Tag Archives: Trading

Roubini: Significant Risks Of Gold Correction

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Downside risks to gold, writes Nouriel Roubini at The Globe and Mail:

“But, since gold has no intrinsic value, there are significant risks of a downward correction. Eventually, central banks will need to exit quantitative easing and zero-interest rates, putting downward pressure on risky assets, including commodities. Or the global recovery may turn out to be fragile and anemic, leading to a rise in bearish sentiment on commodities – and in bullishness about the U.S. dollar.

Another downside risk is that the dollar-funded carry trade may unravel, crashing the global asset bubble that it, with the wave of monetary liquidity, has caused. And since the carry trade and the wave of liquidity are causing a global asset bubble, some of gold’s recent rise is also bubble-driven, with herding behaviour and “momentum trading” by investors pushing gold higher and higher. But all bubbles eventually burst. The bigger the bubble, the greater the collapse.

Gold’s rise is only partially justified by fundamentals. And it is not clear why investors should stock up on gold if the global economy dips into recession again and concerns about a near depression and rampant deflation rise sharply. If you truly fear a global economic meltdown, you should stock up on guns, canned food and other commodities that you can actually use in your log cabin.”

Soros, Paulson etc. Under DOJ Probe For Destabilizing Euro

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Yes, indeed. One for the good guys!

“The U.S. Justice Department has launched an investigation into whether heavyweight hedge funds including Soros Fund Management, SAC, Greenlight Capital and Paulson & Co.  aggressively shorted the euro in recent weeks to destabilise it, the WSJ reported on Wednesday, citing people familiar with the matter.

According to the paper,  the department has asked hedge funds to retain trading records and electronic communications relating to the EU currency which needless to say has come under strong selling pressure as a result of the Greek debt crisis. The euro has lost more than 10% since November. It currently trades at $1.3609….”

More at the Wall Street Journal.

I blogged a few days ago about David Einhorn’s holdings, noting his anti-Euro trade; I also noted that without the raids against Allied and Lehman and without his late-in-the day piling onto gold, Einhorn’s record really isn’t as impressive as all the hype about his abilities would lead you to believe.

What David Einhorn’s Holding

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From Market Folly comes a break down of controversial hedge-fund manager David Einhorn’s portfolio:

Top 15 holdings by percentage of assets reported on his 13F filing

Pfizer (PFE): 7.64%
CareFusion (CFN): 7.32%
Cardinal Health (CAH): 6.86%
Teradata (TDC): 6.56%
URS (URS): 5.78%
Gold Miners ETF (GDX): 5.58%
Wyeth (WYE): 5.35%
Einstein Noah Restaurant (BAGL): 4.97%
EMC (EMC): 4.75%
Aspen Insurance (AHL): 4.22%
Travelers (TRV): 4.04%
Microsoft (MSFT): 3.39%
Everest Re (RE): 3.22%
McDermott (MDR): 3.17%
MI Developments (MIM): 2.93%
Note:

This doesn’t include:

1. Cash
2. Short postitions
3. Non-US equities

Other things to note:

1. Health care holdings, CAH and HNT, both got larger allocations (friend and colleague, Dan Loeb also added HNT to Third Point’s portfolio) and a new position was opened in CFN (CareFusion). Taken together with the fact that the largest holding for both Einhorn and Loeb is PFE (Pfizer), this makes medicine/health their biggest play.

2. Einhorn sold out of energy and upped his stake in MSFT (microsoft) a lot.

3. Besides GDX, Einhorn is also in physical gold, which is one of his largest holdings. It’s invisible in the list above, because it’s not disclosed in 13F filings.

4. Short the rating agencies, credit-sensitive financial institutions and REIT’s with cap rates of 6% and dividend yields of under 5%.

5. Greenlight, like Steve Cohen’s SAC and Soros, is also jumping into the anti-Euro trade, reports silobreaker, citing the Wall Street Journal.

