Bill Cara’s Blog for April 16, 2010 [See post-close report]

Good morning.

Awesome Morning Call, Bill.

New Coverage:

MA - FBR Initiates with an Outperform. PT = $300
MSFT - Janney Montgomery Scott Initiates with a Neutral.

PT Changes:

AAPL - PT Raised from $265 to $285 @ Oppenheimer. Outperform
GOOG - PT Lowered from $740 to $725 @ Kaufman Bros. Buy
MICC - PT Raised from $90 to $102 @ Morgan Joseph. Buy

But I don't believe Dick Armey, nor anyone else seeking power/control wants financial transparency.....

I dont want to get all political, but God help us if Palin is our president:

http://www.youtube.com/watch?v=xRkWebP2Q0Y&NR=1
http://www.youtube.com/watch?v=XbQwAFobQxQ

BA - estimate tweaked at Barclays. BA 2010 EPS estimate lowered to $4.20 from $4.40 due to the elimination of the Medicare tax benefit. Maintain Overweight rating and $87 price target.

BUCY - PT Raised from $75 to $90 @ Longbow. Buy

EXC - Downgraded at Wells Fargo from Market Perform to Underperform. Estimates also cut, as the company is facing lower forward power prices.

GOOG - target, estimate higher at BofA/Merrill. GOOG price target raised to $685 from $670 as rest of world growth will catch up to US/UK. 2011 EPS estimate lifted to $31.25, 2010 held at $27.77. Reiterate Buy.

GOOG - target, estimates cut at Barclays. GOOG price target lowered to $650 from $675. Shares likely to be range-bound until we see revenue reacceleration. 2010 and 2011 EPS estimates trimmed to $27.89 and $32.36, respectively. Overweight rating.

GOOG - estimates, target raised at Government Sachs. Shares of GOOG now seen reaching $680. Estimates also increased, given accelerated U.S. growth. Buy rating.

IBM - Collins Stewart Initiates with a Buy. PT = $160

SCHW - target upped at Government Sachs. SCHW target was increased to $20. Company is positioned well for higher interest rates. Neutral rating.

WHR - rated new Buy at Government Sachs. $106 price target. Exposure to Brazil is favorable and the company also offers a dividend.

WMT - target boosted at UBS. WMT target was raised to $70. Company is addressing headwinds and should begin to trade on 2011 numbers. Buy rating.

XOM - Upgraded to Outperform @ Raymond James. PT = $80

consider the agenda of the source on this one...

Have a agree with Bill's comments: "does anybody really think that these two would not be puppets just like Obama?"

Although pleasant and refined... as all politicians

Yeah, very true. But it would really pain me to have to see her talking every day. I'm not opposed to any woman running the country, just opposed to anyone with a lack of intelligence running it.

if MON hits the $ 60.50 area....

TOF got some new ones for you, NEWN.ob, nice earnings guidance 1.27 this year, good balance sheet should be uplisting moving today, NEXT is ccme, media company selling at pe 6 and just signed deal today. Went to GEOinvesting web site have nice layout of ideas that you can then do dd on.

Looking at REDF, keeps hitting up against 2.89 mark, are they coming with earnings soon? possible accumulation

WHat I like about these companies is they have earnings, have ridiculous growth prospects, if the market gets more comfortable, they will assign normal pe's to them even a 10 multiple will make some of these move alot

Will they subpoena God?

are more rats than Goldman that will be flushed out.... Finally, the SEC grows a pair...

Is this the Paulson & Co that has been widely reported to have now taken a very large position in the Gold Market?

Betting he will be forced to sell....

well i had a chance if this whole GS thing didn't come out. oh well, it was worth a trade.

EDIT:
Stopped out of GOOG at $559. Stepping aside for this GS nonsense.

SEC: Continuing to investigate various products that led to the financial crisis - conf call
- In response to question asking whether other banks may be implicated for similar activities as those by Goldman

No Need to ask you any more "ARE WE THERE YET??" Do you agree?? :)

GS charged and gold falls? WTF?

its supposed to be the other way around, its supposed to be vindication for the gold conspiracy bugs!!!!

USD moving back up on all this bad news??? WTF? how could this happen... the US dollar is supposed to plunge... WTF????

let this be a lesson to those who assume that price action should follow their assumptions when the reality is very often price action has already been baken in the cake.

volume on the miners during the recent run up was weak. we all saw that.
this signal was clear, that the rally had little legs as the USD failed to break down past support points and gold seemed to hover at key resistance points yesterday.

looking to reload if we move back towards $1110-1120 area, but not in miners, they will be killed during any ensuing market dump and not the place i want my money.

good luck.

nvm just going to keep on lurkin'.

Dollar moved into it's trading cycle low, and is poised to start a new cycle. Unwind of risk trades also helping the dollar.
This will mark 4 successful USD trading cycles and points to more gains.

Gold has possibly peaked 12/09 and is declining into the 9-year cycle low due in 2010. After that low is in place, it is poised to launch much higher, unless the new cycle fails.

The only lesson to be learnt here is that gold and silver are almost continually suppressed during NY trading. Had this GS news been issued during Asian trading, you can be certain that gold and silver would be sharply higher right now. For those without selective memories, when Bear Stearns collapsed over the weekend in 2008, gold and silver rocketed higher during Asian trading. However, when NY opened a few hours later, and for the next few days afterwards, gold cratered during NY trading only. Coincidence again???

Also, when gold and silver are not ferociously attacked in NY, they are typically capped as we saw repeatedly yesterday at the $1160 level.

11:53:47 AM
The Goldman Sachs Group Inc Responds to SEC allegations, calls charges "completely unfounded in law and fact"
- The SECs charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.

Hope everyone is doing well.

back in at $557. Seems to be forming a base.

