THE DOT - if this turns orange or red be alert

Saturday, October 31, 2009

Interesting Astro insights

As Saturn entered Libra the tone for the next 2 years will change and as Libra is also ruled by Venus - money matters will suffer a reality shock and plastic surgery will have a huge setback. Even more interestingly is the correlation to US presidents - read for yourself


In financial terms, Saturn represents land and agriculture, along with traditional blue chip stocks. Its sojourn through Libra may return realistic real-estate valuations, although not without some pain along the way. Saturn’s testing square to Pluto, the deity of wealth, points to the leveling out periods, from November this year until February of next year, and recurring again in mid August 2010.

Presidential Pressures

Following their geographic expansion, the subsequent Saturn in Libra cycle of the mid 1830’s brought an act that would have great ramifications on future US politics—the English abolition of slavery. President Andrew Jackson was also embroiled in a massive battle with the National Bank. He believed that “moneyed men” were holding the country for ransom and dismantled the bank charter. On January 30, 1835 an assassination attempt, the first on a US President, was made on Jackson. Despite the assassin having two derringers, (they both miraculously jammed) Jackson lived to tell the tale. He went on to become the first and only US President to pay off the national debt.

Direct attacks against the leader are not uncommon to Saturn in Libra. Its last visit marked the attempted assassination of Ronald Reagan, and previous to that Abraham Lincoln was killed in office. For when Saturn returned to Libra in 1862 the US was embroiled in a Civil War that remains to this day their most deadly conflict. Lincoln signed the Emancipation Proclamation, following England’s lead in the abolition of slavery, exactly one Saturn cycle after the mother country.


The Great Divide

That tradition is ready to be changed is written in the cosmic blueprint of 2010. Saturn’s turbulent ride, as it enters Libra, involves encountering revolutionary Uranus again in July of next year. It also faces off with judicial Jupiter in August, and wrestles with reformative Pluto from November until February of next year, moving on finally in mid August. Of all the imbalances to be addressed the greatest political divide is in the Middle East.

Saturn hooked in with both Jupiter and Pluto when last in Libra and they marked dramatic events in the Middle East. Following a Lebanese militia slaughter of PLO refugees and activists sanctioned by Israeli defense minister Ariel Sharon in Beirut, the US became a target for revenge. The US embassy was bombed, followed by the US Army compound at Beirut airport, resulting in troop withdrawals. The start of this dovetailed with the beginning of the current Saturn-Pluto cycle, two planets that connect to both territory and control.

Advancing this cycle to its first square of 1993 saw the initial bombing of the World Trade Towers, and the opposition phase marked the homeland terrorist attacks of September 11, 2001. The recurring motif is aggression against the US, which is directly connected to their Middle East involvement and unwavering support for Israel. Counterbalancing this is the US plan to withdraw all combat troops from Iraq right by the final Saturn Pluto square of August 2010.

Duel of the Nile

Henry Kissinger (born with Saturn in Libra) once said that “You can't make war in the Middle East without Egypt and you can't make peace without Syria.” Egypt, like the US, is particularly sensitive to Saturn in Libra.

The founder of modern Egypt, Muhammad Ali, gained power on May 17, 1805 with Saturn in Libra. Egypt gained independence from Britain under this phase in 1922, and again with Saturn in Libra became a Republic in 1953. Their present leader Hosni Mubarak was sworn in during Saturn’s last visit to Libra, following the assassination of President Anwar Sadat. This new cycle could well indicate a power struggle in Egypt, throwing up a greater challenge to Mubarak’s iron-fisted rule. Assassination attempts were front-page news during Saturn’s last time in Libra, from John Lennon to Pope Paul II, even to the fictional Dallas oil baron J. R. Ewing.

Iran and Iraq

The Iran-Iraq War began precisely on the ingress of Saturn into Libra back on September 22, 1980. Today as the US implements its Iraq exit strategy, the challenge of Iran re-appears, this time with a nuclear backdrop. The last time Saturn moved through Libra, Israel carried out a daring raid on the Osirak nuclear reactor in Iraq, and the Iranian President was deposed. Are we looking at history repeating with Iran?

All these questions will be answered as Saturn moves through Libra, exiting in April 2012. Libran countries, such as modern China, will also restructure their global involvement leaning toward greater self-sufficiency. The current Chinese constitution was adopted when Saturn last moved through Libra.

Each of us will weigh up a new set of values, coincident with a change in world balance. And for readers born in the early 50’s, or early 80’s, when Saturn was moving through this sign, restructure may be your byword during the next two years. But it will inevitably represent judgment born of experience, and decisions made with longevity in mind. That's Saturn, and that's Libra.

Friday, October 30, 2009

USDTRY update

As expected the strong support at 14450 defended the downmove attack successfuly. The market is now on its way to 1.60 and should test the 1.57/ 60 level within 2 weeks. The TRY will stay under selling pressure and the Dollar will overall advance against all currencies. Turkey is putting against all other countries the citizens under severe economic stress as despite the phony inflation numbers are telling otherwise, the prices are rising allover and the government takes a center stage in that. They have risen various taxes or utility prices and gasoline is almost again at the highs of the oilmarkets 150 level which takes purchasing power out of the mass consumer classes pockets. The current government has lost a lot of ground in polls and today even early elections were discussed which might put the country in a strange position going forward especially if my assumption that markets will drop sharply first half 2010 becomes reality.


3. Plenty 'good' news were wiped out as the markets sold off to a new weekly low on Friday - the price action confirms our assumption and we are half way done to the downside. The weekly charts produce now clear sell signals adding to the pressure going forward.
also the Oil market turned at our target level as did Gold and the Dollar has joined by rising the whole momentum of turning tides. We even have pruduced the first monthly loss in this bear market rally with a reversal pattern but its too early to make a big fuss out off it. I still stick to the scenario that we will see a double top event as they will try to pull the market up again towards yearend.

Brainstorming Friday - part 1

1. The real estate losses will increase even more than Moody's suggests as the stars simply say that we will hit steep bottom price levels going forward within 1 year. The jobloss momentum combined with lesser credit facilities by banks as they can not add any new risk writing off even bigger chunks of their balance cheats.

Moody's To Hike RMBS Loss Severity Assumptions, Extends Expected Trough For Housing Prices

A release out of Moody's today does not seem to jive too well with the prevalent assumption that 90%+ of a 3.5% bounce in GDP being driven by non-recurring events is the greatest way to ramp the market after several down days. The rating agency, always asleep at the wheel, has waited until the proverbial "end of the recession" to say that not only is it extending the cliff for the house price floor by 2 quarters (from 2009 to Q2 2010, expect a comparable extension some time in June 2010), because the last thing they need is to be proven wrong once again, and additionally it is increasing its estimates for loan loss severities for virtually all RMBS classes issued between 2005 and 2007. However, as all those losses will be eaten by the taxpayer and promptly funded by even more dollar devaluing pieces of paper, this release is likely to have no material impact on anything at all.