As for Greenlight’s past performance, here’s a chart in percentage terms of Greenlights performance, from Gurufocus:

YR        GL(%)   S&P     Excess Gain

2009     32.1    26.5.    5.6

2008    -17.6   -37      19.4

2007    5.9      5.61      0.3

2006    24.4    15.79    8.6

2005    14.2    4.91      9.3

2004    5.2      12        -6.8

What’s interesting in this chart is Einhorn’s bad showing in 2004 and 2007, years in which most people did well, or at least, stayed out of trouble, since the market was still receiving the benefit of Federal “juicing.” Also notable is  2008, when, had it not been for the controversial and possibly criminal Lehman raid, Einhorn would’ve been even worse off. He would probably have been as much down as the S&P.

Finally, without the johnny-come-lately piling onto gold, last year, 2009, wouldn’t have been a good year for Einhorn, either.

Financiers Used 9-11 Diversion of FBI to Loot American Middle-Class

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Great interview at Forbes, between Steve Forbes and Senator Ted Kaufman on the capital markets, naked short selling, the uptick rule, sponsored access, HFT (high frequency trading) and digitalization, dark pools, and fraud…

“Forbes: Finally, Fraud Enforcement Recovery Act.
Kaufman: Yeah, yeah.
Forbes: You’re proud of it.

Kaufman: Yeah, I am.

Forbes: What it does, and what will it do?

Kaufman: OK, here’s what it did. After 9/11, we moved a lot of FBI agents over to cover terrorism, which we should have done. But we left only like 250 FBI agents in the country to cover financial fraud. We did more financial fraud cases in 2001 than we did in 2007, can you believe that? So, what we did with this financial and regulatory forum, with Pat Leahy, who is chairman of judiciary committee and Chuck Grassley, an Iowa Republican. It’s a bipartisan bill and we got a bill passed to give us more FBI agents, give us more prosecutors and to go after these folks. And so that’s basic what we passed, and we’re getting organized. Had a really good hearing of the judiciary committee. Rob Khuzami at the Securities Exchange Commission, Lanny Breuer’s head of the criminal division, Kevin [Perkins] from the FBI financial thing.

And we’re really, we’re going after this thing. And I know you agree with me. You know, if you, the folks that committed crimes while this thing was going on, we can all argue about what caused it or not, anybody who took advantage of this situation and lined their own pocket for it should go jail.”

The Corporate Media: Suffering From Truth Emergency

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We have an elite that has a stranglehold on what gets heard through its grip on professional societies and the major print and TV news. Prizes, media attention, peer approval go to very few media outlets. It’s well- known that only reporters and columnists at a handful of papers get serious attention. That’s a truly dangerous state of affairs and we’re suffering the fall-out from it. What makes it even worse is that news itself is more and more swept aside by trashy, sensation-seeking reporting, which leaves the audience with misinformation or simply a great black hole of ignorance.

Mickey Huff and Peter Phillips analyze the “truth emergency” ravaging the corporate media in the West (and to a lesser degree, everywhere):

“Truth Emergency: Keeping the Facts at Bay

The truth comes as conqueror only because we have lost the art of receiving it as guest.
– Rabindranath Tagore

What are some of these truths, that not knowing them creates a literal state of emergency for human society? Here are two of many possible examples. A 2008 report from The World Bank admitted that in 2005, over three billion people lived on less than $2.50 a day and about forty-four percent of these people survive on less than $1.25. Complete and total wretchedness can be the only description for the circumstances faced by so many, especially those in urban areas of so-called developing nations. Simple items Americans take for granted like phone calls, nutritious food, vacations, television, dental care, and inoculations are beyond the possible for billions of people.6

In another ignored but related story, Starvation.net logged the increasing impacts of world hunger and starvation. Over 30,000 people a day (eighty-five percent of children under five) die of malnutrition, curable diseases, and starvation. The number of deaths has exceeded three hundred million people over the past forty years. These stories should be alarming headlines, certainly more significant than celebrity tripe and tabloid hype.7

