I'm sure many of you have read this, but if not, give it a look. All I have to say about the matter is this - This article makes it clear what Goldman Sachs is, and what it has become. While trying to facetiously corner the world market and help create the biggest transfer of wealth in decades, Goldman ended up losing the one thing it will never regain no matter how many fancy lawyers it hires, no matter what they say (or don't say, which seems to the posture they've taken), their reputation has been tainted for ever. They no longer hold he image of success; for the people of the world, they hold the image of everything that corruption is. Such doesn't it (for Goldman)? Well, get used to it. You help create this mess, you rightfully deserve the blame (and so to all the financiers). 

Why I Am Leaving Goldman Sachs

Excerpt - 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. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

Link -  http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?_r=2&ref=opinon

You're mostly welcomed. 

Quote:

Originally Posted by Tails 

 

I read this three times.  Thanks!  Very helpful!
 

 

Rando,

Did you write that? If so, you ask some key questions that I think everyone ought to ask themselves not just in regards to the Dollar, but in other markets as well. I've found that in asking questions in just about anything, it leads allows me to have a much better and understanding of whatever it is that I am investigating. After all, all good investigations start with an inquiry. 

On any rate. I've long documented what I think will happen to the U.S dollar long term. I think the DXY will trade below 70 as we approach 2020. The Federal Reserve's ongoing print out of digital money and lack of commitment (via the zero percent interest rate policy) to its mandate -  price stability and 'full employment', is what has sealed the fate of the U.S dollar. Whether the Dollar gets replaced with another currency at some point in the future remains to be seen. I think there is a strong possibility of it happening if rates are ketp at or near zero (i.e. below 1%) through 2014. Keeping rates that low will not only cause a massive outflows in savings from the Dollar and other dollar denominated assets (even with the lingering European woes) and into other currencies, but it will create bigger imbalances in trade. A weak dollar is beneficial for multinationals to an extent. If the Dollar weakens further, or worst, breaches the 2011 lows, companies will no longer benefit from the offset that it gains via the currency swap (price difference) that it enters. Furthermore, if dollar weakens further, it directly affects the companies bottom line. While costs do go down, prices go down more. In other words, the decline in prices leads to a decline in the marginal product since the price of inputs decline. This will eventually lead to falling revenues and you guessed it, falling margins. It is also worth mentioning that banks and other hedge funds will also be hurt because they will no longer be able to engage in risk arbitrage transactions. There is a whole lots more to do this that what you and I discussed, but generally speaking, the U.S needs for the dollar to firm some from here, not weaken.

Short term, the DXY placed a cycle low at the end of September of last year just as markets bottomed. The rise in the DXY and the S&P back then was an outlier in the sense that ir brook the inverse correlation that existed between the two. This is why I've been saying that most hedge funds likely entered a costless trade by going long U.S equity, long European equity(on margin) and long U.S Dollar. I twas a trade based on a slighter stronger U.S trade and a weaker European counterpart. Going forward, the DXY will place another cycle low sometime in the middle of April. IF that cycle fails to hold, meaning the DXY breaks below some key levels, namely the 50 DMA, I think the 2011 lows will be revisited, risk assets will continue to be the investment of choice of many, and bond prices will fall notably. that said, I think the DXY will hold onto that cycle low and hold the 50. FOr the DXY to trade higher, it needs to break that 84.50 pivot. 

Great article by Matt Taibbi. Take the time to read it, digest it, and take it in. If you can, share it. of America: Too Crooked to 

The bank has defrauded everyone from investors and insurers to homeowners and the unemployed. So why does the government keep bailing it out?

Excerpt - At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.

Read more: http://www.rollingstone.com/politics/news/bank-of-america-too-crooked-to-fail-20120314#ixzz1plD32yHy

Recent interview with Matt Taibbi. 

I encourage everyone to read the article I posted above and share it with people. Its a bit long but definitely worth your time. While Taibbi uses some provocative language to say the least, I think the guy nailed in his description  of Bank of America's crony actions. More than that, I think he does a marvelous job in accurately describing the horrid culture of Wall St. 

Now do you understand why Obama is the guy for the job, again?