What is funny is that even Moody's acknowledges the gaping discrepancy between rosy data such as the Case-Shiller and actual cash flows as well as debt servicing, which continue deteriorating: "Even though the Case-Shiller index reported home price gains for three consecutive months starting in June, Moody's believes the overhang of impending foreclosures and the continued rise in unemployment rates will impact home prices negatively in the coming months."

We fully expect the mainstream media will ignore this particular Moody's release.

From Moody's:

Moody's Investors Service announced today that it will update certain assumptions underlying its loss projections for each of the major U.S. residential mortgage-backed securities (RMBS) sectors in the coming weeks.

Moody's now expects that a trough in home prices will not be reached until the middle of 2010. In addition, based on recent loan loss severities, Moody's will increase its projected lifetime loan losses for pools backing U.S. Jumbo, Alt-A, Option ARM, and Subprime RMBS issued between 2005 and 2008.

The impact of the revisions is expected to be significant for Alt-A, Option ARM, and some Jumbo pools backing securitizations from 2005-2007, with the most pronounced changes expected for the 2005 pools. Performance has deteriorated significantly in the last six to nine months, with loss severities trending higher than Moody's previous expectations. The impact will be less pronounced for Subprime, but still notable for the 2005 pools.

Since the first quarter of 2009, when Moody's last announced revised lifetime loss expectations for the major RMBS sectors, several key economic indicators and performance metrics have worsened relative to expectations. Even though the Case-Shiller index reported home price gains for three consecutive months starting in June, Moody's believes the overhang of impending foreclosures and the continued rise in unemployment rates will impact home prices negatively in the coming months.

Moody's (MEDC) now forecasts a third quarter 2010 home price trough. When Moody's last revised RMBS loss projections the trough was projected to occur at the end of 2009. MEDC projects a total peak-to-trough decline of 38% (versus 35%), compounded by muted subsequent home price growth of less than 5% in the year following the trough. Although the magnitude of forecast peak-to-trough decline has only worsened by 3 percentage points, the extended timeline will have an adverse impact on mortgage pools and stressed borrowers will continue to default at high rates.

Adding to borrowers' financial pressure, unemployment is now projected to peak at over 10% in mid-2010 and to remain in the high single digits for two years following.

Borrowers' refinancing options are still slim, and the benefits of loan modifications have yet to be seen due to the 5-month trial period during which modified loans must be reported as delinquent. In addition, modifications of loans owned by the GSEs have outpaced modifications of loans owned by private-label securitization trusts. Moody's will continue to consider the effect of loan modifications in its assessment of RMBS pools, potentially including Alt-A and Option ARM deals, and will continue to monitor success and redefault rates as information becomes available.

Moody's will update specific assumptions and announce the likely implications for each of the major RMBS sectors, in the coming weeks. In addition to the revisions to the home price trough and severity assumptions, other parameters will also be re-assessed, including the degree to which defaults are expected to slow down after the trough is reached.

Moody's will begin taking rating actions as needed this quarter, and will continue through the first quarter of next year.

2.The 250 mil paid to the prime broker by Galleon is convincingly enough that Goldman is part of this for my account - remember they confessed a few weeks ago that they passed on special advice for preffered clients. As it is general practice that the best paying clients get 'special' information flow. The information passed on is at least in the grey area but as the film Wallstreet showed in a simplified way that the information game is all what Wallstreet is about. The hidden rule is more like do not get caught and the latest version is that the preferred lords of Wallstreet get semiofficially posted by the FED and Treasury of what to trade on a macroscale - you guessed right we were talking Goldman again.

Thursday, October 29, 2009

Thursday Brainstorming - part 1

1. The expected second half of the week upturn has started for 2 reasons , one is Jupiter and Venus made a trigon and its month end window dressing time. The Venus effect will be gone by the WE the saturn Pluto square will be center stage from now on remain short and sell strength.

2 Media making again one of those bullshit anouncements about the Oracle, he actuall recommended buying to the public exact at this levels so they have just recovered their losses technically and lost one year off interest. He is far from being a hero and it will get worse.

Wednesday, October 28, 2009


3. The short covering was impressive heading for the full moon in Taurus in 4 days. Wave A down was exactely half way of the expected 10% down. Rydex went up to .80 from .62 within 2 days thats basically good for the second wave down - starting on Monday or Tuesday next week. ISEE is in neutral territory around 1.30 and many other sentiment readings do not cry oversold yet as Inv. Intel is at 48.3 bulls and 22.5 bears we have rather potential for more downside confirmed.

Brainstorming Wednesday - part1

1. Feinberg sucks by all means after making so called pay cuts which are very limited and only aplly on a narrow basis he rather has increased basic salary plus refused to regulate the other firms who have stolen big chunks from taxpayers. Geithner who hired this chap is a moron puppet of the Rothschild / Rockefeller gang and serves the interests of their operative arm Goldman/JP Morgan.


Pay Czar Increased Base Pay at Firms

Treasury Department pay czar Kenneth Feinberg last week announced sharp cuts in total compensation at the finance and auto companies under his control.

But while he cut total compensation by half, he substantially increased one important element -- regular salaries, according to a Wall Street Journal analysis. The move reflects the complexity of regulating something that mixes politics and economics.

Mr. Feinberg oversees seven firms that accepted bailout packages: American International Group Inc., Citigroup Inc., Bank of America Corp., General Motors Corp., GMAC Financial Services, Chrysler Group and Chrysler Financial. The Treasury Department assigned him the job of tying more ...

2. The news keep rolling in with the Saturn /Pluto square and its going to get worse after the attack this morning in Islamabad and the bombing in Bagdad the other day


Deadly Blast Rocks Peshawar After Clinton Arrives in Pakistan

[pakistan] Reuters

Men stand in front of a building after a bomb explosion in Peshawar.

ISLAMABAD—A powerful car bomb ripped through a market Wednesday in the northwestern city of Peshawar, killing at least 90 people hours after U.S. Secretary of State Hillary Clinton arrived in Pakistan to smooth relations strained by terms of an American aid package for the key South Asian ally.

Mrs. Clinton was meeting with officials in Islamabad, a three-hour drive from Peshawar, when the explosion went off. The bombing was the second attack to hit one of Peshawar's crowded markets this month; it sparked a fire in the city's Meena Bazaar that gutted many shops and left rescue workers struggling to reach those trapped by the flames and rubble, said officials and witnesses.

