest of strong earnings reports.
On economy front things are still the same,
Unemployment high, consumer sentiment sullen
But Retail sales are higher, personal consumption expenditures are higher
Housing still struggling to improve
Manufacturing is faring far better with PMI and ISM indicators signaling expansion phase.
So where will be end of April: MY bet S&P 500 will rise another 2%.
I forgot to mention one point, Greece I think will be forced to do some kind of default if not this year earlier it will be definitely next year. I think this way because, if I look at Greece and its debt needs, these needs are going higher than being offset by any kind of positive revenue growth. In such a scenario core pressure on Euro’s underperformance will disappear. So Euro can possibly go higher.
I will come up with some trades I think can help generate money on this tomorrow.
S&P 500 traded above 1200. On Friday, it staged a decline in reaction to SEC accusation on the Goldman. I thought may be a pull back and this might persist probably for couple of days. But like a sprint runner who slipped down and picked up his pace, financial markets have resumed their march higher at the behest of strong earnings reports.
On economy front things are still the same,
Unemployment high, consumer sentiment sullen
But Retail sales are higher, personal consumption expenditures are higher
Housing still struggling to improve
Manufacturing is faring far better with PMI and ISM indicators signaling expansion phase.
So where will be end of April: MY bet S&P 500 will rise another 2%.
I forgot to mention one point, Greece I think will be forced to do some kind of default if not this year earlier it will be definitely next year. I think this way because, if I look at Greece and its debt needs, these needs are going higher than being offset by any kind of positive revenue growth. In such a scenario core pressure on Euro’s underperformance will disappear. So Euro can possibly go higher.
I will come up with some trades I think can help generate money on this tomorrow.
Sunday, April 4, 2010
Week Ahead
Weekly Summary
ISM (Services): March ISM (S) index will be released on Monday and consensus forecast is at 54 compared to February.
Pending home sales: Pending home sales report suggesting slight decline will also be reported on Monday.
One important event of the day is Fed’s meeting to review the discount lending rate. Discount lending rate decision will have impact on the banks borrowing from the Fed’s discount window. I believe Fed is in the mode of burnishing its credentials to fight inflation by adjusting discount rate and at the same time keeping the Fed funds rate at current level so that it will not derail the growth process that is underway.
On Tuesday we will get FOMC meeting minutes. I think this still remain a low key event.
For Oil markets there is one release that can directly affect is crude Oil inventories.
Finally Wholesale inventories will be released on Friday.
Markets are closed in Europe for Easter. In US markets will open on Monday and it will be a testing day. In Equity markets, we will see a huge gains and will be a testing week if markets can hold on to the gains and trend higher.
Dollar is poised to get stronger at behest of strong growth theme in US.
Bond Markets will have to digest treasury supply and Fed meeting minutes. Last week Non Farm Payrolls have caused a selloff in treasuries. This week USM10 will be testing key support levels.
Oil has broken the 70-80 dollar range and currently trading at $85. Strong growth rate in US will drive oil higher. This week we will also have the oil inventory data that will weigh in. Last month WSJ carried an article suggesting that inventory measurement activity is prone to lot of inconsistencies. Need to see how market will react to inventory data from this perspective.
ISM (Services): March ISM (S) index will be released on Monday and consensus forecast is at 54 compared to February.
Pending home sales: Pending home sales report suggesting slight decline will also be reported on Monday.
One important event of the day is Fed’s meeting to review the discount lending rate. Discount lending rate decision will have impact on the banks borrowing from the Fed’s discount window. I believe Fed is in the mode of burnishing its credentials to fight inflation by adjusting discount rate and at the same time keeping the Fed funds rate at current level so that it will not derail the growth process that is underway.
On Tuesday we will get FOMC meeting minutes. I think this still remain a low key event.
For Oil markets there is one release that can directly affect is crude Oil inventories.
Finally Wholesale inventories will be released on Friday.
Markets are closed in Europe for Easter. In US markets will open on Monday and it will be a testing day. In Equity markets, we will see a huge gains and will be a testing week if markets can hold on to the gains and trend higher.
Dollar is poised to get stronger at behest of strong growth theme in US.
Bond Markets will have to digest treasury supply and Fed meeting minutes. Last week Non Farm Payrolls have caused a selloff in treasuries. This week USM10 will be testing key support levels.
Oil has broken the 70-80 dollar range and currently trading at $85. Strong growth rate in US will drive oil higher. This week we will also have the oil inventory data that will weigh in. Last month WSJ carried an article suggesting that inventory measurement activity is prone to lot of inconsistencies. Need to see how market will react to inventory data from this perspective.