12:26:37 PM
Advanced Micro Devices Inc Apple is in advanced discussions to adopt AMD chips - Apple Insider
- the report state AMD executives for the chipmaker have been spotted on their way out of meetings with members of Apple's top brass, according to people familiar with the matter.
- The meetings have reportedly included briefings by AMD that have since enabled Apple to begin working with AMD processors in its labs as part of an initiative to position the chips inside some of the company's forthcoming products. While AMD offers a variety of embedded processors, Apple is believed to be investigating the chipmaker's workstation and notebook class CPUs.
- It is believed that Apple is working with AMD to expand its potential sources for CPUs in order to increase its flexibility and broaden its competitive options, but also likely in response to problems it has encountered with Intel.

I am wondering if Paulson's foray in to GLD and select gold stocks is what is scaring people away from the metal and sector at all today.

Goldman Sachs or the SEC, most likely backed by the Obama administration, in releasing this immediately before financial reform regulation?

2 different Paulsons, no? (John the hedge fund manager and Hank the predecessor to God at GS)

ALOHA!!

I am pretty sure they listed "Paulson & Co". If so then that would be John not Hank.

jessies cafe breaks it down for all yall who were singing the praises of mr. paulson, the man who allegedly earned billions from "making right calls" on the mortgage market before moving into gold and setting up a "gold fund"

wonder why you go to the trouble to set up a gold fund when you can just buy gold if you are truly bullish on it? heres why: because theres more fast money in selling people the promise of gold than their is simply owning it.

http://jessescrossroadscafe.blogspot.com/2010/04/s...

who else can we cite as an expert and sing their praises when they speak well of gold?

The more I look at all this, the more I feel this is purely political show with no substance whatsoever.

http://www.gold-eagle.com/editorials_04/greene0321........ but personally. I always liked the character ' Jaws ' in ' Goldfinger '... !

Dave... my feeling is, it is aimed at starting to look tough, earning populist points, gearing for mid-term election and shooting across the bow to (attempt to) prevent vigorous lobbying against their version of financial reform.

As for conviction... it's a civil suit, not a criminal one. What can it actually result in? Fine, in case of the wildest success possible? Shrug.

Yes that feels right to me as well. Given the spectrum of responses from the government regarding this set of frauds that basically brought down the banking system, one civil suit 18 months afterwards seems like a relatively tame selection.

One could imagine another response - squads of FBI agents carting off boxes of documents and perp-walking high ranking executives from all of the major banks comes to mind. Failing that, perp-walking former executives from all of those bankrupted subprime loan origination companies might be a nice substitute. All I know is, someone should be perp-walked.

If a group of terrorists wanted to cause massive damage to the US economy they could not have done a better job.

Maybe this is the tip of the iceberg and other financial institutions are being worked up as we speak? Anything this president does is cast in a negative light, I see it as a good first step forward. It also happens to be a savvy political move but that is beside the point. Lets see what develops shall we

Is this what they look like?

Is the target Mr. Paulson's gold fund? Hoping to move supply onto the market?

"Maybe this is the tip of the iceberg and other financial institutions are being worked up as we speak?"

Nearly two years after the biggest financial crises causing record budgetary deficits; we get a civil lawsuit that hopes to slap the primary culprits on the wrist and levy chump change in fines and offer up one of their traders as a scape goat! The amount the SEC will receive in fines won't even pay their own costs involved in bringing this law suit. Call me Mr. Skeptical, but this is a f*&(g joke.

As I have said before, the admin and the duopoly (DEMS/REPS) are well paid prostitues. As long as they rule, there is NO chance for any serious change. Make change happen, don't throw your vote away - elect an independent/third pary that listens to the YOU not the special interest.

IMHO this will open the door for criminal prosecution as they may be able to get these guys to roll on the upper level managers etc.

http://answers.yahoo.com/question/index?qid=200905...

I'm guessing the best we can hope for is something similar to the investigation by the AG of New York regarding auction rate securities, and the settlements that came out of that. They'll work for a success in one company, and then threaten all the others with the same thing if they don't pony up some cash.

Hmm, this is sounding a little like a protection racket.

This is definitely not something that Vad teaches, but given the extreme butt whooping GS was handed it was likely to cause a reversal. I missed the 160 break called by another trader, but managed to hop on halfway up the track. Only other trades I play similar to that are on AIG, and they are downright gentle compared to the stop I had handed to me on the third attempt here. 2 and a half points in minutes ain't seen every day. This one goes in my scrapbook for keepsake. Bon weekend a tous.

4:06:05 PM

The Goldman Sachs Group Inc Makes further comment on SEC charges; notes it lost money on the transaction in question, made the necessary disclosures
**Comments:
- Goldman Sachs Lost Money On The Transaction. Goldman Sachs, itself, lost more than $90 million. Our fee was $15 million. We were subject to losses and we did not structure a portfolio that was designed to lose money.
- Extensive Disclosure Was Provided. IKB, a large German Bank and sophisticated CDO market participant and ACA Capital Management, the two investors, were provided extensive information about the underlying mortgage securities. The risk associated with the securities was known to these investors, who were among the most sophisticated mortgage investors in the world. These investors also understood that a synthetic CDO transaction necessarily included both a long and short side.
- ACA, the Largest Investor, Selected The Portfolio. The portfolio of mortgage backed securities in this investment was selected by an independent and experienced portfolio selection agent after a series of discussions, including with Paulson & Co., which were entirely typical of these types of transactions. ACA had the largest exposure to the transaction, investing $951 million. It had an obligation and every incentive to select appropriate securities.
- Goldman Sachs Never Represented to ACA That Paulson Was Going To Be A Long Investor. The SECs complaint accuses the firm of fraud because it didnt disclose to one party of the transaction who was on the other side of that transaction. As normal business practice, market makers do not disclose the identities of a buyer to a seller and vice versa. Goldman Sachs never represented to ACA that Paulson was going to be a long investor.

