These guys are THAT good

[poindexter]

Goldman Sachs: profitable trading 63 days out of 63 days in the first quarter.
JP Morgan: profitable 63 days out of 63 days in the first quarter.
Morgan Stanley, losers that they are, lost money in four days.

http://www.latimes.com/business/la-fi-goldman-20100511,0,1635865.story

I am sure there was no rigging of orders, front-running clients, insider information or any other rigging of the market.

Now trading is a zero sum game. So if Goldman is winning every single day, take a guess who is losing?

 

[Cousin Oliver]

You're so unselfish with your insight. Thank you.

 

[The Big Ragu]

Goldman's trading gains were made on behalf of clients. They are not betting the firm's own money. So the beneficiaries there are their clients.

It's also not really that unbelievable to me and doesn't suggest fraud (although that isn't to say that Goldman isn't fraudulent in its business practices). Goldman has only had losing days 11 times in the last 12 months. What makes it much more likely that Goldman is going to make money rather than lose on any given day. is that unlike me, it's a market maker in the FICC products (fixed income, currency, commodities) markets that generated those net positive days. What Goldman and JP Morgan (which reported no days of losses for the quarter) do is act as an intermediary in those markets to help keep them liquid and to make sure there is enough capital at all times. They may be doing something fraudulent--although it's easy to accuse without proof--but if they are not, they are simply guilty of acting as a market maker. And honestly, that doesn't involve much proprietary trading or putting anything at risk. As a market maker, they generate automatic revenue from bid-offer spreads. And with that automatic revenue, it would be really hard to lose money most days. It's basically like a bank charging people fees to do transactions and then reporting that they made money every day during the quarter from those fees.

You can criticize the market maker system, but as long as that is the system, it's very easy for investment banks to make money in an environment like this. Also, the last year has been a great time to be a trader in general -- whether you are Goldman Sachs' traders or an individual with a trading platform on a desk. I'm not an investment bank, don't have the trading resources of their desks and in the last year, I have found it easier than ever to come out ahead in the commodities I play with, and in most currencies. It's been easy, provided you don't overthink yourself.

 

[Point of Order]

End corporate welfare.

 

[poindexter]

Bank of America perfect as well

http://online.wSportsJournalists.com/article/BT-CO-20100511-714129.html?mod=WSJ_latestheadlines

 

[The Big Ragu]

People can't have it both ways. When things were really volatile, the banks got killed and they had to shoulder the blame for what their losses did to the economy as a whole. But in a quarter that was marked by virtually no volatility, all they did was make markets and collect bid-offer spreads for profits, and as a result now there will be people who want to excoriate them for running profitable businesses.

Do those same people get upset when the store down the street makes money every day for three months? Because it's really the same thing. It takes a quarter like this for there to be no days in which they don't come out behind. But these banks certainly have gone many quarters in which you could count the days they came out behind on five fingers or less. The markets are set up for them to make money, and the banks provide a necessary role in keeping them liquid. Criticize the system of market makers if you want (although before you do, you really should have a logical suggestion for how you keep the FICC markets liquid without them), I certainly can, but to criticize the banks for doing what they are supposed to do under that system doesn't make much sense.

 

[waterytart]

Goldman's trading gains were made on behalf of clients. They are not betting the firm's own money. So the beneficiaries there are their clients.

It's also not really that unbelievable to me and doesn't suggest fraud (although that isn't to say that Goldman isn't fraudulent in its business practices). Goldman has only had losing days 11 times in the last 12 months. What makes it much more likely that Goldman is going to make money rather than lose on any given day. is that unlike me, it's a market maker in the FICC products (fixed income, currency, commodities) markets that generated those net positive days. What Goldman and JP Morgan (which reported no days of losses for the quarter) do is act as an intermediary in those markets to help keep them liquid and to make sure there is enough capital at all times. They may be doing something fraudulent--although it's easy to accuse without proof--but if they are not, they are simply guilty of acting as a market maker. And honestly, that doesn't involve much proprietary trading or putting anything at risk. As a market maker, they generate automatic revenue from bid-offer spreads. And with that automatic revenue, it would be really hard to lose money most days. It's basically like a bank charging people fees to do transactions and then reporting that they made money every day during the quarter from those fees.

You can criticize the market maker system, but as long as that is the system, it's very easy for investment banks to make money in an environment like this. Also, the last year has been a great time to be a trader in general -- whether you are Goldman Sachs' traders or an individual with a trading platform on a desk. I'm not an investment bank, don't have the trading resources of their desks and in the last year, I have found it easier than ever to come out ahead in the commodities I play with, and in most currencies. It's been easy, provided you don't overthink yourself.

Prop desk trading uses the firm's own capital, not clients'.

 

[poindexter]

They have zero cost of capital, use of free money, etc. Every advantage known, given to them by just about every regulatory body.