Continuing on the theme of human poverty and its ramifications, farmers around the world grow more than enough food to feed the entire world adequately. Global grain production yielded a record 2.3 billion tons in 2007, up four percent from the year before, yet, billions of people go hungry every day. The website Grain.org describes the core reasons for continuing hunger in a recent article “Making a Killing from Hunger.” It turns out that while farmers grow enough food to feed the world, commodity speculators and huge grain traders like Cargill control the global food prices and distribution. Starvation is profitable for corporations when demands for food push the prices up. Cargill announced that profits for commodity trading for the first quarter of 2008 were eighty-six percent above 2007. World food prices grew twenty-two percent from June 2007 to June 2008 and a significant portion of the increase was propelled by the $175 billion invested in commodity futures that speculate on price instead of seeking to feed the hungry. This results in erratic food price spirals, both up and down, with food insecurity remaining widespread.“

My Comment:

Some of this commentary of course paints speculation with too broad a brush. Futures markets can, and do, provide efficient allocation of resources if they function as they should. The problem is not the futures market but the corruption of the market and the constant meddling in it by the state, which blunts the normal checks that the market would otherwise provide.

And again that goes back to public culture and professional standards that have become debased. The deeper question is how they became debased.

Which, of course, leads us to the government’s manipulation of the interest rate. That is where the problem lies.

But meanwhile, where is the media in all this? Providing the context so people can understand what’s going on?

No. It’s rooting around in John Edward’s trash can……

Hedge Funds: Top Ten Earners in 2007/2008

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New York Magazine had a piece in 2007 that sorted the hedge-fund elites into categories like “brainiacs” (like James Simon and Jim Chanos) and “bad boys” (like Daniel Loeb).

The category “Top dogs” (that is, the very best hedgies) includes SAC Capital Advisers/Steven Cohen ($12 b); Cerberus Capital/Stephen Feinberg ($19.5 b); Appaloosa Mgt/David Tepper ($5.3 b); ESL/Eddie Lampert ($18 b); Citadel Investment Group/Kenneth Griffin ($13.5 b); Manhattan/Michael Novogratz ($4.6b).

[Note: the figures were as of 2007].

This is the short list of the managers whom the industry thinks are top dogs, and of these six, one (Feinberg) is directly connected to Drexel Burnham Lambert, convicted junk bond financier Michael Milken’s bank; another (Cohen) is connected indirectly to Milken through Gruntal & Co.; and three are alumni of Goldman Sachs(Tepper, Lampert, Novogratz).

Five out of six and that’s just a cursory examination. I didn’t do anything more than google to get that.

And the financial press thinks there are no Sith Lords?

A more conventional ranking is found below: Continue reading →

Sad SAC: Reuters Spikes Hedge Story On Complaints From Steve Cohen

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Via Finalternatives:

“Reuters opted against running a story about alleged insider-trading on the part of SAC Capital Advisors founder Steven Cohen after Cohen himself complained about the news agency’s coverage, a journalism blog reports.

Cohen repeatedly called Devin Wenig, CEO of Thompson Reuters Markets Division and the second-in-command at Reuters parent Thomson Reuters, according to Talking Biz News. The hedge fund boss reportedly complained that the story, which the University of North Carolina blog reports would have been an “incremental” advance in the story of alleged insider-trading more than 20 years ago, was part of a pattern of persecution on the part of Reuters.

Wenig forwarded Cohen’s complaints to Reuters editor-in-chief David Schlesinger, who in turn referred the story to editors. Those editors debated the story, written by Matthew Goldstein, before deciding to kill it after three days.

“We make decisions on whether or not to run stories purely on journalistic grounds,” a Reuters spokesman told Talking Biz News.

Goldstein was the first reporter to cite the unsealed court documents that include explosive allegations against SAC and former SAC portfolio manager Ping Jiang. Cohen’s ex-wife, Patricia, last week sued him for $300 million, accusing him of insider-trading, perjury and hiding assets from her and from the authorities.”

My Comment

Looks like more confirmation of the Deep Capture thesis – that major newspapers are bending over backwards…and forwards….for the big hedge funds.