3. The Rydex is quite low already but the decline will go on just be limited

NDX update

The NDX has topped out clearly and is on the way to make a fast and ugly correction. Now also the time frame of wave 5 up has been completed but we will have a double top scenario as we will see a yearend rally testing the highs again. For now sell any strength as the news front will get ugly the next weeks til mid November.
That the markets are manipulated was again proved by the astonishing and obvious fact that we had unusually hight put buying around the tops and insiders also bought ultra short funds as the RYDEX clearely shows against all logical 'normal' action. As expected the 'gang' took action and started to short the market themselves in order to get the regular players short as well. Thats a classic strategy in order to prepare the next wave up as you may easily grasp yourself. We should see a retest of the 1580-1600 area - thye minimum pullback is 1650 the max 1500 ( less likely for now). The big benificiary of the Tech sector Jupiter is leaving the Uranus sign around yearend ending the outperformance of this sector.

Tuesday, October 27, 2009


3. A valid point from an official source


Banks Taking Same Risks That Led to Crisis: ECB's Noyer
Published: Monday, 26 Oct 2009 | 12:25 AM ET

European Central Bank Governing Council member Christian Noyer warned that banks are taking the same risks that led to the financial crisis and said they should preserve capital rather than pay it out to bankers and investors.

His comments came as regulators around the world mull reforms to lower the risks that large banks can pose to the financial system and rein in the type of recklessness that fueled the credit crisis.

Noyer said impressive bank profits in recent weeks were a result of public policies to combat the crisis, and did not mean the industry had recovered its balance or that further reforms were not necessary.

"Nothing could be further from the truth. Indeed, one major risk in the period to come is the emergence of a business as usual mentality," Noyer said in a speech at a financial conference in Singapore on Monday.

"There are signs that parts of the financial industry have resumed risk taking practices reminiscent of those which led to the crisis," he said, pointing to bankers' pay packages that appeared out of line with performance.

Recent news that Goldman Sachs [GS 179.00 -0.37 (-0.21%) ]had set aside $16.8 billion to pay staff, so soon after repaying $10 billion in taxpayer money, fueled concerns that Wall Street is returning to practices commonplace before the crisis.

Banks Need to Boost Books

Noyer, who is also the head of France's central bank, said the global economy has stabilised and the worst had been avoided. But he noted that bank credit to businesses, especially small and medium sized companies, was faltering.

"Most of the negative effects of the economic downturn on balance sheets are still to come," he said. "Efforts towards long term reform must not create, in the short run, additional downside risks to economic activity."

Brainstorming Tuesday - part 1

1. The top works out as todays price action and economic truth is in sink with star alignment. The ugly Saturn / Pluto square will be exact by mid Nov. providing some very ugly news for the next 2-3 weeks. The bombing in Iraq is a small hint of the things to come and the Swineflu outbreak will be the kind of news turning the spirits to the dark side of the moon. Do not forget that the 'gang' has an interest in getting the market short as they can easily pull off another short covering yearend rally based on that scenario as the market got tired for now anyway. The Rydex is already at extreme levelsat .62 basically giving only margin for a limited decline (10%) with other indicators following soon.

2. Another proof of the broad incompetence (FED calls) combined with evil minds ( some false announcements are done deliberately) using those puppets ( Geithner, Bernanke etc) presented by zerohedge

Mishkin On Iceland: "Nothing Is F*#&ed Here Dude"

Now that even Le Big Mac has hightailed it out of Reykjavik, the locals, forever deprived of $0.99 cheeseburgers and anything resembling a stable currency (a good advance look at what the U.S. can look forward to, although at least California makes some happy, Prozacked cows now and then), are at least owed some levity (even if it as their expense). And when one looks for matters dealing with jocularity (and/or gross, flagrant incompetence), one really needs to look no further than the Federal Reserve. In this case, former Fed director Fred Mishkin will suffice, who in May 2006 penned a report titled "Financial Stability In Iceland."

Some pearls of wisdom from Mishkin's extensive understanding of the (soon to be bankrupt) Icelandic economy:

  • Fiscal imbalances are not a problem in Iceland: quite the opposite, with Iceland having an excellent fiscal position with low government net debt (less that 10% of GDP) and a fully funded pension system (with assets amounting to more than 120% of GDP).
  • Monetary policy has also been successful in keeping inflation low and near the inflation target, particularly when housing prices are excluded from the inflation measure, as is the case in the United States and the eurozone.
  • Research on multiple equilibria suggests that self-fulfilling prophecies are unlikely to occur when fundamentals are strong, as they are in Iceland.
  • The analysis in our study suggests that although Iceland's economy does have some imbalances that will eventually be reversed, financial fragility is currently not a problem, and the likelihood of a financial meltdown is low.
  • Iceland is an advanced country with high-quality institutions. GDP per capita (adjusted for PPP) ranks fifth highest in the world; longevity is the highest for females and second highest for males; unemployment is almost non-existent and way below the natural rate; net government debt is almost nil, labor force participation among older workers the highest in the world, and of women the highest in the OECD (almost 80%, compared with 56% on average in the OECD).
  • Noteworthy among Iceland's country rankings for quality of institutions is that Iceland ranks fifth in economic freedom, firs in terms of the lowest corruption, seventh in terms of competitiveness, first in the percentage of population connected to the Internet (ADSL or ISDN), and the first in terms of
    freedom of the press, compared with number 113 for Turkey and 59 for Thailand [and 666th for America].

And of course:

  • These rankings are of course sometimes arbitrary, but they clearly illustrate that Iceland is a well run, advanced Nordic country that has little in common with emerging market countries, a fact important to recognize when we start discussing financial stability in the next section.

Monday, October 26, 2009

Brainstorming Monday

1. The top building is in full progress but the second half of this week should see a little upswing again before going into the fast and dirty mode the next 2 weeks.

2. The second suicide in the Madoff robbery - I am still convinced we did not hear the real story yet and I doubt we ever will.

3. Today I heard a story which is incredible as this man together with the Rockefellers and some others like Dupont made a huge market manipulation but failed at the end - so they say but Rockefellers who are again the main force behind the current manipulation have survived and made some handsome fortune but Durant lost his entire fortune.

Excerpt 1

Still believing in the automobile, Durant joined forces with race car driver Louis Chevrolet (18791941) and established Chevrolet Motor Company in 1911. Chevrolet was an instant success with the Model 490, which cost more than Ford's Model T, but offered greater refinements and comfort. The loan the bankers had made to General Motors expired in 1915, and with it, Durant's prohibition from involvement in the company. With the help of the Du Pont family, Durant was able to regain control of General Motors in 1916. Chevrolet was brought into the General Motors family of automobiles, and the company prospered.

Durant, however, was unable to effectively deal with the company's stock price problems during the Panic of 1920. General Motors stock fell from $42 per share in March to just $14 per share in October. Durant felt personally responsible to many of the shareholders, as he had made personal commitments to friends and neighbors to sell the stock. He tried valiantly to prop up the stock price and save his friends' investments, but he failed.