When things are really volatile, banks got bailed out by the taxpayer. Goldman Sachs becomes a bank holding company (and access to the Federal Reserve) when? September 2008. How convenient.

Barely skipping a beat to give themselves annual bonuses that would make Caligula blush.

God bless this country.

 

[Mark2010]

Since they are making so much money, should they bail out the US federal government?

Street runs both ways, right?

 

[Care Bear]

Since they are making so much money, should they bail out the US federal government?

Street runs both ways, right?

Well, ****, at least the bankers know what they're doing.

 

[The Big Ragu]

Goldman's trading gains were made on behalf of clients. They are not betting the firm's own money. So the beneficiaries there are their clients.

It's also not really that unbelievable to me and doesn't suggest fraud (although that isn't to say that Goldman isn't fraudulent in its business practices). Goldman has only had losing days 11 times in the last 12 months. What makes it much more likely that Goldman is going to make money rather than lose on any given day. is that unlike me, it's a market maker in the FICC products (fixed income, currency, commodities) markets that generated those net positive days. What Goldman and JP Morgan (which reported no days of losses for the quarter) do is act as an intermediary in those markets to help keep them liquid and to make sure there is enough capital at all times. They may be doing something fraudulent--although it's easy to accuse without proof--but if they are not, they are simply guilty of acting as a market maker. And honestly, that doesn't involve much proprietary trading or putting anything at risk. As a market maker, they generate automatic revenue from bid-offer spreads. And with that automatic revenue, it would be really hard to lose money most days. It's basically like a bank charging people fees to do transactions and then reporting that they made money every day during the quarter from those fees.

You can criticize the market maker system, but as long as that is the system, it's very easy for investment banks to make money in an environment like this. Also, the last year has been a great time to be a trader in general -- whether you are Goldman Sachs' traders or an individual with a trading platform on a desk. I'm not an investment bank, don't have the trading resources of their desks and in the last year, I have found it easier than ever to come out ahead in the commodities I play with, and in most currencies. It's been easy, provided you don't overthink yourself.

Prop desk trading uses the firm's own capital, not clients'.

Proprietary trading gains are NOT accounting for those days. If they were claiming their prop desks were right 100 percent of the time for a quarter, yeah, you could yell fraud. It's an impossibility.

The profits they reported (and the string of profitable days) came because their FICC and equities units, which in this new world of populist scapegoating of the banks, are dominating their businesses. Those units make their returns by making markets for clients, not by betting the firm's money. What this shows is that in the wake of the hell they have taken over their CBO debacles, they are NOT doing crazy types of propietary trading. Instead, they are sitting back, making markets for clients, and collecting bid-ask spreads for steady (but not the home runs they were going for a few years ago) profits.

 

[poindexter]

What this shows is that in the wake of the hell they have taken over their CBO debacles, they are NOT doing crazy types of propietary trading. Instead, they are sitting back, making markets for clients, and collecting bid-ask spreads for steady (but not the home runs they were going for a few years ago) profits.

I think you are taking an INCREDIBLE leap of faith by claiming that there is no crazy trading going on.

http://online.wSportsJournalists.com/article/SB10001424052702304830104575172280848939898.html

Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

Excessive borrowing by banks was one of the major causes of the financial crisis, leading to catastrophic bank runs in 2008 at firms including Bear Stearns Cos. and Lehman Brothers. Since then, banks have become more sensitive about showing high levels of debt and risk, worried that their stocks and credit ratings could be punished.

That practice, while legal, can give investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time.

Come on dude. The party has never stopped.

When the congress is bought and paid for; when the white house and fed are staffed with your former cronies; when there were zero repercussions for the fall of 2008; when there is so much money to be made; you REALLY think things are going to change?

 

[The Big Ragu]

Poin, Repo borrowing levels (or their attempts to mask them) have nothing to do with their trading profits. Repo borrowing levels are a fraction of what they were at the height of the financial crisis. If you are starting from a base level of much lower leverage, but they are also playing games at the end of the quarter to make it look like they are barely leveraged at all (because of the hell they have taken from politicians. ... and frankly what they do is perfectly Kosher according to SEC reporting rules), it doesn't mean they are engaged in unreasonable or risky trading anymore. The banks are not leveraged anywhere near the levels they were 3 and 4 years ago and their prop desks are relatively silent right now compared to the things they were doing a few years ago -- by necessity. A bunch of politicians looking for scapegoats are staring them down.

 

[poindexter]

Of course, Goldman isn't so good at making money for their clients, as they are for themselves.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aF5tV7uvY0FU&pos=4

May 19 (Bloomberg) -- Goldman Sachs Group Inc. racked up trading profits for itself every day last quarter. Clients who followed the firm’s investment advice fared far worse.