I notice that Hedge World has picked this story up….as well it should, it’s a big one… and very kindly links this blog, as well as the ever-alert zerohedge – the only MSM-touted blog I truly dig, mainly because I dig the characters on it.

Earlier, I blogged that Steven Cohen was also having problems with a militant ex-missus, who has gone public with allegations that he perjured himself, hid money from the government (here we are on Stevie’s side), and did other sorts of naughty things, like insider trading, that reclusive billionaires really shouldn’t do, not if they want to stay either reclusive or billionaires.

We have much more sympathy for Mr. Cohen, of course, than we do for the self-important twits and petty tyrants who fly their bylines at major newspapers with little respect for the body politic. At least, we understand simple greed. But the weedy vanity of the pen-pushing mob needs to be exposed for what it is. 

Now comes Mr. Goldstein, who clearly suffers from the delusion that his job is to break important stories, no matter how exalted the net worth of the subjects. That didn’t sit well with his boss, and now the dirty laundry is out in the open.

Meanwhile, as if irate Sith ladies and spiked stories weren’t enough, there’s also a forced oral sex- cross-dressing- cum- sexual-harassment suit coming back from the past to haunt Sad SAC.

Who knew you could have so much fun without getting naked (shorted)?

SEC To Look At High-Frequency Trading and Naked Access

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From Reuters, a report shows sharp rise in “naked access” to markets after 2005:

“NEW YORK (Reuters) – A report says that 38 percent of all U.S. stock trading is now done by firms that have “naked sponsored access” to markets, the controversial trading practice said to imperil the marketplace, and which faces a regulatory crackdown.

Naked access gives trading firms, using brokers’ licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.

Aite Group, a Boston consultancy, found that naked access accounted for just 9 percent in 2005.

The U.S. Securities and Exchange Commission is set to make changes to naked access and less risky forms of so-called sponsored access, when it releases a document expected next month.

The document is also expected to look more generally at high-frequency trading — where proprietary trading firms, brokers, and others use algorithms to make markets and profit from narrow market inefficiency.”

Gold Down On Biggest Volume In History..

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Via Economic Policy Journal:

“The exchange-traded fund, SPDR Gold Shares, that holds gold bullion was down 5% Friday afternoon on record trading volume as the gold price fell. More than 70 million shares have traded hands with an hour of trading to go. It’s the highest volume in its history. The gold ETF was launched in late 2004 and has assets of more than $40 billion”

China Warns of Gold Bubble

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The Telegraph reports that China warns of a gold bubble:

“Experts say that China is putting a floor under the gold price but does not chase rallies once they are under way.

There is also a double-edged twist to news that Barrick Gold, the world’s biggest gold mining company, has closed the final 3m ounces of its notorious hedge book ahead of schedule. While the move is a bet that prices will continue to rise, it also means that Barrick has been a big buyer of gold lately. These purchases have now stopped. One of the key drivers behind the spike this autumn has been removed.”

This article is one of the few out there that takes into account the time lag between an announcement and an action. Many of the events that reporters tout as proof that the gold price will spike much higher right way are actually events that have taken place in the past – for eg., purchases at lower prices – or are hedges that have a more complex function than the usual retail investor has in mind, with the siren call of “gold´s going to the moon, jump in now or you´ve lost it forever” sounding in his ears.

Take trader  John Paulson´gold purchase.  It took place in January, apparently. And remember that it was a position taken by his hedge-fund, with his clients money. Paulson gets his fee no matter how that trade turns out long term, and if his fee is a percentage of the assets under management, a purchase when the price is high is better than one at rock bottom, even if his clients´profits are not maximized that way. (sorry: thoughtless blunder there)

Notice finally that Paulson´s own fortune is in gold to a much lesser extent – only about $250 million of his reported $6 billion net worth. That comes to about 4% of his assets….(Correction: that´s 6.8 billion and less than 4%)

Not an earth shaking proportion by any means.

So, what gives?