Continuing:

GS:
In 2006, Paulson & Co. indicated its interest in positioning itself for a decline in housing prices. The firm structured a synthetic CDO through which Paulson benefitted from a decline in the value of the underlying securities. Those on the other side of the transaction, IKB and ACA Capital Management, the portfolio selection agent, would benefit from an increase in the value of the securities. ACA had a long established track record as a CDO manager, having 26 separate transactions before the transaction. Goldman Sachs retained a significant residual long risk position in the transaction

IKB, ACA and Paulson all provided their input regarding the composition of the underlying securities. ACA ultimately and independently approved the selection of 90 Residential Mortgage Backed Securities, which it stood behind as the portfolio selection agent and the largest investor in the transaction.

The offering documents for the transaction included every underlying mortgage security. The offering documents for each of these RMBS in turn disclosed the various categories of information required by the SEC, including detailed information concerning the mortgages held by the trust that issued the RMBS.

Any investor losses result from the overall negative performance of the entire sector, not because of which particular securities ended in the reference portfolio or how they were selected.

The transaction was not created as a way for Goldman Sachs to short the subprime market. To the contrary, Goldman Sachss substantial long position in the transaction lost money for the firm.

The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

Anyone have any understanding as to why MON is down so much? It looks like its close to breaking support at around $63 on the longer term chart.

Yeah Dave,

Hopefully, NY State Attorney General, Andrew Cuomo, will be able to file criminal charges in this and other related cases.

It's too bad that the great State of New York doesn't have the death penalty.

Regards,
BH

Ross said: "The bankstas regulate the government, not the other way around."

You got that right. And IMHO, the bankstas control the market, the Fed and treasury as well. I use this thesis to formulate my investment strategy. Ever since the Fed took control of the financial system and proceeded to save the banks with our money and at our expense, I sought to answer just one question to determine if I should be long or short the market: What stock market outcome would be good for the banks?

And the answer was simple. A market going higher is better for the banks. It gives the appearance of stability, gives the banks a chance to recapitalize and if the economy heals, provides time for the bad bank assets on the Feds balance sheet to get less bad.

And I think this still holds true today. I do not see why a market downturn would be good for the banks. It would hurt the banks and hence they will not let it go down. With trillions of dollars sloshing around, coupled with the leverage these guys can use, it is easy for the bankstas to keep the market afloat. I see nothing but a shallow correction, if that, and remain invested.

Bill, I liked you suggestion to purchase ATM calls right now. Makes perfect sense. At the start of 2009, I purchased DITM calls and securities. ATM options prices were rather expensive at this time. When the VIX broke through 25, to reduce capital at risk, I slowly began converting these investments to ATM calls. At present, I have solid exposure to the market with less than 20% of my capital at risk.

Just now on CNBC: "Arrogance is not a crime" And more.

I don't watch much CNBC and especially not his show. But I turned it on just to see what he would be saying about SEC vs GS.

And what’s to be done about the failings over at the SEC?

This out today:

“The Securities and Exchange Commission knew that Allen Stanford was involved in a Ponzi scheme as far back as 1997”, according to a report released Friday by SEC Inspector General David Kotz.

The 159-page report said the scheme was able to continue for so long due to “institutional influences” within the SEC, and the agency’s desire to chase after slam-dunk cases.

The report also mentioned an SEC regional enforcement official who three times left the commission in an effort to represent Stanford, saying he was successful in one of these attempts.

http://www.youtube.com/watch?v=rolfj5MMBbA&feature...

MAG silver was up today the only one my silver table showed positive.

Christopher Barker writing at Fool.com a few weeks ago said that Fresnillo to develop its flagship Juanicipio property (which adjoins the world-leading silver mining camp that gave Fresnillo its name) has MAG Silver on the other side of the fence.

In December of 2008 Fresnillo ( The world's largest primary silver producer and Mexico's second largest gold producer, listed on the London Stock Exchange under the symbol FRES ) tried to purchase the 80% of shares it did not have. Listed in London it was cash and not stock. Last week they reported that first-quarter silver production climbed 3% to 9.5 million ounces compared to the same period last year, while gold production jumped 31.5% to 85,097 ounces.

Might they be buying on the market some of what they need?

Could it be a take over candidate once again after all silver had a thumping today and it was up.

I have a position in MVG.

Jon Stewart comes unglued on the Tea Party and Fox News double standards. Warning: copious bleeps. Only in America.

http://tinyurl.com/y35gego

(click the start arrow after the header)

Illini,
Anyone who says the king has no clothes is subject to ridicule and dismissal. I remember David Stockman in the 80's and Paul O'neal. Volker has been successfully marginalized as well. Seems that if you are not a team liar, you are rusticated with prejudice...

To a point made by Kaimu. Small businessmen meet payrolls, fill out tax forms and if they give a damn know what is going on on the factory floor. So many so called experts, many from academia have no glimmer of an idea what it takes to manage a business. Being a clueless retard that regurgitates ignorant economic dogma can win you a Nobel Prize, more's the pity.

Our National economic accounting system is a joke. It is massaged to yield the desired result. Don't like the numbers? Change the rules!

Back to my dog food dinner aka strip sirlion all courtesy of 'substitution' to pretend that there is no inflation...

I usually hang around in Northern Europe, but am currently in South America and will not return for a long time, so I can not say that I have seen this myself.

From what I have heard and read all trains are filled to maximum. Business journeys that have been planned by aeroplane are going by train or by taxi. I have heard of long taxi rides from Oslo to Zürich, from Stockholm to Berlin, from Copenhagen to Paris and so on. London by Dover-Calais? Hujaahh...

Airports will probably be closed the whole weekend. I have several friends and relatives affected by the problems. Most of them have just postponed their trip since they travel in leisure.