When the Du Ponts discovered Durant's position, they forced him out of General Motors in order to protect their own investment. Oddly, Durant could have weathered all the problems with stock prices and the company if he had just left the situation alone. By 1926, just six years later, General Motors stock was trading at $210 per share. From April to November of 1920, Durant lost over $90 million. Adjusted for inflation, that amount would have been over $1 billion in the 1990s. Many believe this to be the largest relative loss of money in the history of the stock market.

Durant made another attempt to succeed in the automobile industry, starting Durant Motors in 1921, but it failed to establish itself in the market. By the time of the stock market crash of 1929, Durant Motors was already shaky and it lost ground steadily until its dissolution in 1933. By 1935 Durant had declared bankruptcy. He dabbled in a number of other business ventures, including a bowling alley, but none were particularly successful. He died in New York on March 18, 1947.

excerpt 2

William C. Durant

From Wikipedia, the free encyclopedia

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William Crapo Durant

William Durant at an early auto outing before the organization of General Motors
Born December 8, 1861(1861-12-08)
Boston, Massachusetts, U.S.
Died March 18, 1947 (aged 85)
Flint, Michigan, U.S.
Occupation Business

William Crapo "Billy" Durant (December 8, 1861March 18, 1947) was a leading pioneer of the United States automobile industry, the founder of General Motors and Chevrolet who created the system of multi-brand holding companies with different lines of cars.



[edit] Biography

A French American born in Boston, Massachusetts, he was the grandson of Michigan governor Henry H. Crapo. William dropped out of high school to work in his grandfather's lumberyard, but by 1885 he had partnered with Josiah Dort to create the Coldwater Road Cart Company. He started out as a cigar salesman in Flint, Michigan, and eventually moved to selling carriages. He founded the Flint Road Cart Company in 1886, eventually transforming $2,000 in start-up capital into a $2 million business with sales around the world.[1] By 1890 the Durant-Dort Carriage Company, based in Flint, Michigan, had become a leading manufacturer of horse-drawn vehicles. When approached to become General Manager of Buick in 1904, he made a similar success and was soon president of this horseless-vehicle company. In 1908 he arranged the incorporation by proxies of General Motors and quickly thereafter sold stock, and with the proceeds acquired Oldsmobile. The acquisitions of Oakland, Cadillac, and parts companies followed in short order.

Originally, Durant was highly skeptical of cars, thinking they were smelly, noisy, and dangerous, to the point where he refused to let his daughter ride in one. By 1900, there was significant public outcry for government regulation of gas-powered horseless carriages. Durant heard this outcry, and rather than relying on government regulations to improve their safety, saw an opportunity to build a successful company by improving on the safety of these new machines. In order to accomplish this, he sought out the purchase of Buick, a local car company with few sales and large debts.[1]

[edit] General Motors

In 1904, Durant began executing his vision of building the car industry, starting from virtually nothing. He utilized his sales skills and entered the Buick (which had built only 37 cars to date) in a New York auto show. He returned from that show with orders for 1,108 cars.[1]

Both Durant and rival Henry Ford saw the automobile becoming a mass market item. Ford followed the course of the basic Model T, and had said "Any customer can have a car painted any colour that he wants so long as it is black."[2] Durant however, drawing on his experience in the carriage business, sought to create automobiles targeted to various incomes and tastes. This brought about his plans to merge Buick with various other companies to serve this purpose. He purchased Cadillac, and in 1908 formed General Motors by consolidating thirteen car companies and ten parts-and-accessories manufacturers[1].

[edit] Chevrolet

In 1910, Durant became financially overextended and banking interests assumed control, forcing him from management of GM. He immediately set out to create another "GM," starting with the Little car, named after its founder, William H. Little. His initial intention was to compete with the Ford Model T, then beginning to show its impending popularity. Unsatisfied with this approach, however, he abandoned it and went into partnership with Louis Chevrolet in 1911, starting the Chevrolet company. Before long, a disagreement between the two entrepreneurs resulted in Durant buying out his partner's share of the company.

Nevertheless, the venture was so successful for Durant that he was able to buy enough shares in GM to regain control, becoming its president in 1916. During his presidency from 1916-1920, Durant brought the Chevrolet product line, as well as Fisher Body and Frigidaire into General Motors[1]. In 1920, he finally lost control of GM to the DuPont interests.

While in charge of Chevrolet, Durant did acquire other companies, including Republic Motors, mainly to produce Chevrolets. He also assembled a collection of parts and components manufacturers into a new entity called United Motors, making Alfred P. Sloan the president. United Motors was eventually folded into General Motors, and Sloan rose to president of GM in the 1920s, going on to build the company into the world's largest automaker.

[edit] Durant Motors

In 1921 he established a new Durant Motors company, initially with one brand. Within two years, it had a variety of cars including the Durant, Star and Flint which rivaled the range offered by General Motors. Part of the new empire included a factory in Leaside, Ontario for Canadian production.

As he had with General Motors, Durant acquired a range of companies whose cars were aimed at different markets. The cheapest brand was the Star, aimed at the person who would otherwise buy the obsolescent Model T Ford, while the Durant cars were mid-market, the Princeton line (designed, prototyped, and marketed but never produced) competed with Packard and Cadillac, and the ultra-luxurious Locomobile was the top of the line. However, he was unable to duplicate his former success, and the financial woes of the Wall Street Crash of 1929 and the ensuing Great Depression proved fatal as the company failed in 1933.

[edit] Wall Street and Later Years

The mausoleum of William C. Durant

In the 1920s, Durant became a major "player" on Wall Street and on Black Tuesday joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks in order to demonstrate to the public their confidence in the stock market. His effort proved costly and failed to stop the market slide.

After the fall of Durant Motors, Durant and his second wife lived on a small pension provided by Alfred P. Sloan on behalf of General Motors. He managed a bowling alley in Flint, Michigan until his death in 1947. He was interred in a private mausoleum at the Woodlawn Cemetery in Bronx, NY.

Friday, October 23, 2009

Brainstorming Friday - part 1

1. Rydex is already moving to the low end of its range lowering the impact of any sell off - its a strange move as it does something very unusual to move against the trend. we have such weird moves only at extreme manipulation level as some insiders might position themselves for a move they know will come other wise I have no explanation for this developement but on the other hand the VIX came down to 20 contradicting such a scenario to some degree

Thursday, October 22, 2009

part 2 - another Obama (myth) and propaganda trick

3. Pay czar slashes pays on Wallstreet is a f... screw the Mainstreet move as JPM still has the Bear Stearns 29 bil package besides zero financing and a lot of other taxpayer perks and Goldman received a 100% payout through AIG and has other perks and backstops by taxpayers just to name the 2 major thieves of tax money. The article below is just a piece of bullsh... propaganda as they do catch some drug dealers from time to time but let the big guys deliberately do their business as the government is directely involved. Governement drug dealing did not end with the Opium wars - actually Skulls and Bones .was founded by the biggest opium dealer of America and we got some presidents from that fine gentleman's club That the pay czar, Mr Feinberg has a Jewish orign is one of the many unfortunate coincidences as no other ethnic group seems to be able to produce valuable advisors as we can see in DC they do hold the majority although less than 1 % of the population of the USA are Jewish. The antisemit curve ball comes flying towards me but its just a simple observation.


