Illuminating Shorts

If you're bearish right now...ILMN could be headed for a breakdown.

Goldman Sachs is more liquid a target for options and has a great chart, but I like Blackrock a little better because it has been underperforming.

I posted Cintas over the weekend too, and it cracked. Ready to go if the market goes.

Although it needn't fail right away, if this is a bear market, the h-pattern seen here in Domino's should reliably complete.

Do God's Work

Goldman Sachs' PR nightmare gets worse

Ex-Goldman Exec Comes Clean On How A "Toxic And Destructive" Goldman "Rips Its Clients Off"

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.

Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. 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.

Goldman Sachs PR Nightmare: The Reckoning and Goldman Sachs and Social Mood previously covered the social mood aspects of Goldman Sachs' troubles. If the firm had hired a socionomic consultant, they would have been given the advice to disappear and hunker down, avoid all press, good or bad, don't stick out because society will be looking for nails to hammer. The Chinese also have no love for GS, as covered in Goldman Sachs derivatives fraud.

Chinese all over the Goldman yuan short call

高盛为何唱空人民币

Several of the articles on the site breakdown this WSJ article: Investors Hazard Bold Bet on Yuan

There's also an article on Soros' position (one-third of assets betting on the yuan), hedge funds short China, discussion of economic indicators and a possible slowdown in the economy.

U.S. economy is fried according to Goldman

I don't know what other conclusion can be reached if $61 billion in cuts will hammer GDP growth.

Goldman Sees Danger in US Budget Cuts

The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned.

Goldman Sachs derivatives fraud

A big headline in the Chinese news this weekend is Goldman Sachs derivatives fraud causing loses for domestic Chinese state-owned companies. Shenzhen Economic Daily has the story:。 The Google translation is terrible in some places, it cannot even translate 忽悠, which means to dupe or to con.

The translation isn't critical to see that the firm remains a target of populist anger. A popular book in China is the "Goldman Sachs Conspiracy" and rising commodity prices only remind people of the speculators.

高盛涉嫌欺诈国内企业真相 忽悠是企业巨亏主因

Appear in the derivatives market from the first fuel huge losses to the large number of central enterprises, the local state-owned enterprises, private enterprises and individual investors (rich) cheated, many domestic enterprises to the risk of a vivid lesson. Industry experts say, Goldman Sachs and other international financial institutions, the behavior of derivatives fraud never stops, new cases have surfaced recently, the complex financial derivatives approach is still not

Today, this newspaper through the analysis of some domestic enterprises recruit the typical case, let more people know the truth of Chinese enterprises been fooled, so that domestic enterprises so as not to make the same mistake.


　　CIC Securities Zhang Xiaodong, general manager of financial derivatives:

　　Goldman 忽悠 main reason is the huge loss of domestic enterprises

　　Investment securities and financial derivatives in managing director Zhang Xiaodong, when interviewed yesterday, said that in 2008, a large number of central enterprises, the local state-owned enterprises, private enterprises and individual investors (rich) in equities, foreign exchange, commodities have suffered huge losses on . Loss of large and covers the breadth and victims is unprecedented. However, the loss of the causes, processes and issues to deal with the outbreak was dense fog, while the enterprise with Goldman Sachs led to huge losses on the gambling, while the global financial tsunami has caused business losses. What is the truth in the end? Goldman Sachs and other international financial institutions suspected of fraud by selling toxic financial derivatives, is the leading domestic enterprises, the main reason for the huge losses.

　　Zhang Xiaodong long been concerned about the development trend of financial derivatives, Goldman Sachs and other international financial institutions will be the complex derivatives contracts, through careful analysis and classified, using simple, non-professional language vividly demonstrated. He said the trap a lot of financial derivatives, ordinary people and even professionals to understand derivatives contracts, is not a very easy thing.

　　Zhang Xiaodong introduction, Goldman Sachs and other international financial institutions to complex derivatives contracts are a distinctive feature, is to participate in the investment income is limited and unlimited risk, limited exposure to international investment banks for the benefit of very impressive. And through the sweetness of your lost little goers: the first contract is generally still profitable, the second extension of the contract or you become addicted.

　　Zhang Xiaodong said, why do so many businesses and individuals in the move? Large central enterprises in the move, may not be responsible for business leaders, but also as private enterprises and the rich in the move? This shows that this is not a simple question of responsibility. Current financial regulatory system is imperfect, the lack of financial derivatives professionals, enterprises and individuals do not have the ability to Goldman Sachs and other international financial institutions are again succeeded in the important reasons. "Most business-to-price valuation of derivatives contracts, transactions, knowledge is almost zero."