Rail transportation is generally excellent in Northern and Mid Europe, but in an occasion like this, infrastructure could be better. It is possible to get anywhere you want by train, but they are just too crowded at this time.

But you asked about cargo and not express. So far, there have been no reports of problems with cargo delivery. You could utilize airports in Southern Europe and trains/trucks therefrom to transport cargo to the north. Rivers have big potential to be further utilized (the question is how fast it can be done). Germany is one big transit country for trucks, eg. from Greece to Norway, Sweden to Spain. Málaga-Stockholm takes approximaltely 40h by truck, excluding breaks. Europe is definitely not on full speed why I estimate there being room for more cargo transportation by land, the same goes for harbors.

I would say Europe faces bigger problems than this obstacle, but who knows how long this problem will persist.

ALOHA!!

As I read the GS/Fab SEC "complaint" it says this in the Overview paragraph #6:

6. By engaging in the misconduct described herein, GS&Co and Tourre directly or indirectly engaged in transactions, acts, practices and a course of business that violated Section 17(a) ofthe Securities Act of 1933, 15 U.S.C. §77q(a) ("the Securities Act"), Section lOeb) of the Securities Exchange Act of 1934, 15 U.S.C. §78j(b)("the Exchange Act") and Exchange Act Rule 10b-5, 17 C.P.R. §240.10b-5. The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, civilpenalties and other appropriate and necessary equitable relief from both defendants.

All through the Overview they cite Paulson & Co as setting up the deal so why isn't Paulson & Co listed as a defendant with GS&Co and Tourre?

In the SEC complaint one of the Paulson & Co employees was quoted as saying this:

"It is true that the market is not pricing the subprime RMBS wipeout scenario.
In my opinion this situation is due to the fact that rating agencies, CDO
managers and underwriters have all the incentives to keep the game going,
while 'real money' investors have neither the analytical tools nor the
institutional framework to take action before the losses that one could
'anticipate based [on] the 'news' available everywhere are actually realized."

Then the Fab "Fab" sent this email and GS replied in another email:

"For example, portions of an email in French and English sent by Tourre to a friend
on January 23, 2007 stated, in English translation where applicable: "More and more leverage in the system, The whole building is about to collapse anytime now...Onlypotential survivor, the fabulous Fab[rice Tourre] ... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!" Similarly, an email on February 11,2007 to Tourre from the head of the GS&Co structUred product correlation trading desk stated in part, "the cdo biz is dead we don't have a lot of time left."

So when Bernanke testified and Lloyd Blankfein(GS CEO)testified before the US Congress last week that they had no clue the financial crisis would occur their employees and senior managers were all abuzz about the impending collapse. Just like the defense "Kenny Boy" Lay(CEO of Enron)put up that he didn't know either. Somehow these big CEOs and Central Bank Chairmen are always the last to know!

Pages eight and nine are blank ... What gives?

It seems the Fab Fab is enjoying his part in the scam ...

"During the meeting, Tourre sent an email to another GS&Co employee stating, "I am at this aca paulson meeting, this is surreal."

Pages 11 and 12 are blank ...

Then a GS&Co rep says this in an email ...

On January 12,2007, Tourre spoke by telephone with ACA about the proposed
transaction. Following that conversation, on January 14,2007, ACA sent an email to the. GS&Co sales representative raising questions about the proposed transaction and referring to Paulson's equity interest. The email, which had the subject line "Call with Fabrice [Tourre] on Friday," read in pertinent part: "I certainly hope 1 didn't come across too antagonistic on the call with Fabrice [Tourre] last week but the structure looks difficult from a debt investor perspective. I can understand Paulson's equity perspective but for us to put our name on something, we have to be sure it enhances our reputation."

So everyone was agreed the structure looks difficult from a debt investor perspective and the fees were too enticing for GS&Co to turn down, reputation or no reputation.

Then IKB a commercial bank in Germany got involved as a buyer of the AAA rated CDOs.

Page 16 is blank ...

IKB bought $150mil worth ...

"ABACUS 2007-ACI closed on or about April 26, 2007. IKB bought $50
million worth of Class A-I notes at face value. The Class A-I Notes paid a variable interest rate equal to LIBOR plus 85 basis points and were rated Aaa by Moody's Investors Services Inc. ("Moody's") and AAA by Standard & Poor's Ratings & Services ("S&P"). IKB bought $100 million worth of Class A-2 Notes at face value. The Class A-2 Notes paid a variable interest rate equal to LIBOR plus 110 basis points and were rated Aaa by Moody's and AAA by S&P.

IKB did not know these were selected by Paulson & Co for shorting. Then this happened a few months later ...

"ABACUS 2007-ACI 's Class A-I and A-2 Notes were nearly worthless. IKB lost almost all of its $150 million investment. Most of this money was ultimately paid to Paulson in a series of transactions between GS&Co and Paulson."

So it seems that Goldman's response that this SEC Complaint is without merit could cost GS&Co a pretty penny in legal fees to defend not to mention opening the door by "Sovereigns" to explore misrepresentations and fraud. One thing is for sure when the legal vultures can hook a "deep pockets" company like GS&Co it will turn into a free-for-all like it did for the big tobacco companies.

In this instance I am not so sure that GS&Co can enjoy the same immunity from prosecution that JPM and Barrick enjoyed in the Blanchard Coin lawsuit regarding gold market price rigging. In the US FED's eyes gold is currency, which is a competitor to the FRN, whereas CDOs and RMBS are just plain old junk paper, so there is no "national security" risks at stake.

Loannetter,

It appears that both left and right want to label Tea Party participants as suits their own interests. I believe the protesters are a cross section of Americans all of whom are dissatisfied with BOTH left and right policies, but not easily categorized — nor should they be.