Pay Czar to Slash Compensation at Seven Firms

The U.S. pay czar will cut in half the average compensation for 175 employees at firms receiving large sums of government aid, with the vast majority of salaries coming in under $500,000, according to people familiar with the government's plans.

As expected, the biggest cut will be to salaries, which will drop by 90% on average. Kenneth Feinberg, the Treasury Department's special master for compensation, also intends to demand a host of corporate governance changes at those firms.

Mr. Feinberg's ruling, expected in coming days, will provide fodder for the long-running debate about whether the Obama administration is being overly tough or overly lenient on Wall Street. An executive at one of the seven companies under Mr. Feinberg's authority said the terms came as a shock, especially because they changed so suddenly. The compensation restrictions "were clearly much worse than what had been anticipated."

The largest single compensation package will be less than $10 million and is destined for a Bank of America Corp. employee, according to people familiar with the matter. That is much less than Wall Street's standard payouts for star employees.

Yet some executives will still walk away with large paychecks. And some big salary cuts might skew overall numbers. Outgoing Bank of America Chief Executive Ken Lewis will receive no salary for 2009. Already, Citigroup Inc. is telling employees the net impact of Mr. Feinberg's rulings will be minimal because the cut salary will be shifted from cash to longer-term stock grants, said people familiar with the matter.

The Obama administration gave Mr. Feinberg the job of more closely tying compensation to long-term performance, something the White House believes will help prevent employees from taking unnecessary risks for short-term gains. The administration believes skewed compensation incentives were one cause of the financial crisis.

In addition to setting dollar amounts for the top 175 employees at the seven companies, Mr. Feinberg is also charged with setting compensation structures for an additional 525 people at the firms.

Some of the toughest pay restrictions will come at the financial-products unit of American International Group Inc., which has been blamed for the firm's near-collapse. No employee within that unit will receive compensation of more than $200,000, people familiar with the matter said.

[Feinberg] Bloomberg News

Kenneth Feinberg, the Treasury Department's special master for compensation.

The companies under Mr. Feinberg's authority are AIG, Bank of America, Citigroup, General Motors Co., GMAC Inc., Chrysler Group LLC and Chrysler Financial.

Mr. Feinberg will also demand a series of corporate governance changes at the firms, including splitting the chairman and CEO positions, requiring boards of directors to create "risk" committees and eliminate staggered board elections, which critics charge inhibit change.

The point of biggest debate will be the cutting of cash salaries, which are expected to hold below $500,000. Instead, employees will receive what has become known as "salary stock" -- long-term stock grants in lieu of cash that can't be touched for at least four years. Employees could receive a lot of these grants in the next two months because Mr. Feinberg wants them issued in 2009.

Brainstorming Thursday

1. Markets are in the process to top out short term and the closer we get to month end the more dangerous it will get. A shake out is due and it will be fast and ugly probably triggerd by an external event ( major earthquake - surgical attack is possible) due to exact Saturn/ Pluto square by mid Nov. - since the action will start before the exact position.

2. Ratigan keeps his hardball bias on Goldman saying basically the truth as we are in the biggest bank robbery in history (and the Goldman billions are just a tiny part of it)- Bert Brecht once said ' when you want to rob a bank, found one'


DOW update

On the left hand the monthly Dow chart and we will make some very simple but crucial observations.
We are still in oversold territory for now and need a few more months to get neutral at least. The strong support has hold as expected for now and we are heading for the 50% retracement at 10400 til yearend or Jan2010. In any case we will see a deep correction in the first half of 2010 testing the lows and even making new ones but just a few hundred points before we go back up to 11000-500 as the printing press will be in full force inflating the real economy in a time frame up to 2012 even. Within 10 days a 10% correction will be fast and furious til mid Nov. before the final leg up should occur.

Wednesday, October 21, 2009

part 2

2. a very good piece on Bove who made some bad calls as he also has an obscure track record if you followed him closely besides Lehman.


Dick Bove Out With A "Buy" Rating On Wall Street Integrity, A Year After A Comparable Call On Lehman

When one thinks of Dick Bove, one usually recalls this little note issued 3 weeks before Lehman's bankruptcy:

“If one assumes that the Neuberger Berman subsidiary is worth somewhere between $9 to $13 billion, the rest of the company is being valued at less than zero. A valuation of this nature would only make sense if the company were to go out of business and then still owe money to its creditors, which of course could not happen. Once it is bankrupt, it is bankrupt.”

“A deep pocket buyer would not be under any pressure to sell any assets. It could wait until they mature. It could sell Neuberger for more than the value of the whole company and basically own Lehman Brothers for nothing.”
Richard X. Bove, 8/21/2008

And, of course, of this exclusive interview on CNBC in which Dick justified his upgrade of Lehman to a Buy on the same day:

In an exclusive interview on Fast Money Bove said, “If you take a look at Neuberger Bergman (the asset management arm of Lehman that’s likely up for sale) and you make the assumption that at its low point it’s worth $9 billion and you subtract that from the market cap of Lehman, it means the rest of the company is worth less than zero. That suggests you get all the rest of Lehman for nothing.”

Dylan Ratigan questions that theory. “But all of Lehman for nothing could include a vast liability on the mortgage side?”“But let’s assume the buyer is a bank," replies Bove. "There’s no need for them to sell these assets on a fire sale basis. They can hold onto them until they mature. The vast majority of the assets are cash flowing. So if you can sell Neuberger Bergman for more than you pay for all of Lehman you would get Lehman for nothing.”

Our condolences to whoever listened to Mr. Bove in the torrid days of last summer, where any money used for LEH stock purchases ended up worth exactly $0.00 less than a month later.

Yet Mr. Bove, unfazed that his reputation precedes him, makes what appears to be an exclusive appearance on Business Insider, where he decries not only the recent spate of inquiry into the Merrill merger, but hopes that people would just stop talking about this whole Lehman fiasco.

In a report released today, Dick Bove takes aim at everyone who’s taking aim at the bank.He says that the bank ‘s legal entanglements are “distracting management and costing shareholders money."

