Those who follow me know that I don't agree with many of Goldman Sachs recommendations, primarily because I know that Goldman considers their clients to be "muppets" and use said muppets as profit springboards for trade setups. Of course, I can be wrong, but remember that we have ex-Goldman partners who support this thesis with personal experience, reference "Goldman Sachs Executive Director Corroborates Reggie Middleton's Stance: Business Model Designed To Walk Over Clients":
An executive director at Goldman Sachs has explicitly corroborated what I and many in the blogosphere have been crowing for some time now, and that is...
The whole video can be seen here on the Max Keiser show, starting from about 19:00 minutes in where I discuss risk vs reward in GS and how they outperform eventhough risk outweighs reward. Those who like numbers and charts can see where I actually demonstrated in For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks:
As in “When the Patina Fades… The Rise and Fall of Goldman Sachs???“, we can reminisce over the fact that Goldman BARELY earns its cost of capital on an economic basis, and that’s before considering the potential horrors which may (and probably do) lay on the balance sheet (for more on BS horror, reference Reggie Middleton vs Goldman Sachs, Round 2) .
And now we have supporting evidence from the inside... From the NYT:
"TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. I can honestly say that the environment now is as toxic and destructive as I have ever seen it."
"To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money."
"I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work."
" I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave."
"How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence. What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."
"I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all."
"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.
These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen."
Well, anyway.... This piece was not intended to reveal the inner workings of Goldman Sach's business model. It was intended to illustrate how our UltraCoin system can be used to monetize global macro trade ideas, even if they are from the vampire squid! According to Forbes:
Goldman’s first non-U.S. trade recommendation revolves around an expectation European stock markets rise in 2015 as the impact of ECB money-printing makes its way into the real economy. Goldman recommends investors go long a December 2015 Eurostoxx 50 call spread, buying a Dec. 2015 strike call at 3,150, and selling a Dec. 2015 strike call at 3,450. “The (nearly) at-the-money 3150 call costs 170.6, while selling the 3450 call costs 69.10 (both priced as of the close on November 19), giving this position a maximum potential 2-to-1 payout,” notes Goldman. The firm sees two reasons European stocks will move higher: regional growth simply accelerates, or disappointing inflation readings force the ECB into added action. Both scenarios, Goldman believes, augur well for European asset prices.
First, let's put this in a form that can be traded via UltraCoin. To go long the Eurostoxx 50, we'll receive exposure to the SPDR Eurostoxx 50 long ETF (speculating that the top 50 EZ equities will rise from currency wars & QE) and we will pay exposure to the ProShares Ultra Short Euro ETF (EUO) seeking to provide twice the inverse exposure to the performance of euro versus the U.S. dollar on a daily basis (speculating the euro will fall relative to the US dollar as a result of currency wars & QE). It should also be noted that leveraged ETF products usually seek to match the return of the euro short against the dollar over a single day. Due to this and the compounding of daily returns, the returns of the product may deviate from long term return rates, suggesting that investors need to monitor their holdings closely if they are going to be in for a long time period. It should also be noted that this is a materially more advanced trade setup than that recommended by Goldman, for it captures potential euro downside movement relative to the dollar AND potential european equity market upside -which, according to the Goldman hypothesis, are tightly linked. One would think that Goldman should start recommending trading with UltraCoin, no? Here's what the setup looks like as an UltraCoin contract if you were to take it all the way out to December 2015.
My take on this? Well, it's obvious that the euro will see some pressure from central bank machinations, but its not so obvious... or maybe its too obvious that that is an automatic plus for the eurozone economies in general. Remember, what's good for stocks short term is not necessarily what's good for the economy medium term. The eurozone is a confederate of 27 (or so) countries with widely disparate economies, equity markets, macro situations, fundamentals and financial situations. This is far from a one size fits all situation. This should be obvious to all (and is how I called the Pan-European Sovereign Debt Crisis 5 years ago). In Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! I illustrated how inaccurate the many calls for European growth actually were, to wit:
Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.
Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic.
Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...
The EU/EC has proven to be no better, and if anything is arguably worse!
Revisions-R-US!
and the EU on goverment balance??? Way, way, way off.It's not just Greece either...
** And what about Italy??? **
This is Italy's presumption of economic growth used in their fiscal projections:
If the IMF was wrong, what in the world does that make the EC/EU?
Now, for sure, there are some eurozone nations that will benefit mightily from the debasement boost, but those countries are not representative of the entire eurozone. The reason why debasement and QE are almost a forgone conclusion is that Japan has thrown the gauntlet down and the ECB feels it has little choice. You see, there is a stark difference between how the Japanese economy (despite 34 years of a lost decade) and the EZ economies are put together, and a currency war will bring those differences starkly to the forefront. I posted series of tweets on this topic a few days ago...
Currency Debasement makes international debt interest payments more expensive if denominated in a foreign currency, ex. some Euro Zone debt
— ReggieMiddleton (@ReggieMiddleton) November 25, 2014
Assuming international currency debasement tax on debt service, can profligate EU periphery states afford a devaluation battle with Japan?
— ReggieMiddleton (@ReggieMiddleton) November 25, 2014
The short answer to my own self-imposed query is "No!" Japan & its citizens hold most of its debt denominated in Yen. Euro-periphery doesn't
— ReggieMiddleton (@ReggieMiddleton) November 25, 2014
Draghi meets Japan's challenge and devalues through QE, PIIGS will suffer as they have little export engine benefit yet imports prices spike
— ReggieMiddleton (@ReggieMiddleton) November 25, 2014
Of course, if one wanted to take the opposite side of Goldman's views, simply click the switch button in the trade setup screen of UltraCoin to reverse the exposures.Download the UltraCoin client for free, and start trading for free without banks, brokers or exchanges. Reported by Zero Hedge 10 minutes ago.
An executive director at Goldman Sachs has explicitly corroborated what I and many in the blogosphere have been crowing for some time now, and that is...
The whole video can be seen here on the Max Keiser show, starting from about 19:00 minutes in where I discuss risk vs reward in GS and how they outperform eventhough risk outweighs reward. Those who like numbers and charts can see where I actually demonstrated in For Those Who Chose Not To Heed My Warning About Buying Products From Name Brand Wall Street Banks:
As in “When the Patina Fades… The Rise and Fall of Goldman Sachs???“, we can reminisce over the fact that Goldman BARELY earns its cost of capital on an economic basis, and that’s before considering the potential horrors which may (and probably do) lay on the balance sheet (for more on BS horror, reference Reggie Middleton vs Goldman Sachs, Round 2) .
And now we have supporting evidence from the inside... From the NYT:
"TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. I can honestly say that the environment now is as toxic and destructive as I have ever seen it."
"To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money."
"I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work."
" I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave."
"How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence. What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."
"I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all."
"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.
These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen."
Well, anyway.... This piece was not intended to reveal the inner workings of Goldman Sach's business model. It was intended to illustrate how our UltraCoin system can be used to monetize global macro trade ideas, even if they are from the vampire squid! According to Forbes:
Goldman’s first non-U.S. trade recommendation revolves around an expectation European stock markets rise in 2015 as the impact of ECB money-printing makes its way into the real economy. Goldman recommends investors go long a December 2015 Eurostoxx 50 call spread, buying a Dec. 2015 strike call at 3,150, and selling a Dec. 2015 strike call at 3,450. “The (nearly) at-the-money 3150 call costs 170.6, while selling the 3450 call costs 69.10 (both priced as of the close on November 19), giving this position a maximum potential 2-to-1 payout,” notes Goldman. The firm sees two reasons European stocks will move higher: regional growth simply accelerates, or disappointing inflation readings force the ECB into added action. Both scenarios, Goldman believes, augur well for European asset prices.