　　Zhang Xiaodong introduced so far, no one stood up prosecution of multinational financial institutions such as Goldman Sachs, for several reasons: lack of professional ability to reason, reason unknown sources of wealth, a slavish comprador mentality reasons.

　　Zhang Xiaodong, that Goldman Sachs and other international financial institutions sell to the domestic enterprises of toxic financial derivatives, in addition to alleged commercial fraud, but behind it is organized and premeditated killing. Speed connection is definitely not as easy to imagine the outside world, while the Goldman Sachs people just clever use of common speed connection mentality, designed for domestic state-owned enterprises actually looks like an agreement on the financial trap of gambling contract. Many enterprises and international financial institutions such as Goldman proud, so that after the move was not easy to quit.

　　Zhang Xiaodong, pointed out that currently, Goldman Sachs involved in any one market, PE (private equity) market, commodities market, the domestic stock market, bond market, almost every shot has a lot of money income, and many dozens of times IPO projects and even profit hundreds of times. For this situation is certainly not normal, this highly respected in China and Goldman Sachs are not unrelated.

　　Zhang Xiaodong, when a large number of Chinese companies under the gun down at Goldman Sachs, when Goldman Sachs, the U.S. Government to prosecute, when subjected to heavy fines, Goldman Sachs fame in China is growing even bigger. Goldman Sachs to see a book on the market, you can find the status of Goldman Sachs in China, how "high", how great the image of Goldman Sachs. Executives from the financial sector to the common shareholders, from government officials to ordinary citizens, all worship at the feet of Goldman Sachs.

　　Zhang Xiaodong said, in November 2008, the SASAC emergency brake on the central rate derivatives trading, derivatives trading was suspended. But this is only an expedient measure. As a large-scale production enterprises, the future could not get involved in hedging and hedge risk.

　　Zhang Xiaodong said that a business can not be unworthy of any, to accelerate the development of Chinese financial institutions to develop derivatives professionals, development of financial derivatives. Those who need to hedge the business, financial institutions may engage consultants to do derivatives, to draw lessons from the failure of derivatives to enhance this area of expertise and professional competence. Goldman Sachs and other international financial institutions expect conscience, not to sell the idea of toxic financial derivatives, may never be wishful fantasy.

　　Zhang Xiaodong said, Goldman Sachs and other international financial institutions, derivatives, fraud never stops, new cases have surfaced recently, is which specific domestic companies cheated now disclosed. He said the complexity of derivatives contracts there are many ways of fraud, and the patterns and techniques are constantly refurbished. How to let more people know the Chinese enterprises by the "fraudulent" the truth, how to avoid making the same mistakes, how to strengthen China's financial institutions and Chinese enterprises in the financial derivatives market on the ability, is indeed an urgent task. Only through improved ability to distinguish in this respect, be possible to avoid the hit.

　　Shenzhen Nanshan Power and Goldman Sachs contract

　　Not for gambling but die

　　December 2008, Shenzhen Nanshan Power with a wholly-owned subsidiary of Goldman Sachs, "Jie run company," derivatives of oil dramatically early termination of the agreement. Although the follow-up may also have a legal dispute, but after being to avoid the loss of millions of dollars per month.

　　March 12, 2008, Shennan electricity and Jie Yun and 165,723,968,102.11 165,723,967,102.11 signed a contract confirmation number.

　　After the scandal, the media and some experts criticized the Shenzhen Nanshan Power hedging transactions are not, but gambling, said the two agreements on the gambling agreement. Investment securities and financial derivatives in the Managing Director Zhang Xiaodong, that power with high Shengjie Run Shennan exchange contracts entered into are not gambling, but to die. Because oil prices, Shenzhen Nanshan nothing; while oil prices fell, Nanshan Power will be huge loss.

　　Zhang Xiaodong, a detailed analysis of these two agreements, to explain why this is not gambling but rather die.

　　Shenzhen Nanshan Power and total signed two agreements with Goldman Sachs. The first agreement is very simple, that is if oil prices above 62 dollars, Nanshan Power profits, on the contrary, Goldman Sachs profit. Of Shenzhen Nanshan Power, the most profitable no more than 300 million dollars; for Goldman, earnings of up to tens of millions of dollars.