Friday, April 2, 2010
Euro - Bear put spread trade
EURO: March unemployment report is moderately better report. It also provided some strong indications by revising up previous numbers. This means US economy recovery is breather and growth story is still intact. This fundamental news is strongly supportive of dollar and bearish to EURO. On the manufacturing front, ISM for manufacturing reported 59.6 a very strong number indicating expansion in manufacturing sector. This news might allow fed revising its stance on the ultra loose monetary policy. On Europe front, still Greece problems are not yet over. Greece is trying to roll its debt by issuing new bonds. This means there is still uncertainty in the direction of euro. Fundamental factors, growth is favoring strong dollar but sovereign debt issues are weighing in. Still we have Portugal, Italy, Ireland and spain to come up with stronger fiscal measures. In the light of these factors Euro looks vulnerable. So medium term the dollar is going to look strong.
Some recommended strategies are
1) Short Euro
2) Buy June futures put options
Buy 1.34 E6M0 june puts at 2450 and sell 1.30 E6M0 June put at 1150 for net debit of 1200.
This is a very nice way to monetize events strong recovery in US economy and sovereign crisis related issues in Europe.
Risk to this option is US economy hits a wrong note due to concerns of the Domestic fiscal crisis in various states and housing related drag has surprising negative impacts.
Some recommended strategies are
1) Short Euro
2) Buy June futures put options
Buy 1.34 E6M0 june puts at 2450 and sell 1.30 E6M0 June put at 1150 for net debit of 1200.
This is a very nice way to monetize events strong recovery in US economy and sovereign crisis related issues in Europe.
Risk to this option is US economy hits a wrong note due to concerns of the Domestic fiscal crisis in various states and housing related drag has surprising negative impacts.
ISM - Payroll -March -2010
ISM: Economic activity in manufacturing sector expanded in March and overall economy is expanding. Index stood at 59.6. An indication above 50 is considered to be expansionary.
17 manufacturing industries have shown growth.
Among the components, Inventories and Price paid have shown significant changes to the levels from February.
Inventories contribution looks a bit unsustainable at this level of 55.3
General commodity prices are also increasing and so the price paid component has increased.
PMI at a glance in last 12 months.
Month PMI Month PMI
Mar 2010 59.6 Sep 2009 52.4
Feb 2010 56.5 Aug 2009 52.8
Jan 2010 58.4 Jul 2009 49.1
Dec 2009 54.9 Jun 2009 45.3
Nov 2009 53.7 May 2009 43.2
Oct 2009 55.2 Apr 2009 40.4
Average for 12 months – 51.8
High – 59.6
Low – 40.4
Net this report suggests economic recovery is intact and markets are poised for a strong growth ahead of time.
Unemployment: Much awaited unemployment report hit the electronic screens on an EASTER holiday. This report came at the heels of negative reports from ADP. Market has been looking at a range of -40,000 to 400,000. Final report indicated that employers have added 162,000 people. This number is a reasonably good number in the light of additions being expected of Census related hiring. Census hiring stood at 48,000 and will increase in the periods ahead of us.
Unemployment rate stood at 9.7%
March employment came from temporary help services , health care and Census hiring. Job reductions are still happening in Financial industry and information technology industry.
Non Farm payroll employment for January and February has been revised from -26000 to +14000 and -36000 to -14000 respectively.
17 manufacturing industries have shown growth.
Among the components, Inventories and Price paid have shown significant changes to the levels from February.
Inventories contribution looks a bit unsustainable at this level of 55.3
General commodity prices are also increasing and so the price paid component has increased.
PMI at a glance in last 12 months.
Month PMI Month PMI
Mar 2010 59.6 Sep 2009 52.4
Feb 2010 56.5 Aug 2009 52.8
Jan 2010 58.4 Jul 2009 49.1
Dec 2009 54.9 Jun 2009 45.3
Nov 2009 53.7 May 2009 43.2
Oct 2009 55.2 Apr 2009 40.4
Average for 12 months – 51.8
High – 59.6
Low – 40.4
Net this report suggests economic recovery is intact and markets are poised for a strong growth ahead of time.
Unemployment: Much awaited unemployment report hit the electronic screens on an EASTER holiday. This report came at the heels of negative reports from ADP. Market has been looking at a range of -40,000 to 400,000. Final report indicated that employers have added 162,000 people. This number is a reasonably good number in the light of additions being expected of Census related hiring. Census hiring stood at 48,000 and will increase in the periods ahead of us.
Unemployment rate stood at 9.7%
March employment came from temporary help services , health care and Census hiring. Job reductions are still happening in Financial industry and information technology industry.
Non Farm payroll employment for January and February has been revised from -26000 to +14000 and -36000 to -14000 respectively.
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