I don't know enough about how previous political parties developed to draw any conclusions. I hope some sort of genuine, coherent third party can come of the movement which will force national policies back to the original goals as stated in the Preamble to the Constitution.

I do think it is a healthy and so far orderly expression of the dissatisfaction — let's hope for a platform of constructive change.

"The founding document of the United States, the Declaration of Independence, states that governments derive “their just powers from the consent of the governed.” Today, however, just 21% of voters nationwide believe that the federal government enjoys the consent of the governed."
"In his new book, In Search of Self-Governance, Scott Rasmussen observes that the American people are “united in the belief that our political system is broken, that politicians are corrupt, and that neither major political party has the answers.” He adds that “the gap between Americans who want to govern themselves and the politicians who want to rule over them may be as big today as the gap between the colonies and England during the 18th century.'”
http://tiny.cc/fe4e9

It appears to me that this is really a sea change in the US and that it has occurred in just a couple of years. I do not know what the consequences of this change will be, but if the government does not want to use its army to fight its citizens it needs to start representing them instead of special interests. The health care reform bill advanced the interests of the drug and insurance companies at the expense of the public. The financial reform legislation is shaping up to advance the interests of banks and investment banks at the expense of the public.

According to the Wall Street Journal, last year Dutch bank Rabobank filed a suit in NY State Supreme Court alleging that Merrill Lynch engaged in the same type of illegality as Goldman did with John Paulson, i.e. devising a CDO on behalf of a hedge fund that used it to take a short position, and keeping such fact secret from investors in the deal.
http://tinyurl.com/yydcphq

Why should this type of behavior enjoy the government's protection instead of being prosecuted under the provisions of RICO (the Federal anti-organized crime law)? The SEC is to be applauded for doing something, but a civil law suit is not an adequate or sufficient remedy for this behavior. Any other crime would be prosecuted to the full extent of the law. The limited SEC prosecution is a set up for an amicable settlement deal with Goldman.

In the "Road to Serfdom", Hayek observes the natural evolution of government from anarchy, to democracy, to oligarchy, and back again to anarchy...makes you think.

Some of you may recall (2008/2009) posts where I passed along my wife’s opinion that WFC (for whom she worked in the past) would weather the subprime crisis better than most banks, as she had high regard for the management team.

Embedded in the following CNN story about the GS fraud charges is a confirmation of sorts:

http://tinyurl.com/y3wxyvr

“An internal e-mail at ACA asks, "Did [Paulson] give a reason why they kicked out all the Wells [Fargo] deals?" Wells Fargo was generally perceived as one of the higher-quality subprime loan originators, the SEC said.”

lessmore,

“the gap between Americans who want to govern themselves and the politicians who want to rule over them may be as big today as the gap between the colonies and England during the 18th century.'”

Well, we know what happened back then.

I will hold my applause until I see criminal charges brought. If only a fine is imposed on Goldman and not on any individuals and no one goes to prison, I'll see it a only another sham.

As I recall the colonist first resorted to tar and feathers. It would be a good sign, IMO ;-)

seamus- You know, what I really struggle with is understanding the nature of greed. At what point has an individual amassed enough wealth to be able to say, 'Look, I've made enough. I don't need to (or no longer need to) try setting people up to make more.'

I don't think it's just about greed. There's more to the mind-set. There's power. There's competition among the super-rich. There's arrogance. Basically, these people are -------s.

That my point, 2 nd/..... Goldman has the best accountants in the world, and the numbers will match.... Its the Morals... These people have no courage, no honor... they hide behind a computer and wage war like the drones... I pity the fate of the world... No One takes Any responsibility for their actions anymore...

http://www.nakedcapitalism.com/2010/04/leaked-gold...

Guess I'm being particularly dumb today, cramming for DENSA, but I'm not seeing what the big deal is. We have GS arranging an OTC trade between Paulson who takes a position on the short side, and ACA et al who take the long side of some financial entity that turns out to be garbage, which shows Paulson was the smarter. What else?
Well as I understand it, the bigger issue is synthetic CDOs which are comprised of CDS on real CDOs, so it comes back to the idea of trading insurance on something you don't own, like taking out life insurance on your neighbor. Question then is, what, if anything, should be done to regulate this. I would not like to learn that someone will benefit from my death, though it seems reasonable that companies that depend on a single individual for much of their value would want to cover that risk. Do we need to require that all CDS be attached to the entity they're insuring?

April 16, 1930 was the top of the rebound from the crash of '29.

ALOHA!!

You can add in the rigged tax brackets against small businesses. Only companies with revenues above $335K start to enjoy the lower tax brackets while small businesses have to suffer the 39% brackets. There are no exempted "starter brackets" for small business in America. Contrast these draconian tax brackets that punish small business here in the USA against countries like Ghana who offer ten year tax exemptions to small businesses. If Obama was really serious about increasing jobs in America then he would follow the example of Ghana instead of listening to his cabinet. Start-up small businesses are the most vulnerable.

Taxable Income($) .........Tax Rate
0 to 50,000 ........................15%
50,000 to 75,000 ................25%
75,000 to 100,000 ..............34%
100,000 to 335,000 ............39%
335,000 to 10,000,000 ........34%
10,000,000 to 15,000,000 ...35%
15,000,000 to 18,333,333 ...38%
18,333,333 and up .............35%

Businesses also have to pay other taxes like state tax, excise tax etc.

The corporate tax rates in foreign countries are lower than the USA, only five are higher and they are more socialist. The combined USA Fed and State rate is the second highest tax rate in the World, Japan being number one. Big foreign corporations and US corporations operating in the USA generally move their tax liabilities outside the USA to lower their tax bill, where they can also use exchange rates to their advantage. A small business who only operates within the USA does not have those advantages.