　　Second agreement is completely different. The agreement provides Goldman Sachs the right to December 30, 2008 to decide whether activation of the first agreement with an option similar to the other swap. The options exchange swap with the first surface substantially similar options, but in fact completely different, mainly in several ways.

　　First, the option for a first swap agreement, Shenzhen Nanshan is the active participation; while the second agreement that the options exchange, Shenzhen Nanshan Power is passive, no choice. Goldman Sachs according to market price fluctuations, and choose whether to activate the second option in the swap agreement.

　　Second, the first agreement, the Nanshan Power likely to get the maximum profit of $ 3,000,000, while in the second agreement, the Shenzhen Nanshan no profit possible.

　　Third, the first agreement, the maximum loss of electricity Shennan 400 million; while in the second agreement, the price of oil by the end of 33 U.S. dollars in 2008 to design, Shennan loss of power will be up to a month $ 12,000,000, the largest loss of up to $ 260,000,000. Even if oil prices over 66 U.S. dollars, the maximum monthly profit of Shenzhen Nanshan only 34 million, or 18 months, the maximum possible profit of more than 600 million U.S. dollars only.

　　Goldman Sachs, the most from these two contracts, thanks to $ 3,000,000, up to make hundreds of millions of dollars, and has full control of risk; of Shenzhen Nanshan Power, the maximum profit of $ 3,000,000, the largest loss of hundreds of millions of dollars, risk without any controls. Therefore, the Shenzhen Nanshan agreement with Goldman Sachs is not a gamble agreement.

　　Goldman Sachs through the first 300 million dollars contract bait to lure into the Shenzhen Nanshan a big trap.

　　On the surface, the second agreement between the two sides of the gambling December 31, 2008 after the price of oil above or below the $ 64.5, but the point is that the activation of the agreement the right hands at Goldman Sachs, and Goldman Sachs activation The agreement is premised on oil prices in the end of December 2008 is far below the $ 64.5. If then the price of oil much higher than $ 64.5, Goldman does not activate the contract.

　　The second contract is actually an option on the option, known as compound options (Compound Option). This option pricing is usually more complicated, not any one non-financial companies have pricing power for such products, according to Zhang Xiaodong terms, this compound options worth up to tens of millions of dollars. The Shenzhen Nanshan Power was handed over to the options given to Goldman Sachs.

　　Goldman Sachs with the hunting of Shenzhen Nanshan Power CAO robbed and killed in 2005 used very similar way, all through the compound option, the use of the complexity of the product and pricing advantages, access to huge gains.

　　Shenzhen Nanshan Power Deputy General Manager violin yesterday in an interview that the company and a wholly owned subsidiary of Goldman Sachs run company disputes Jie, all the companies subject to periodic reports and company announcements. If new circumstances will be the first time the company disclosed.

　　Journalists access to Shenzhen Nanshan disclosure of relevant content is the latest 2009 annual report, annual disclosure of the contents of the two contracts. Report said that in April 2008 to 10-month period, based on the above two certificates, Jie run companies pay to the company 210 million dollars.

　　Shenzhen Nanshan Power said that although the two sides to terminate the transaction confirmations and different reasons, but confirmation of this fact and transactions have been terminated no differences. Transaction termination, Jie Yun trading company sent a letter to require the Company to terminate compensation for the loss, while a separate letter expressed the hope that a commercial settlement of disputes. Not accept the company write back Jie run company's claim for damages, while a separate letter agreed to peace talks. After several rounds of consultations between the two sides and negotiations, no consensus. November 27, 2009, the Company Security Council received a letter of international law firm, letters to the matters described above, and require the company to compensate the company total $ 79,962,943.00 Jie Yun losses and ended November 27, 2009 $ 3,736,958.66 in interest. Companies in the January 25, 2010 reply letter will not be accepted Jie run company's claim for damages. Management to determine if the negotiation fails, do not rule out the two sides to resolve disputes through judicial means possible.

　　Shenzhen Nanshan Power Board considers that the two certificates and transaction parties to the transaction has been terminated; the progress of this matter, there are many uncertainties at this stage not possible to resolve future methods and the results estimated.

　　How to fall into the CAO

　　Goldman Sachs extension options trap

　　For the Chinese companies involved in financial derivatives market, China Aviation Oil (Singapore) Ltd has the benchmark significance.