Excerpt - In the end, says Mehta, Bank of America's fraud resulted in "one of the biggest reverse transfers of wealth in history – from pensioners to financiers. What the 99 percent should understand is that Wall Street knowingly inflated the bubble by engaging in rampant mortgage fraud – and then profited from the collapse of their own exuberance by devising a way to shift the losses to countless pension funds, endowments and other innocent investors." The assembled worldwide collection of swindled pensioners and unions and investors is a little like the crowd that storms the basketball court in the Will Ferrell movie Semi-Pro when the home team's owner welshes on his promise to hand out free corn dogs if the score tops 125 points. Corn dogs, Bank of America! Where are the freaking corn dogs!

Read more: http://www.rollingstone.com/politics/news/bank-of-america-too-crooked-to-fail-20120314#ixzz1plhhlHDo

Interview

Another good read. But the one ya'll should read is the BofA one. Taking a break from the markets and boards. Catch ya'll on the flip side. 

J.P. Morgan Chase's Ugly Family Secrets Revealed

Excerpt - The Cliff's Notes version of the story goes something like this: Late in 2009, Chase's credit card services division sold a parcel of nearly $200 million worth of credit card judgments to a debt collector at a discount. This common practice in the credit-card industry is a little like a bookie selling the outstanding debts of his delinquent gamblers to a leg-breaker for 25 cents on the dollar. If the leg-breaker gets half the delinquents to pay, the deal works out for both sides -- the bookie gets 25 percent of money he wasn't going to collect, and the leg-breaker makes a 100 percent profit.

Read more: http://www.rollingstone.com/politics/blogs/taibblog/j-p-morgan-chases-ugly-family-secrets-revealed-20120313#ixzz1pmiYVmYt

It's been a long time since I last posted. I don't know how much time I'll have to spend sharing my thoughts but I'll try to post anything that I feel as relevant. On that topic, it looks like this thread along some of the other threads I used to post on have been thrown on the waste side. On any event, I found this neat blog a few days ago that has some very good info on market allocation, risk, investment and a few other tidbits that prove useful for anyone who is serious about the markets. Pay particular attention to the blog entries titled - 'slew and risk', 'derivative optimization', and 'adaptive percentile position sizing'. I know Rando and a few others will view this as insightful. 

Here is the blog entry for the entry titled 'derivative optimization'. For all other entires, followed the link below.

http://cssanalytics.wordpress.com/ 

Asset allocation receives much of the focus in the literature for optimization. Whether it is Minimum-Variance, Risk-Parity or Mean-Variance, we think of these tools as suitable primarily in the context of asset allocation. While these are key concepts to understand to be successful, they represent the tip of the iceberg in the quest for efficient alpha (arguably beta) generation.  The underlying logic and mathematics of these algorithms are behind many of the classic forecasting methods such as linear and non-linear regression. Since the goal of all trading should be to either efficiently react or predict the time series in question, the concepts of portfolio optimization should be useful at all levels of an intelligent trading machine.

What does that mean? Consider a host of simple “Level 1″ examples: there are free parameters in any asset allocation optimization model, and in practice many of us will knowingly or unknowingly optimize these free parameters based on our backtesting observations. Why not let the same optimization tools be used for these purposes as well– certainly we don’t attempt to backfit the portfolio selection over time, so why try to do the same for say the lookback length of the free parameters of the asset allocation model. I could use Mean-Variance to find the best free parameters (eg 20-day ,60-day, 120-day lookbacks etc) and weight them accordingly. In a more counter-intuitive example I may wish to use Risk-Parity to create a “parameterless” model that distributes the risk of the different lookback lengths  for a Risk-Parity approach. In doing so, I create an arguably more unbiased and more robust portfolio. Taking this a step further, I could use Risk-Parity to allocate to different moving averages strategies for a single asset to create one composite and unbiased signal (or you could use mean-variance as well).

The latter example is akin to a form of “derivative optimization” where the goal is to efficiently use a set of derivatives -indicators on the underlying time series- to either create a forecast or trade the time series itself. From a system developer’s standpoint this sounds a lot like strategy allocation, and truthfully this is somewhat the case but there are nuances involved. Derivative optimization (my own terminology) considers the broadest range of alternatives and focuses on simultaneously synthesizing predictors for a time series. The input to derivative optimization is a set of sample parameters and indicators, and the output is a final predictor. In contrast strategy allocation often represents the tactical allocation to a collection of a set of “mined” strategies that have also been refined into the final form of a trading system. These systems can be either simple or very complex, and can possibly trade dozens of markets or potentially even one market in isolation. The latter is vastly more difficult to combine effectively since there are substantial non-linearities in complex strategies, plenty of data-mining bias, a greater tendency towards over-fitting , and more insidiously there is the impact of information loss. In contrast, derivative optimization offers the promise of being able to control for some of these weaknesses and give greater insight into the drivers of final performance.