According to the GAO tax returns filed between 1998 and 2005:
The study showed that 28% of foreign companies and 25% of U.S. corporations with more than $250 million in assets or $50 million in sales paid no federal income taxes in 2005. Those companies totaled a combined $372 billion in sales for the largest foreign companies and $1.1 trillion in revenue for the biggest U.S. companies.

Jobs head to foreign countries for more reasons than "globalization"! More jobs would come back to the USA if Obama would tax exempt start-up small businesses and flat tax large corporations 15% instead of 35%. This would bring more jobs back to the USA and increase corporate tax revenues to the US Treasury as well as generate more tax revenues through increased payrolls.

Do you need a Yale Phd in "Keynesian" Economics to figure this stuff out? As Mises said economics should be based on "Human Action". That is essentially all it comes down to. Capital is the life blood of economies and like water will follow the path of least resistance. Unfortunately the global sovereigns under the tutelage of Princeton professors have convinced the US Treasury that "debt" is the life blood of economies.

GE pays $0 in taxes in the U.S. for 2010. "... the company's U.S. operations lost $408 million, while its international businesses netted a $10.8 billion profit." Read here:

http://money.cnn.com/2010/04/16/news/companies/ge_...

Why do U.S. citizens pay tax on earned income overseas but GE can do this shuffle? Corporatism is thy name and wealth concentration is the game.

2nd Ave,

'Illusory physical desires' are not only sad; they are addictions; driving individuals into bankruptcy, obesity, total collapse. Imagine Blankenstein going cold turkey from his greed?

Always interesting. Says CFTC and SEC are to blame for not regulating "Investment Banks," a euphemistic term for trader/dealers on Wall St., and that the Fed gained responsibility for rates and money supply during Great Depression and left Congress free to spend to infinity. Suggests reforming CFTC and SEC, bringing Fed back to original 1912 mandate to protect against bank runs, and putting spending responsibilities back on Congress. I'm not holding my breath but the history is important to understand.

Short hand written two pager from the hole well worth the read:

http://www.martinarmstrong.org/files/From-the-Hole...

Armstrong appears to be a Chicago school (Milton Friedman) adherent since he is pro-Fed, unlike the Austrian school (Ludwig Von Mises, et al.), with Fed stance being the main distinction between the two economic schools. This brief essay is his reasoning which, along with his imprisonment, will not earn him a position in the Ron Paul administration ... or will it? ;) Still, Armstrong is always very very well defended in his reasoning with unparalleled historic perspectives. Armstrong was a major player in the central banking scene before GS/Japan/NY Federal judge threw the key away. He answers all prison mail. Any questions?

Cheers.

I think that we have the wrong focus on this site. Railing against the system and insisting that the game is riged by various private firms and the government does not add value and help us in our investment search. The investment game has become (and maybe always has been) more like the "Palio di Siena", a horse race in Italy where most spectators bet not on which horse is best, but on which horse will win due to the race being fixed - which is taken as a given.

Our best hope is that the "fixes" to our investment system are of a long enough nature that Bill"s RSI/MACD system together with proper stop loss action will keep us out of serious trouble. We should focus not on what should be; but on understanding what the underlying biases are and keeping the size of our positions reasonable so that an event that broadsides a company or industry (ie Goldman or the Banking Industry) does not materially affect our investments.

I think that there is to much complaining about a system we can not change and not enough analysis of how to use the bias in the system to our advantage.

Any way that is my two cents.

"If you think Gold is good due to the weakening dollar, why pay off debt? The money was borrowed as a strong dollar and will be repaid by weak dollars, or not at all in a default." - bolus

Default means you lose the asset but not the personal obligation unless you employ skilled legal representation. Financial institutions are predatory and backed by a highly paid team of legal sharks.

As for holding the debt, it critically depends on debt terms and inflation/deflation assumptions. Must be fixed interest rate and possibly no rollovers thru to end of amortization. Some don't have the credit or skills to get reasonable terms from the sell-side agents of mass credit destruction. Moreover, paying debt interest long term may easily underperform your investment return depending on your skill, luck, and inflation/deflation assumptions. Will that deflated house be worth much when you're done even if inflation strikes elsewhere like in fuel, food, and taxes? Paying off debt is a guaranteed gain today without risk. Full stop. Real estate is in a very long-term decline from recent peak ...

Inflation will make fixed-interest no-balloon debt easier to pay off, yes, absolutely, but this is a long-term strategy for those without capital to extinguish it on a home (+ factor gaining use and tax benefits, etc.) or as a part of an 80%+ leveraged investment like commercial real estate with (false) confidence that occupancy and revenues can be sustained until the next refi in 3-6 years.

Ask any multi-millionaire (not the paper kind) if you should pay off debt first against a declining secular asset, regardless of currency deflation, and the answer 9 out of 10 times will be a resounding Yes! Sleeping at night and a sure thing are hard to beat.

Cheers.

bolus -

But if we go the Full Monty to issuing a new currency, Fannie and Freddie STILL manage the bulk of the debt and are NOW part of the federal gov't. Do you think Congress, guided by the infinite wisdom of the Fed, will pass a constitutional amendment to make that junk mortgage-backed debt security payable in pre-hyperinflationary dollars? Don't ask me for the details but our gov't is too big to fail, right? The Roman Emperor Diocletian tried this toward the end of Empire through asset census and taxation of hard assets (payment in grain in Rome from the outlying landholders) while debasing coinage (denarius) and it backfired so maybe you're right.

lessmore,

"In order for the ticking time bomb CDOs to be sold they had to be assigned triple A credit ratings. The large number of false triple A ratings assigned to these bad CDOs could not be mere coincidence, it had to be part of an organized scheme."

The whole setup is loaded with conflicts of interest that even a kid could see.

The rating agencies stamping these OK is paid for their "opinion" by who? The bank or the fund. Duh!

The people in the Fed, the banks, the Treasury Dept., the Banking Oversight Committee,are like a Mafia family.