He addresses the SEC first. Basically, he says the SEC requested that BofA pay a fine because of those bonuses paid to Merrill employees. Now that judge is reviewing that fine, the SEC should just drop the case altogether because “simply asking the company to pay a fine would not right the wrongs being argued against this company.”

Then Bove takes on Cuomo, accusing the attorney generals of going after his own constituents.

“To my knowledge, the attorney general in Michigan does not bring charges against the automotive industry. Texas is not attacking the oil industry and Florida is not suing the tourist industry,” Bove writes.

And New York State too should drop its complaints against Wall Street. Bove writes the state government is “unique in believing that its citizens should be penalized for being successful.” Why would a strapped state government object that “a bunch of New Yorkers were paid hefty bonuses?” Is it trying to reduce its own tax base?

Finally he takes on the media. Bove says the media is going to overwhelm us with endless Lehman anniversary stories, which will all pretty much say that the government shouldn’t have let it fail. Well, can you imagine if Merrill went down as well? So the media too, should be celebrating the merger.

There is very little question that the country, its economy, and the financial system are better off because Bank of America bought Merrill Lynch,” Bove concludes.

Immediately thereafter, a publicity desperate Mr. Bove proceeds to immediately retweet the Business Insider article, and his conviction Buy call on Wall Street and SEC integrity.

We hope Business Insider got some compensation for this piece, or at least some free glossy Rochdale research reports. Thus they (and they alone) would be aware if Dick Bove recently issued an upgrade to a Conviction Buy on Lehman's bankrupt stock, explaining its meteoric rise from $0.05 to $0.20 and yonder.

As for Bove's assumptions that all was prim and proper in Merrill lack of disclosure of its $4 billion bonus payments on the verge of its taxpayer funded acquisition, which the SEC already said was worthy of an earth-shattering $33 million penalty of taxpayer money, we believe the court (Judge Rakoff) has yet to voice on that. Additionally, one wonders what under what authority does a financial analyst (as highly respected as he may be) go and recommend how an Attorney General should do his job. One does not see Andrew Cuomo telling Mr. Bove to issue a Strong Buy rating on Bank of America... which may be a moot point seeing how the rather unpessimistic Dick Bove very likely has already done so: if any readers actually follow his output, please advise.

As for the media keeping mum on Lehman, yeah - we kinda sense there is a slight tension there, as the last thing needed is for someone to go ahead and recall Mr. Bove's horrific stock recommendation on the bankrupt firm, which may put a slight dent on Bove's otherwise pristine stock picking record.

by rD2.0
on Wed, 09/09/2009 - 16:57

05-Sep-08 14:46 ET In Play Lehman Brothers ticks higher as Cramer on CNBC says LEH is a screaming buy, saying it can't get worse from here (16.21 +1.03) -Update

3. Todays price action is what makes a top and it will happen within days that markets will drop sharply as the market gets more reluctant. It will get definetely very dangerous moving towards the month end and one should be out of longs and rather build up a short position.

Brainstorming Wednesday - part 1

1. I find it rather interesting and obscure that Dylan Rattigan takes such an aggressive stance against Obama - not that there is anything wrong as he is the current puppet of the secret rulers of the western world. On the other hand DC is in their hand - it does not really matter who sits in the oval office. I rather think after having seen Obama in action that they made a very smart choice choosing him as any other president would hav polarized America even more as the racist card would have been more in the limelight since wallstreet biggest robbery in human history takes unbelievable dmensions and the 'black' prseident is the perfect distraction. Still that he gets attacked that agressively that early is part of the same puppet masters game but a little confusing for most might be that the rivals ( right wing / catholic) is riding this tough stance to prepare the ground for the midterm elections.
Imagine 2 teams are playing but the Jewish team is far ahead in score as they recently made a big point against Italy ( Berlusconi) and they are winning the championship now for 20 years and the latest financial crisis was a devasting episode ( for the catholic team) as they lost a lot of money and power. What will happen from now on is that they will play hardball which means the public will hear more truth and disinformation then ever but the revealed information will be shocking at some point but for the ones ready to listen carefully make a lot of the background moves very clear.


Tuesday, October 20, 2009

Brainstorming Tuesday

1. We have as expected the New Moon positive effect which should hold on for a few days as Venus has entered Libra (its own sign which is positive for money) and heading for a positive angle to Jupiter. Right now Mercury is in that positive angle delivering a positive spin.
The big problem on the other hand is that saturn is getting closer to its exact square with Pluto every day which will at some point shake the markets aggressively. So do not get carried away this journey will have an ugly end. Today if its real value the ISE shows extreme numbers with Call Put Ration in the 40s which is extreme and would mark ironically a sell out low but as the real low was marked by a 220 (which rather earmarks extreme tops) it may indicate that smart money is rushing for the exit.

2. Second one from zerohedge without comment


.... at a time when Goldman's Board of Directors was in Moscow for a meeting with Mikhail Gorbachev, then Treasury Secretary Paulson decided to invite the entire BOD to his hotel suite in a meeting that would be "off the record" as it was considered a social event. Among the events discussed were: economic forecasts, the prospects of banks blowing up (like Lehman), as well as previews of his upcoming speech. How this occurred in an uncalendarized meeting where there was material disclosure, boggles the mind.

From Sorkin (via Felix Salmon):

When Paulson learned that Goldman’s board would be in Moscow at the same time as him, he had [Treasury chief of staff] Jim Wilkinson organize a meeting with them. Nothing formal, purely social — for old times’ sake.

For fuck’s sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?

For the nearly two years that Paulson had been Treasury secretary he had not met privately with the board of any company, except for briefly dropping by a cocktail party that Larry Fink’s BlackRock was holding for its directors at the Emirates Palace Hotel in Abu Dhabi in June.

Anxious about the prospect of such a meeting, Wilkinson called to get approval from Treasury’s general counsel. Bob Hoyt, who wasn’t enamored of the “optics” of such a meeting, said that as long as it remaine a “social event,” it wouldn’t run afoul of the ethics guidelines.

Still, Wilkinson had told [Goldman chief of staff John] Rogers, “Let’s keep this quiet,” as the two coordinated the details. They agreed that Goldman’s directors would join him in his hotel suite following their dinner with Gorbachev. Paulson would not record the “social event” on his official calendar…

“Come on in,” a buoyant Paulson said as he greeted everyone, shaking hands and giving bear hugs to some.

For the next hour, Paulson regaled his old friends with stories about his time in Treasury and his prognostications about the economy. They questioned him about the possibility of another bank blowing up, like Lehman, and he talked about the need for the government to have the power to wind down troubled firms, offering a preview of his upcoming speech.