The benefits of derivative optimization are substantial– one can theoretically improve every area of a given model by segregating it into the  unique process inputs that can become adaptive. At the limit, such a model becomes increasingly self-aware and can change or modify itself to increase the chances of performing well over time. An efficient model will operate as a parallel network and share information accordingly to accomodate the interaction between process inputs. It will also use the broadest range of ingredients and mathematical transforms/indicators possible to create unique predictors. Perhaps it can eventually perform the latter tasks on its own…….. The use of derivative optimization is a key step towards taking the “dumb” and “naaive” out of quantitative models and moving closer towards the “Watson” and “Big Blue” of the investment world.

The following blog entry (shown below) by Mish highlights two important points - it provides concrete evidence of what course will ultimately be taken in Europe and the world in the coming years, and to a far more extreme level, it shows how word manipulation combined with a constant influx of misconstrued stories have caused mass confusion among the people with the end purpose of allowing each individual to create his/her own fictional account of what they think is going on (i.e. allow them to live in a world hey they believe to be real since no sensible fact has been presented that will allow them to make sense of what is truly going on). For starters, no one knows what exactly is going in Europe. One day the headline reads - ‘EU Weighing Greece Exit’, and the other it reads ‘EU and ECB committed to keeping Greece in the EU’. The two binary headlines are there to create meaning. It is from this unbalanced, unfettered  and fictional headline that people begin to create misconstrued realities as a way to fill the void (i.e. the fact that has been hidden from almost every single headline). 

On any event, Dallara, arguably one of the heads of this power grab has repeatedly made it clear what the intention of the greater powers at bay are - to unify not just the European union but the world. For what purpose? To consolidate the people into dissectible masses. It is here were most, but not all of the world financial woes will be resolved. With ‘unification’ (and this is the key word), the leaders will sell the point that the only way to consolidate the debt that has plagued the world and therefore resolve the financial problems, is to unify the world into regions, unions, districts be it what it may. People, without much choice, will unknowingly move towards this centralized society in act of desperation. Remember that fear is what deprives people from their rightful being, and forces them to act in the most of irrational ways. Look no further at how fear played, and ultimately shaped the world back in 2008 with the introduction of all these unlawful amendments and reforms (Do any of you realize that nearly 2,000 new laws were passed between 2007 and 2010!). On any case, the path has been laid out. While to many it has not become evident just yet, it is clear for some what will happen. The world will get unified, meaning that only a few standing currencies will be left as a way to consolidate the debt, but again, as a way to have better control of the people. This, while certainly an outcry of what has been advertised on TV day in and day out with the confusing, rapid changing headlines and worthless news ploys centered around a consumer sucked world, is a sensible conclusion that I am confident will happen, just as I called for the commodity bubble between 2009 - 2011 and market bottom. I do not take pride in these calls, I just want people to understand that in between all the noise out there, the very people pulling the strings are letting you know what is going to happen. You simply need to have open ears, eyes and mind to let it sink in. The world is being transformed before our very own eyes. We allowed this to happen and if you continue to choose to look the other away and live in your fictional world, so be it, but don’t expect to be helped once it is all set and done.  

Ask yourself this. Do you really think the current assault on the world (economically, socially, politically, etc) happened all of sudden because it just happened, or was it the result of years of faulty policy making with the end result if driving the world to the brink? These type of events take decades to accomplish. 

From Mish’s blog - "ECB Will be Insolvent and Costs May Exceed 1 Trillion Euros" Says IIF Director; If the ECB Prints, Would Germany Exit the Euro?

According to IIF director Charles Dallara in a Bloomberg interview, "ECB will be insolvent if Greece were to exit the euro. Europe would have to first and foremost recapitalize its central bank." 

The cost of Greece exiting the euro would be unmanageable and probably exceed the 1 trillion euros ($1.25 trillion) previously estimated by the Institute of International Finance, the group’s managing director said.

The Washington-based IIF’s projection from earlier this year is “a bit dated now” and “probably on the low side,” Charles Dallara said in an interview in Rome today. “Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again.” 