Seven of the investment bank’s nine “recommended top trades for 2010” have been money losers for investors who adopted the New York-based firm’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent yesterday. Clients who used the tips lost 14 percent buying the Polish zloty versus the Japanese yen, 9.4 percent buying Chinese stocks in Hong Kong and 9.8 percent trading the British pound against the New Zealand dollar.

 

[The Big Ragu]

From that story:

Goldman Sachs’s trading profits come from capturing bid- offer spreads when its traders act as intermediaries for clients, Gary Cohn, the firm’s president and chief operating officer, said last week in New York. Proprietary trading isn’t a main driver of earnings, he said.

He is being truthful. In the wake of all the scapegoating, Goldman can't win now judging by your posts. Goldman's trading desk has moved away from proprietary trading to being a market-making business.

Market makers make money from the bid-offer spreads. Those spreads are their payment for keeping the markets liquid--it is a guaranteed profit.

Their role as a market maker, which accounts for the firm's trading profits, has zero to do with what their analysts are recommending to clients. What they earn on their trading desks and what they charge clients for investment advice relate to two different businesses. Your posts make it seem like they are telling their clients one thing and doing something different with proprietary trades--perhaps they are, but there's no evidence of it and even if they were, it doesn't account for Goldman's profitability. Not to mention that Goldman is being watched like a hawk right now. so it's even more unlikely.

The reason Goldman has had trading profits is because of its role as a market maker, not because of proprietary trading. What it's equity, fixed income, currency, etc. analysts are recommending to clients isn't guaranteed, the way a bid-offer spread is. It's also beside the point.

 

[poindexter]

I understand what they say they do.

What I don't understand is why the government subsidizes Goldman Sachs in order for them to create Godzilla-sized bonuses for themselves.

Explain it to me. Explain to me why Goldman Sachs became a bank holding company in 2008.

 

[poindexter]

Not to mention that Goldman is being watched like a hawk right now. so it's even more unlikely.

Oh, for pete's sake.

 

[The Big Ragu]

I understand what they say they do.

What I don't understand is why the government subsidizes Goldman Sachs in order for them to create Godzilla-sized bonuses for themselves.

Explain it to me. Explain to me why Goldman Sachs became a bank holding company in 2008.

I never advocated taxing people and subsidizing banks. Why not ask Hank Paulson? He's a former chairman of Goldman, goes through the revolving door and the next thing you know the old boy's network is in play. Or why not ask Tim Geitner? When he was at the NY Fed, he was rubber stamping the payments. As Treasury Secretary to a president trying to use populism to keep public approval, he's now pointing fingers at Goldman. Can you get him to explain his hyena act, while you are at it? Or better yet, ask him (and Obama, who was going to limit lobbyist influence) why former Goldman lobbyist Mark Patterson is Geitner's chief of staff and what role he played in the favors investment banks have gotten, and what the TRUE intentions of the scapegoating act to distract the public are?

All of that said, it has nothing to do with Goldman's profitability last quarter, which had nothing to do with proprietary trading.

One thing people don't consider is who Goldman's clients are -- they are big institutional investors, not the people on this message board. They are hedge funds and pension funds and Fortune 500 companies and governments. The Blackstone Group. Ford Motor Company. Various governments. Those entities have investment professionals running their portfolios, and it's not like Goldman puts out a report saying "these are our top picks" and those investment professionals all run out and buy Polish Zlotys vs. Japanese Yen. I know the currency markets, in fact, and they are momentum driven, which means that you can be buying a currency one day and selling it three hours later and still be pursuing the same investment strategy. No one was doing large trades based on a research report saying "Goldman likes the British Pound vs. the New Zealand dollar" and holding it and taking the losses that story was suggests -- as if Goldman's clients get a report that says "top picks" and they buy and hold like lemmings. Those portfolio managers are not just relying on Goldman. They are relying on research from up and down Wall Street and they making calls based on the expertise and biases of the portfolio managers -- a manager who knows equity emerging markets is not suddenly putting everything his pension fund has into exotic currencies because of a research report from Goldman.

Wall Street analysts are really wrong a lot of the time. They have always been really wrong. It's not news. If they could tell you where to put your money and guarantee returns, then the markets would REALLY be rigged.

 

[BTExpress]

Market makers make money from the bid-offer spreads. Those spreads are their payment for keeping the markets liquid--it is a guaranteed profit.

"The good part is that no matter whether our clients make money, or lose money, Duke & Duke get the commissions.

Well, what do you think, Valentine?"

"Sounds to me like you guys are a couple of bookies."

 

[Fly]

Market makers make money from the bid-offer spreads. Those spreads are their payment for keeping the markets liquid--it is a guaranteed profit.

"The good part is that no matter whether our clients make money, or lose money, Duke & Duke get the commissions.

Well, what do you think, Valentine?"

"Sounds to me like you guys are a couple of bookies."

Great now I'm craving a bacon, lettuce and tomato sandwich....with a glass of orange juice (from frozen concentrate).