　　In 2004, China Aviation Oil (Singapore) in oil derivatives trading losses of about 5.5 billion U.S. dollars.

　　Death in the "extended option"

　　It is reported that China Aviation Oil (Singapore) was started in 2001 trading in oil derivatives, in addition to hedging, the company also launched its own trading activities.

　　And Goldman Sachs in Singapore, Jie Yun trading company, the China Aviation Oil (Singapore) from the beginning doomed to failure.

　　Goldman Sachs and General Aviation Oil (Singapore) derivatives contracts can be summarized as follows: Goldman Sachs to sell at low prices first, China Aviation Oil (Singapore) a product, so that China Aviation Oil (Singapore) must make money, but profits cap. At the same time, Goldman Sachs gave you since China Aviation Oil (Singapore) such a positive opportunity to make money, and that China Aviation Oil (Singapore) also give something back to Goldman Sachs, the China Aviation Oil (Singapore) agreed
(Source: Shenzhen Daily)

Goldman puts an interesting bet?

You can't get a put option for less than a $65 strike for Goldman Sachs (GS) for Jan 2012, but Jan 2011 contracts go as low as $2.50.

The last trade was $1 at the $55 strike price, which means you'd have to pay $100 to have the right, but not the obligation, to sell 100 shares of GS for $55 per share, on or before January 21, 2011.

Here's the link to the 2011 contracts, calls are on top, puts below.

If you're someone who spends an average of $2 per week on the lottery, then I think buying a $55 put on GS would be better odds than what the state gives you. To go out to January 2012, you'd need to spend more than $300 for the cheapest contract at the $65 strike.

Update: It looks at though there may be a settlement, which greatly reduces the risk of bankruptcy...

Goldman Sachs and Social Mood

Elliot Wave International is running a series on Goldman Sachs. There's some interesting history in the second of this three part series.
Goldman Sachs Company Charged With Fraud: Who Could Have Guessed? Part II

Despite careful stewardship, Goldman's reputation faltered as stocks fell in 1969-1970. When the Penn Central Railroad went under, it was revealed that Goldman sold off most of its own Penn Central holdings before the June 1970 bankruptcy. This was another case of shifting standards, as Goldman's customers were all institutions dealing in unregistered commercial paper. They should have known the high odds of failure, as the railroad’s stock was down almost 90% when it finally failed.

As Cycle wave IV touched its low in October 1974 (S&P; see historic chart in Part I), a jury ruled, however, that Goldman “knew or should have known” that the railroad was in trouble. But Goldman Sachs company survived the negative judgment and grew quickly as the Cycle wave V bull market took off beginning in 1975.

Goldman Sachs PR Nightmare: The Reckoning

In July, I had a post titled Goldman Sachs PR Nightmare. In it I wrote:

The financial industry is at risk for regulation and public hatred unseen since the Great Depression. While Goldman’s connections with government may ensure its survival, it also ensures that many unpopular events will have Goldman’s name attached to it. The risk here is that public sentiment finds a target for its ire, rather than a generalized hatred of everything Wall Street.

The fraud charges against Goldman have legs due to the negative social mood and the bad publicity the firm has received over the past two years, but this also means it will spread far beyond Goldman.

Amir Efrati of the Wall Street Journal lays out the argument in Why the Goldman Story Has Legs:

First off, Goldman has been feeling heat in recent months amid record profits and revelations of their wild success amid the credit crisis, which hit other Wall Street firms hard. To say the firm had a target on its back, politically speaking, is an understatement. An hour after the suit was filed, Goldman shares were down 13%.

Second, the SEC also has been under seige in recent months for, among other things, perceived failures to catch Ponzi schemer Bernard Madoff and some high-profile litigation trip-ups, including its failed insider-trading case against Mark Cuban. If the Goldman case is successful, it could help rebuild the agency's reputation.

Third, the case filed by the SEC prominently features hedge fund Paulson & Co., led by John Paulson, who made the "Greatest Trade Ever” by betting against the mortgage market. His firm earned $15 billion in 2007 alone.

The SEC's case focuses on a single transaction structured by Goldman, for which it allegedly earned $15 million in fees from Paulson.

Generally, I would view this news as bullish. Government is so slow that by the time it acts, the public and the markets are about to or are already moving in the opposite direction. However, I expect that at the very least, this is the tip of the iceberg. When the charges really start to fly, then it may be near at least an intermediate bottom.