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Tuesday, May 4, 2010

Tuesday Brainstorming - part 1

1. The smiling faces of Trichet and other EU morons makes one think what kind of drugs they are on. A 10 year old with regular common sense would know that nothing has been achieved to cheer about and Greece saving possibly 10 bil a year does only damage to the economy but no help for their debt situation which even will get officially worse. they must be nuts and all they really do is bailout the banks who get again 100 cent on the EURO and the burden is swapped to taypayers all around the world. Nevertheless the virus of realty has been activated and no containment achieved the weakest in the chain will be in for the next outbreak of the tough reality that the whole world is bankrupt.


Now that Greece is thoroughly irrelevant, the market just told the ECB, the IMF, and the EMU to prepare another $1 trillion in bailout packages. The reason: the Greek bailout just made it abundantly clear the bond vigilantes have free reign to call the bureaucrats' bluff whenever they see fit. The result: CDS of all non Greek PIIGS are now blowing out, and represent the top 4 names of all biggest CDS wideners for the day, each pushing a 10%+ change from yesterday. This movement wider will not stop until the IMF resolves to backstop all the PIIS ex. G. At this point nothing that happens in Greece is important, although the thing that will most likely happen is that the Greek government will fall imminently, killing the austerity package and destroying whatever credibility the EMU and the EU have left, but not before the IMF and the EU soak up another 110 billion euro in their slush funds. However, even with the bailout the Greek stock market is tumbling: the Athens Stock Exchange is now down 3.4% to just under 1,800. As we expected, the euro is about to breach 1.31 support. At that point, not even the US algos and the Liberty 33 traders will be able to prevent the contagion. And adding insult to injury is the latest rumor of an upcoming downgrade or very cautious language of Germany by the suddenly hyperactive rating agencies. When that occurs, you can kiss Europe goodbye.

Biggest CDS intraday movers (from CMA):

2. Goldman looks like a very good short even from current levels as they have to pass over plenty of trading records for various different instances they will lose o lot of trading business as afterall a lot of business on Wallstreet is borderline with plenty insider-trading. Many of the big Hedge Funds rely on such information flow but now with the FEDs all over it they might want to slow down and especially with the No 1 target Goldman hence they will have far lower turnover and high margin business. The technical picture also looks week and I stick to the targets of 120 even 100 is possible medium term. Blankfein is history and Goldman needs to replace him as fast as possible but they can not do it now as it would look like a confession thats why they are trapped into a negative spin of events with their own shareholders now filing cases against them the damage is still on rising momentum.


Goldman Subpoeaned Over Galleon-Related Trading Records

Tyler Durden's picture

As part of today's surprise disclosure of Goldman's outstanding lawsuits (oh, so now it's material), we find that the firm is a party to a subpoena request for potential involvement in the Galleon massive insider trading case. While the existence of the subpoena is surprising, it does not seem to implicate Goldman in any actual wrongdoing. At least not yet. Should the full trade ticket trail indicate that Goldman was executing trades on behalf of Quad Capital and Incremental Capital trader Michael Kimelman, whom we discussed previously, and who is the object of the investigation, it would not be difficult to compare trades executed in flow on behalf of Kimelman and compare these with trades done by Goldman's prop trading desk. Of course, if Goldman prop suddenly decides to take the same side of the trade as Kimelman did at or around the same time, then Lloyd may need to out his PR campaign in turbo boost mode. We hope the presiding Judge on the case Richard Sullivan is smart enough to have requested all of the firm's trading records surrounding the times and dates of any trade potentially executed with Kimelman.

From Reuters:

Lawyers for Goldman Sachs Group Inc have been served a subpoena to testify or provide information in a closely watched case of illegal insider trading allegations, according to a court document made public on Monday.

The subpoena to Goldman Sachs & Co and Goldman Sachs Execution and Clearing LP on April 15, requests “all trading records and monthly account statements associated with account number UF703881″ of Michael Kimelman, a former trader at Quad Capital LLC and Incremental Capital.

Kimelman is charged in a case running parallel with the one U.S. prosecutors are pursuing against Galleon hedge fund founder Raj Rajaratnam. U.S. prosecutors described the probe as the biggest hedge fund insider trading case ever in the United States.

Kimelman was arrested and charged last Nov. 5 along with Zvi Goffer, a onetime Galleon employee who later started the Incremental Capital trading firm, and five other traders or lawyers. They have all pleaded not guilty to an indictment and are free on bail.

The subpoena, signed by presiding Manhattan federal court Judge Richard Sullivan, was submitted by Kimelman’s lawyer Morris Fodeman. It asks representatives of the investment bank’s legal department to appear before the judge at a hearing in the case on May 14.

No other details were provided, other than that Goldman acknowledged receipt on April 19.

Once again, all those who claim that Goldman may or may not be impaired as a result of all these legal actions are missing the big picture. The plethora of already launched lawsuits (and hundreds more likely to follow) will create so much public discovery (tens of millions of emails, BBERG MSGs, AIMs, docs, memoranda) will, like a Mandelbrot fractal, create actionable material for exponentially more lawsuits. The firm will be bogged down in legal affairs, trials and settlements for years to come. But at least it has the ethical blessing of Warren Buffett, whose 180 degree about face on derivatives, is perfectly in line with this endorsement.

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