Equity rally not driven by the usual investors
By Leigh Skene
Published: April 28 2010 15:45 | Last updated: April 28 2010 15:45
The outperformance of risk assets over the past year suggests investors appear to believe that all credit problems have been solved – but nothing could be further from the truth, says Leigh Skene at Lombard Street Research.
“Rising stock markets and narrowing credit spreads depend on buyers being more anxious to buy than the sellers are to sell,” he says. “So who are the enthusiastic buyers of risk assets?”
Surprisingly, says Mr Skene, surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities. And he says the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment banks are the anxious buyers.
“Their buying would appear to be for one of two reasons. Firstly because they think the authorities will prevail in their (so far unsuccessful) efforts to inflate their way out of debt liquidation; or secondly because they are too big to fail and so can afford to take a huge gamble that enough buying will convince others to rush in and buy their inventory of risk assets at even higher prices.
“Huge economic slack in most developed nations and falling money supplies in the two biggest currency areas indicate that government efforts to inflate will continue to be unsuccessful – so reason number one is bearish for risk assets; number two is catastrophic.”
Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.4. Goldman will go for a settlement as they can not afford to have more internals published - another interesting point is why did Spark and Birnbaum leave the firm after the best year ever for them as they described it themselves in their evaluations after they received quite a handsome bonus. After they left Goldman lost 1.8 bil in 2008 Goldman claims which makes it even more obscure since the big money in being short was to be made in 2008.
Goldman Sachs may soon settle its fraud case with the U.S. regulator, the New York Post reported on Thursday, opting to end a legal fight rather than endure a repeat of the public flogging it received this week.
Daniel Sparks, Joshua Birnbaum, Michael Swenson and Fabrice Tourre
The Post report, citing sources familiar with the matter, said Wall Street's top investment bank was mulling closing the fraud case with the U.S. Securities and Exchange Commission (SEC) to limit damage to its reputation.
"It's almost a certainty that there will be a settlement," the paper quoted a source as saying.
Goldman Set to Settle SEC Fraud Case Soon: Report
Goldman Pressed for CDO Loss Settlement
Goldman Sachs is in talks over a potential settlement with an investor that claims that it lost money and went out of business after buying into a $1 billion mortgage-backed security that was later privately criticized by a senior executive at the bank.
Goldman CEO LLoyd Blankfein testifying before House Financial Services Committee
Basis Yield Alpha Fund, a hedge fund, is seeking compensation over its $100 million investment in Timberwolf, a complex security, say several people familiar with the matter.
Timberwolf plummeted in value months after it was launched in March 2007, at a time when Goldman [GS 159.86 2.85 (+1.82%) ] had already decided to cut its exposure to the housing market.
The talks are at a preliminary stage and there is no certainty they will lead to a settlement.