I expect no real "change we can believe in," from guys like Dodd.

I can understand the hit taken by GS on the news, but what exactly does the news have to do with a recovering economy?

Even if the SEC goes after a few other banks/brokers, so what? That's what we all wanted to begin with. Sending a few bankers to jail and levying a few million (even a few billion) in fines isn't going to derail the economy. It may even revive Main Street's 'hope' in the system, and set the stage for a major rally.

Let the games begin.

April 17 (Bloomberg) -- Germany may take legal action against Goldman Sachs Group Inc., German government spokesman Ulrich Wilhelm said today by phone.

http://www.bloomberg.com/apps/news?pid=20601087&si...

Lloyd's pucker factor just increased ;) Should goose the euro come montag.

Unknown what Monday could bring, there could be some bounce back. The world does not revolve around Goldman even if they do perform "God's work."

Bellwether earnings due out next week could change the sentiment as well as the momentum of the market.

Starting the week on Monday, all eyes will be on C and IBM.

Other high profile earnings due out on Monday include: LLY, HAL, ACI, RJF, TROW and MTB.

No need to "Wonder if". This story has been scripted by the best. GS has known for what, maybe a year this investigation was going on. GS chose to play the hand this way. (how many winning weeks (hands) have they had the last few years?) I think it is getting personal between GS and BO. BO was selected not elected. I give him credit for being intellegent but have to question his smarts. If the SEC and BO are looking for sympathy from the street or the electorats, they will find it in the dictionary. In between shit and syphilis.

Take two and hit to right. (Baseball talk.)...Staying long and strong.

"The charges will unleash a torrent of lawsuits, and likely signal that the government is prepared to file more lawsuits related to the overheated market that preceded the financial crisis, experts said.

"This is just the tip of the iceberg," said James Hackney, a professor at Northeastern University School of Law. "There are a lot of folks out there in different deals who played similar roles, and once it starts building steam, plaintiffs' lawyers will figure out this is where the money is and there should be a lot of action."

"

http://finance.yahoo.com/news/Goldman-case-likely-...

I really wish to see all these crooks the like of GS, JPM, BAC, C, MS, ..etc get punished big time for stealing tax payers money to be rewarded for selling the poison assets/instruments to us the innocent victims ( the people). And sooner than later whether this move by the Gov't is for political gain to win November election or not, I really don't give a damn, I am sure most of us really would love to see these bastards pay the huge price for bringing down this crisis on all of us and live to profit from it Billions of dollars from the bailouts money (our money) and proprietary trading while we the average hard working citizens lose our own hard earnings money to them, lose our homes, lose our jobs, etc.. in the process.

I really want to see their top management get a jail time. Yes, I am sure many of you would say no way, this will never happen but who knows, perhaps this president may surprise us as he has done so in many other cases so far specially when he realizes the republicans senators seem to be in bed with Wall Street dogs these days, not to mention the FEDS are there too. If these scum bags go without any punishment at all then truly there is NO GOD.

JMHO.

analyst65 -

Forget the scumbags. The world in full of them.

Last paragraph says it all: "The case has been assigned to U.S. District Judge Barbara Jones of New York. Jones is the federal judge who five years ago presided over the $11 billion criminal fraud case that toppled WorldCom Corp. and sent its former CEO Bernard Ebbers to prison for 25 years."

New Flash: NY Federal Judges always protect the NY investment banks and their ilk unless they turn themselves in like Bernie Madoff. No perp walks here. Move along.

I do like the part in the article where German Chanc. Merkel's spokesperson is saying action will be taken and I assume not necessarily in a NY Federal court since the German's know that's rigged. Now that could get interesting. Currency wars, anyone? A kerfuffle over at the IMF over who receives massive SDR distributions, primarily sponsored by the U.S., first? Will the Germans do as the Chinese and tell the NY derivatives gamers to shove it? Stay tuned.

Here is the performance of 75 different approaches since 1998 plus the indexes. The striking feature is that only two of the methods protected you against the 2008 drawdown.

This fact highlights the need for one to develop a method of protecting against such events as difficult as that may be.

http://www.screencast.com/users/Telestar3d/folders...

http://www.screencast.com/users/Telestar3d/folders...

http://www.screencast.com/users/Telestar3d/folders...

source aaii.com

I will simply say that the GS news certainly takes off the rose bloom of John Paulson's genius.

ALOHA!!

The new FINANCIAL REFORM ...

Senate Committee on Banking, Housing, and Urban Affairs, Chairman Chris Dodd (D-CT) Contact: Kirstin Brost, Sean Oblack, 202-224-7391

Summary: Restoring American Financial Stability

Create a Sound Economic Foundation to Grow Jobs, Protect Consumers,
Rein in Wall Street, End Too Big to Fail, Prevent Another Financial Crisis
Americans have faced the worst financial crisis since the Great Depression. Millions have lost their jobs, businesses have failed, housing prices have dropped, and savings were wiped out.

The failures that led to this crisis require bold action. We must restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them. We must create a sound foundation to grow the economy and create jobs.

More US FED and US Congress and SEC entrenching as the very entities who sat idly by and watched the capital and credit markets implode are rewarded with more power and more authority and expanded office space.

I almost gagged when I read about how this Bill classifies the US FED as an "expert" in the management of banking institutions in excess of $50BIL in assets. Can a monopoly be an "expert" at managing a monopoly? Typically any management attempts under a monopoly are just "rubber stamping". What is needed to truly CHANGE the system is get rid of the monopoly that now exists, not expand it. True reform would take the form of ANTI-TRUST and the elimination of the US FED charter.

Here at the link below you can read the HIGHLIGHTS of the Reform Bill. I would suggest you read carefully the sections entitled WHY CHANGE IS NEEDED and then ask yourself why this Bill allows the same two monopolies that destroyed capital and credit markets to gain more control?