Gold update

Gold is topping out short term with the stock markets which is a very rare event but also driven by the new correlation of weak Dollar and strong stock markets. The pullpack towards 970-80 will be a buying opportunity as we should se an advance to 1300-50 within 4-5 months. The same is true for the Dollar as it should make new lows against the Euro rising above 1.60 only the stock correlation might change in that process as we could enter a Dollar crisis pulling stocks down as well. That on the other hand will trigger another round of money printing to 'support' the real economy and drive Gold towards 2000 in 2011-2.

Monday, October 19, 2009

Brainstorming Monday - part one

1. The biggest Insider scandal in the history - thats after the nobel peace price for Obama the next biggest joke of this year or even century. Blankfein gets posted by Paulson himself what will move markets and they make hundreds of millions on that and sheepgoated now got the guy who makes the same stuff on small scale Mr Rajaratnam. I have never seen before an ISE Call Put of 220 in a panic just at the low at 666. It is against every logic even the smartest investor would be a cautious buyer - but someone bought big scale because he was sure markets would be rising and if you have a warchest and the backing of the US government it is rather easy to start a short squeeze with a 'little' help from the FED. Here some good observations about the real big insider scandal but its not only Goldman as I have written a few times the Rockefeller /Rothschild connection is far bigger and more powerful as JP Morgan is part of it as well and some hedge Funds and regular funds. This people own Europe and the US government whatever party they are and for those who still think that this is conspriracy 'theory' I can only say even you are braindead or have bad reasons to ignoe the reality as everything is so open and frank as never before.

excerpt from zerohedge

The Goldman Sachs Leap of Faith

Faith can be blinding. Decades of built up trust can all be lost in a single day. These are truths that investors all over the world were reminded of the day Bernie Madoff’s $65B Ponzi scheme came to light. As a result of the magnitude of his crimes and the resultant suffering of charities, feeder funds and investors, the investment management industry may never be the same. I’m not insinuating that people will no longer entrust their wealth and savings to professionals. But I do believe that the Madoff stain will not disappear anytime soon. Perhaps one day Madoff will even replace Ponzi as the namesake of this nefarious scheme. Regardless, as a result of the lasting memory of the Madoff affair, even if it is only a faint whisper, those of us who aspire to make a career in the investment management business will live with more intense scrutiny and be expected to slowly re-build the trust that has proven to be so fleeting.

Maybe this is a good thing. In fact, it was a blatant lack of scrutiny and diligence combined with the deification of the man that allowed Madoff to perpetrate his ruse for so long. It appears that Madoff’s status along with his penchant for secrecy and a catastrophic diffusion of responsibility among his investors dissuaded most from questioning what stuck out as improbable returns. If you make your operations opaque enough or claim to have some undeniable secret sauce, only the most sophisticated and vigilant investors will question the consistent results. Madoff apparently compensated for those brave few by threatening to kick them out of his club and thus prevent further access to an asset that came to be known as the “Jewish Bond.” That was all it took to keep those other than a lone soldier named Markopolos quiet. In the end, all it took was the near collapse of the entire global financial system to induce an admission of fraud and defeat. If you were ever dubious regarding the enormous power of hope, this scandal should put any and all doubts to rest.

Specifically, what did Madoff’s investors hope? They hoped the returns were real. They hoped that nothing about his operations were illegal. They hoped that even if he had some unfair advantage it was a result of nothing more than something as trivial as front running. They hoped his elevated status in the financial community would shield him from regulatory and legal scrutiny. They hoped that they could get out before it all fell apart. Human nature dictates that we can always come up with an excuse for inaction or inertia. Just one more check and then I will get out. Just one more year of market-beating returns and I will take my chips off the table. Just one more day as a part of this exclusive club and I will leave the game for good. In the end Madoff’s drug proved to be too powerful for even the most “sophisticated” investors to kick the habit.

Glancing up at the title of this discussion, you might wonder what in the world this has to do with Goldman Sachs. Well, it struck me recently that many of the elements of GS’s success are similar to those that made Madoff so successful. Don’t worry; this is not going to be another one of these Goldman bashing pieces that have become so ubiquitous recently. I want to it be more of a thought exercise for those who believe that what happened to Madoff’s investors cannot happen to them. By highlighting some of the comparable mechanisms I hope to remind people of the ever-present and inherent risks associated with any investment. Why is this so pertinent now? Well, with what appears to be a speculative rally driven by individuals who seem to be blind to downside risk, I think any analysis that suggests the need for caution can be very valuable.

Without further ado, here is a list of themes that seem to be present among investors in both GS and Madoff:

  1. Belief in supernatural skills that led to a God-like personification
  2. Comfort with the opacity of the investment strategy
  3. The irreplaceable benefit of an elevated standing in the financial community
  4. Widespread suspicion of wrongdoing (or at least marginally acceptable behavior) with little action by investors to learn the truth

Let’s start with assessing the first item on that list through some personal anecdotes regarding Madoff via Bloomberg:

For Swiss banker Werner Wolfer, the memory of his first encounter with one of Bernard Madoff’s emissaries nine years ago is as clear as the waters of Lake Geneva.

“It all looked so good,” says Wolfer, who has a master’s degree in economics from the University of St. Gallen. “With every year passing, the worries were a little bit less,” Wolfer says.

To hear Patrick Littaye talk, the Wall Street money manager could walk on those waters. “It was like a religion,” Wolfer, 57, says of the promise of steady returns, which would be echoed by other acolytes. “These people firmly believed in the story.”

Unfortunately, nothing about investing involved a good story or should invoke religious comparisons. Successful money management requires a diligent and disciplined process and any claims to have a magic formula should be looked upon with extreme skepticism. While I am certainly not a proponent of the Efficient Market Hypothesis (EMH), there is one aspect of it that is 100% accurate: there is no such thing as a lasting free lunch. Riskless arbitrage opportunities, other than in extreme situations like the ones we have seen in the past year, are often closed immediately by the market. Thus, Madoff’s investors accepted their returns without acknowledging that sometimes substantial rewards are accompanied by extreme risks.

Similarly, the investors who have driven the share price of GS back up over $180 seem to have blind faith in the company’s ability to profit in any market circumstances. Unfortunately, they have reason to believe this is a reality:

Goldman Sachs Group Inc. made more than $100 million in trading revenue on a record 46 separate days during the second quarter, or 71 percent of the time, breaking the previous high of 34 days in the prior three months.

Trading losses occurred on two days during April, May and June, down from eight in the first quarter, the New York-based bank said today in a filing with the U.S. Securities and Exchange Commission. The company made at least $50 million on 58 of the 65 trading days in the period, or 89 percent of the time.