The European Central Bank’s exposure to Greek liabilities is more than twice as big as the ECB’s capital, said Dallara, who represented banks in their negotiations with the Greek government on its debt restructuring. As a result, he predicted the bank would be unable to provide liquidity and stabilize the euro-area financial sector.

“The ECB will be insolvent” if Greece were to exit the euro, Dallara said. “Europe would have to first and foremost recapitalize its central bank.” 

In February, the IIF estimated that Greece’s liabilities, in the event of a euro exit, could be crippling. “It is hard to see how they would not exceed 1 trillion euros,” the group said in an internal Feb. 18 report that hasn’t been made public.

It’s not clear whether Spain will need a bailout as it seeks to help its banks weather the euro crisis, he said.

“The only way to help markets see past that obscurity is to remove the cloud of uncertainties of national fiscal position and move toward unification,” Dallara said.

Note: Here is were I believe Mish is wrong. There will be unification. Maybe not right in this very instant, but certainly within the next 6 - 18 months.

Arthur - I’m doing well thanks for asking. Hope all is well in your neck of the woods. I’ve been busy ironing out some items on my ‘to do list’ which is why I haven't had the time to post much if at all. How has trading been for you lately? Found any worthwhile investments, trends or cycles worth sharing?

With this thread falling by the wayside and the forum morphing into a venue were people blast each another as opposed to sharing credible information that can be used make better investment decisions, it has shun many (myself included) to post. With that said, here is my view for what its worth. The United States, for all the problems that it has, and it has quite a few that have not be addressed let alone resolved, remains the best place to invest. With yields on most bonds yielding no more than 1.5% (except for Spain, Italy, Greece, Hungary and other beleaguered countries that are yielding north of 6% for 10 year debt, an investment that I wouldn’t want to take given how unstable the global macro economic looks 10 years out not just in those periphery countries but across the world), low yields on savings, financial instruments and other money market instruments, the U.S stock market remains the only sensible place to put money to work for most (real estate is now becoming a good long term investment but only if you have a lot of cash on hand - i.e. only if you have $250K and upwards free in cash at least). Now, if people decide to invest in the market they need to understand that there is risk to be had, but not to degree of say a 10-year Spanish bond. The fact that there are more and more people attempting to normalize a return in the market makes it more difficult since there is a greater number of people involved (despite what you are told on TV) but trading with a lower dollar amount. On any rate, there is certain value to be had if you know were to look. With that in mind, I wouldn’t get overly optimistic on U.S equities for the simple fact that at some point, and that point is fast coming, central banks will not be unable to sustain asset prices via liquidity measures once we enter a negative rate environment (i.e. if the fall in bond prices exceeds the coupon income from the bond). Remember that the Fed is trying to keep inflation in check by targeting a 2%~ inflation rate. Too high of an inflation rate puts pressure on bond prices which causes yields to spike and make the already sky high debt unserviceable in the latter years and make bond a less attractive investment choice especially in a low rate envrionment, while deflation forces the hand of the Federal Reserve and other central banks by essentially allowing the debt bubble to go bust and allow asset prices to return their market level were that level is will only be known once the market settles it. Let’s not talk about disinflation for simplicity sake. The problem of targeting inflation between 1% - 2% is that it discentivices people to invest and save. What it does instead is it forces people to pay down debt (but only at a fraction of the outstanding balance which is growing at a faster rate, so any payment over time would be rendered useless) or spend it, but again, at a smaller amount as the years pass by (because of that lack of income growth). 

So with that, its hard to see equities go gangbusters anytime soon. I think a big correction will come in 2013 and into 2014. Exactly what part of the year is still to be determined, but I think the S&P will trade below 1000~. We will obviously get some type of intervention which could push market to new highs, but you have to be careful on that last ‘boom’. With less money being recycled into the economy, specifically of an aging baby boom generation and a bust ‘Y generation’, corporate earnings will simply not be what they once were for most firms. Its true that markets these last few years have been a function of monetary policy intervention rather than corporate earnings, but with each liquidity program having a smaller and smaller impact on the markets, the day of reckoning will come; it has to come. There will be no other way for people to realize how they were the bubble and contributed to a broken system that was there to deprave them, rather than to nurture them. Its the only way the world will return to a normal state, period. Its the price everyone has to pay for living in lala land for far too long.  I could very well be wrong. I’ve been wrong way too many times before but from what I see, a heightened period of volatility is here to stay not just in global markets, but in just about everything that makes us and surrounds us.