First, let's put this in a form that can be traded via UltraCoin. To go long the Eurostoxx 50, we'll receive exposure to the SPDR Eurostoxx 50 long ETF (speculating that the top 50 EZ equities will rise from currency wars & QE) and we will pay exposure to the ProShares Ultra Short Euro ETF (EUO) seeking to provide twice the inverse exposure to the performance of euro versus the U.S. dollar on a daily basis (speculating the euro will fall relative to the US dollar as a result of currency wars & QE). It should also be noted that leveraged ETF products usually seek to match the return of the euro short against the dollar over a single day. Due to this and the compounding of daily returns, the returns of the product may deviate from long term return rates, suggesting that investors need to monitor their holdings closely if they are going to be in for a long time period. It should also be noted that this is a materially more advanced trade setup than that recommended by Goldman, for it captures potential euro downside movement relative to the dollar AND potential european equity market upside -which, according to the Goldman hypothesis, are tightly linked. One would think that Goldman should start recommending trading with UltraCoin, no? Here's what the setup looks like as an UltraCoin contract if you were to take it all the way out to December 2015.
My take on this? Well, it's obvious that the euro will see some pressure from central bank machinations, but its not so obvious... or maybe its too obvious that that is an automatic plus for the eurozone economies in general. Remember, what's good for stocks short term is not necessarily what's good for the economy medium term. The eurozone is a confederate of 27 (or so) countries with widely disparate economies, equity markets, macro situations, fundamentals and financial situations. This is far from a one size fits all situation. This should be obvious to all (and is how I called the Pan-European Sovereign Debt Crisis 5 years ago). In Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! I illustrated how inaccurate the many calls for European growth actually were, to wit:
Let's take a visual perusal of what I am talking about, focusing on those sovereign nations that I have covered thus far.
Notice how dramatically off the market the IMF has been, skewered HEAVILY to the optimistic side. Now, notice how aggressively the IMF has downwardly revsied their forecasts to still end up widlly optimistic.
Ever since the beginning of this crisis, IMF estimates of government balance have been just as bad...
The EU/EC has proven to be no better, and if anything is arguably worse!
Revisions-R-US!
and the EU on goverment balance??? Way, way, way off.It's not just Greece either...
** And what about Italy??? **
This is Italy's presumption of economic growth used in their fiscal projections:
If the IMF was wrong, what in the world does that make the EC/EU?
Now, for sure, there are some eurozone nations that will benefit mightily from the debasement boost, but those countries are not representative of the entire eurozone. The reason why debasement and QE are almost a forgone conclusion is that Japan has thrown the gauntlet down and the ECB feels it has little choice. You see, there is a stark difference between how the Japanese economy (despite 34 years of a lost decade) and the EZ economies are put together, and a currency war will bring those differences starkly to the forefront. I posted series of tweets on this topic a few days ago...
Currency Debasement makes international debt interest payments more expensive if denominated in a foreign currency, ex. some Euro Zone debt
— ReggieMiddleton (@ReggieMiddleton) November 25, 2014
Assuming international currency debasement tax on debt service, can profligate EU periphery states afford a devaluation battle with Japan?
— ReggieMiddleton (@ReggieMiddleton) November 25, 2014
The short answer to my own self-imposed query is "No!" Japan & its citizens hold most of its debt denominated in Yen. Euro-periphery doesn't
— ReggieMiddleton (@ReggieMiddleton) November 25, 2014
Draghi meets Japan's challenge and devalues through QE, PIIGS will suffer as they have little export engine benefit yet imports prices spike
— ReggieMiddleton (@ReggieMiddleton) November 25, 2014
Of course, if one wanted to take the opposite side of Goldman's views, simply click the switch button in the trade setup screen of UltraCoin to reverse the exposures.Download the UltraCoin client for free, and start trading for free without banks, brokers or exchanges. Reported by Zero Hedge 10 minutes ago.