Since the last Great Depression the US Federal Reserve Bank's duties have been concentrated in the following four general areas:
1. Conducting the nation's monetary policy by influencing monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
2. Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system, and protect the credit rights of consumers.
3. Maintaining stability of the financial system and containing systemic risk that may arise in financial markets.
4. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system.

The above is off the US FED website. I have to ask just how well has the US FED performed over the past 100 years?

ITEM #1- What sort of store of value does the US Dollar have left? Can you buy a new home for $1800 or a new car for $400? Can you retire on your savings?
ITEM #2- How well has the US FED supervised banks and derivatives? Wasn't it Alan Greenspan who always said "derivatives need no regulation"? You can go to YouTube and see him say it many times to Rep Ron Paul. Anyone feeling the US FED protected us consumers? Are 16%-35% credit card rates "protection"?
ITEM #3- Is the financial system stable and how about that systemic risk? You can't even read FOMC meeting transcripts until five years after the meeting took place. What if you could only read car safety reports five years after testing?
ITEM #4- Pretty much describes a "monetary monopoly" whereby competition in the "financial services" has been eliminated. Why does America need a "financial middleman" like the US FED? Is it because we cannot trust the corrupt US Congress? Is the US FED less corrupt? Kind of like voting the "lesser evil". A better solution is ANTI-TRUST! Or does that only apply to oil companies and not a private bank cartel. What was it that Mayer Amschel Rothschild said about controlling the money of a Nation?

In 2005, he was ranked 7th on the Forbes magazine list of "The Twenty Most Influential Businessmen Of All Time". The business magazine referred to him as a "founding father of international finance".

LINK: http://banking.senate.gov/public/_files/FinancialR...

Here are the criteria for the Piotroski Method

Piotroski 1 -- Positive Net Income
P 2 -- Positive Operating Cash Flow
P 3 -- Increasing Return on assets
P 4 -- Operating CF exceeds Net Income
P 5 -- Decreasing ratio of LT debt to assets
P 6 -- Increasing Current Ratio
P 7 -- No increase in outstanding shares
P 8 -- Increasing Gross Margins
P 9 -- Increasing Asset Turnover

You get 1 for yes and 0 for no and then sum up the results.
You should compare the numbers year to year and quarter to quarter. The more data you have the more certain you can be that the company's numbers are consistently strong and not just a one hit wonder.

Cheers

NO

"I will simply say that the GS news certainly takes off the rose bloom of John Paulson's genius."

Well, the past year has certainly stripped many of that label. Or maybe they just tripped?

In addition to outright scams, all of the following have also been mistaken for genius-

(a) luck
(b) making huge bets that happened to pay off (ie, gambling) using OPM
(c) successfully hiding/downplaying mistakes
(d) convincing the right people in the media at the right time

All excellent points 2nd. 2008 certainly proved that the so called experts were really nothing more than bull market benefactors who had no concept of risk management. Oh well, its their money (OPM) and I still have my management fee as consolation.

Yes.

Speaking of luck, any manager who ran a mutual fund from 1982-2000 was a genius.

It really makes me appreciate Vad's genius- making successful trades in real time on a daily basis while insisting he's simply using an easily explained methodology that anyone can learn.

Telestar,

Thanks for those links to your tables. That is valuable information.

As to your remark "The striking feature is that only two of the methods protected you against the 2008 drawdown." : A system of charting the SPX using EMA's of 22,65 and 200 would have done a good job of keeping you out in 2008 and getting you back in during 2009. The three lines would serve as short, intermediate and long term indicators respectively. The short term indicator gets a little touchy or flip/floppy sometimes.

I also thank you Telestar!

... http://www.bloomberg.com/apps/news?pid=20601108&si...

AGAIN, this is ONLY the beginning....

http://www.bloomberg.com/apps/news?pid=20601103&si...

"The Piotroski method is currently the 3rd most successful value investing system, tracked monthly for the last 10 years by the American Association for Individual Investors (AAII). Over the last 10 years it showed 1,069% return, versus O'Neils CANSLIM (1,489%) and the Zweig method (1,800%).
CANSLIM and Zweig are however BULL MARKET investment strategies, and Piotroski is the only BEAR MARKET screen tracked by the AAII. Since we are in the throes of the 2nd largest bear market in 20 years on the JSE, we are very interested in Piotroski's methods!"
Source:http://powerstox.blogspot.com/2008/10/piotroski-performance.html

Current List of highest scores of Piotroski method:
http://charts.grahaminvestor.com/topscores.php
What is interesting is "APPLE" is on this list and near the top!

Just found a good list of screens here:
http://members.cox.net/econisvoodoo/piotroski/

(anyone know a better list?)

It's his advisers fault, he says. Funny, isn't that the same advisers presently serving Big O?

http://www.bloomberg.com/apps/news?pid=20601087&si...

http://yrah53.files.wordpress.com/2010/04/clinton-...

This is Obama's chance to take Wall St. down a peg. Get the judiciary involved, find the fraud, make an example of Goldman Sachs, and defuse this teaparty nonsense by bypassing a non-functioning congress and negotiating directly with the American public to force the hand of the legislative branch.

As someone countered in dispute last week, Obama has already shown his colours. His choice of course. Take the payout being offered to do nothing while in office and be another Billy with regrets ten years from now. Or join the pantheon of Presidents that fought the moneyed interests like Washington and Jackson and cement his legacy in the history books.

Hat tip to Jesse's: http://jessescrossroadscafe.blogspot.com/2010/04/s...

PS. A law and finance professors op-eds that the liability mechanisms remain in place in the US and will, as Bill also suggested, begin to work their "magic" upon forgetful (read fraudulent) investment vehicles, whether Congress acts or not:

http://www.ft.com/cms/s/0/69257350-4b4a-11df-a7ff-...