Tell me that these results do not seem to be as improbable as Madoff’s long term returns in both up and down markets. This astonishing data means that from January to June (let’s call it 130 trading days) GS only lost money on 10 of those days. That’s almost like a baseball player batting .920 for half a season. A player who achieved that feat would immediately be deemed the best hitter to ever play the game. Since trading is a zero sum game, meaning that there is a loser on the other side of each winning trade, results like this should be impossible. Unless of course, the winner is cheating or has a skill level that is unlike that of mere mortals. Statistics like these illustrate how both Goldman and Madoff achieved such a mystique on Wall Street. Further, when the number of days that GS not only made a trading profit, but also made over $100M is added to the equation, the whole thing starts to look too good to be true. I am aware that the actions taken by the Fed and the government to backstop and liquefy the financial system have given the banks a license to print money, but I don’t believe a company can have that kind of success without taking substantial risk or engaging in dubious behavior.

Next, let’s examine the parallels when it comes to the opacity of the investment strategy. We know Madoff advertised that he used a split strike conversion strategy to generate his returns. But when pressed on the details, he tended to be very vague or become defensive. As mentioned above, if he felt people were too inquisitive he would threaten to return their investment. Similarly, GS does not give a whole lot of information about how it generates such tremendous trading profits. We know for sure that it coincides with increased risk though. At the end of Q2 2009, GS’s value-at-risk (the amount the company could lose in a single day) was $245M, up from $184M in May 2008. Furthermore, GS continues to hold a huge number of what are known as Level 3 assets on its balance sheet. These are by definition the most opaque assets. For those of you who are unfamiliar with this term, according to wikinvest, Level 3 assets are:

Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement…Level 3 assets trade infrequently, as a result there are not many reliable market prices for them. Valuations of these assets are typically based on management assumptions or expectations.

In other words, kind of like how Madoff made up his returns by printing fake trade receipts, GS gets to decide the value of $54B or 8.7% of its total assets. Also, just as Madoff’s investors had no way of learning more about his strategy, GS is understandably tight lipped about its Level 3 assets and trading strategy. Now this secrecy is not unique to GS. No bank gives away information that could hurt its own positions. But the question investors have to ask themselves is whether or not the amazing returns and the carrying value of assets are likely to be legitimate.

Next, when it comes to status there is no end to the amount of influence that GS has on policymakers and regulators. The number of GS alumni who have held or currently hold influential government positions is very well documented. What that leads to is the perception among investors that GS is protected, not only from legal scrutiny but from adverse market consequences. I worked with some former Goldman guys and there was a palpable understanding that GS would inevitably be the first one to get “the call” or a head’s up from the powers that be. If Hank Paulson’s calls to GS CEO Blankfein during the AIG crisis are any indication, this phenomenon is not just assumption, but a reality. Accordingly, this elevated status has the potential to lull investors to sleep. If you believe that the government will always bail out GS or provide sufficient forewarning prior to a crisis, you will invest without the potential downside in mind. This is what is known as moral hazard and can lead to a mispricing of risk among investors.

Similarly, Madoff’s status had a comparable lulling effect on his investors. He was on the Board of Directors of the National Association of Securities Dealers (NASD). He also had very close ties to Securities Industry and Financial Markets Association (SIFMA), served as the non-executive Chairman of the NASDAQ, and was considered a pioneer when it came to electronic trading. The positions he held led his investors to assume that there was no way he could be doing anything illegal. Even worse, his insider status among the industry’s self regulatory body legitimatized his returns in a way few others things could. Plus, there appears to have been an implicit expectation that even if he was engaging in some dubious practices, his reputation would allow him to escape with only a slap on the wrist or a stern talking to.

Finally we come to what I think is the most fascinating similarity between GS and Madoff. This particular bias comes about when investors have an inkling that something that is not quite kosher is going on but for the most part decide to ignore their misgivings. Apparently in Madoff’s case his investors suspected that he might be front running trades, a practice that is illegal, but was not seen as unethical as the scheme he was actually running. From The Economist:

According to reports, some of those who put their faith in Mr. Madoff suspected that he was engaged in wrongdoing, but not the sort that would endanger their money. They thought he might be trading illegally for their benefit on information gleaned by a separate business within his group, which made a market in shares. The firm had been investigated for “front-running”, using information about client orders to trade for its own account before filling those orders.

Basically people were suspicious but they were not going to risk speaking up and killing the golden goose. I would assume that after a number of recent incidents, this feeling has become extremely prevalent among owners of GS shares. First off, there is the amazing trading record. I’m not sure any bank in history has achieved such astounding results over 2 consecutive quarters. Even the most gullible person should question how these returns are possible. Next is the perception that the government often gives GS information that the market is not privy to. At very minimum this practice could spark complaints of conflicts of interest and lead to civil litigation, especially given the standing of many Goldman alums. However, the SEC does have rules regarding insider trading (or at least used to) that may have been violated during multiple occasions over the last few years. While this probably will not be a problem while GS’s friends are in power, we know that regimes change and those who think they were invincible suddenly find themselves on the wrong side. Although many investors are comforted by the fact that GS is nicknamed “Government Sachs, there is no way to know when prior affiliations and actions will become liabilities.

The third piece of news that should be disturbing to investors came to light when the world learned that some of the company’s proprietary software had allegedly been stolen. At a hearing regarding this theft the US prosecutor explicitly said that this code could be used to manipulate the markets. Well, if that is the case, doesn’t that mean that GS could be using it for illicit purposes? In addition, how would we know if it were? I think the Madoff case proves that the implicit assumption that GS is not using the code to juice its profits just because it could be construed as illegal or because of the company’s lofty reputation is very naïve. Lastly, there was a revelation recently that apparently GS engages in a practice called huddling in which certain clients get advanced notice of research analysts’ stock opinions. While GS has vehemently defended this practice and has assured the market that it has done nothing wrong, the implication that GS gives specific firms information that has not yet been published seems a bit shady. This is especially problematic because the market often reacts sharply (for some unknown reason) to analysts’ upgrades and price target changes.

In conclusion, I have no idea whether or not GS has crossed any legal or ethical boundaries. However, I have to admit that some of the parallels between Madoff’s operations and those of GS are quite eye opening. In summary, it seems that in both cases investors are/were forced to take a gigantic leap of faith. Of course, it could be true that GS is just smarter and more connected than everyone else, in which case the company is probably bulletproof. But, I think people should remember that this is precisely what investors thought about Madoff. We now know that premise turned out to be a once in a generation magnitude lie. So, my suggestion to those who either own shares of GS or are contemplating a purchase is to keep all of the things I have highlighted in mind. There is no sure thing in this world and asymmetrical rewards don’t come without risk. Most importantly, the major take away from the Madoff fiasco is that returns that appear to be too good to be true probably are and that if you have an inkling that some of the profits may be from dubious practices, it might be smart to take your money elsewhere. Lucky for you, you have an easy way out that Madoff’s investors did not. All you have to do is click your mouse.

About Me

I am a professional independent trader