davenerven

Picking Goldman's Brain for Long / Short Strategies

"Free advice" from GS is always a ploy. Everything they suggest to anyone for free is always plain dangerous.

Was Friday's Rally Just a Hedge Fund Short Squeeze?

Margin calls are a distinct possibility but one should be aware that firms behind the Lehmans CDS had to find $400+billion by last Friday to settle their liabilities. The only source of cash is to liquidate stocks, so they did and they have settled. But now their counterparties now have $400+billion and the logical thing to do is to squeeze all the shorts dry. Think about it. Many short hedge funds could be belly up over the next few days.

No Safe Havens - But Plenty of Bargains

So hedge funds had to cough up $400+ billion to pay for their Lehman's CDS positions. The market was very very nervous of more defaults before the settlement last Friday, but it looks like it's all been settled in a fairly orderly manner. Now one side is down $400+ billion and the other side is long $400+ billion. My guess is that the side that's now long $400+ billion is going to use their new cash to squeeze the heck out of the market shorts and make more money. What can be a better time to do this than now? So, perhaps, just perhaps, we can expect the rally of a lifetime soon as the shorts run for cover from a tsunami of buying. But, I might be completely wrong. Still, it is a scenario that makes sense. The world governments have done more than enough to unlock credit but I think credit was tight because of concerns over the Lehman CDS settlements. Now that is out of the way, anything can happen, which means that everything will probably happen all at once.

Comparing This Past Week to the '87 Crash

So hedge funds had to cough up $400+ billion to pay for their Lehman's CDS positions. The market was very very nervous of more defaults before the settlement last Friday, but it looks like it's all been settled in a fairly orderly manner. Now one side is down $400+ billion and the other side is long $400+ billion. My guess is that the side that's now long $400+ billion is going to use their new cash to squeeze the heck out of the market shorts and make more money. What can be a better time to do this than now? So, perhaps, just perhaps, we can expect the rally of a lifetime soon as the shorts run for cover from a tsunami of buying. But, I might be completely wrong. Still, it is a scenario that makes sense. The world governments have done more than enough to unlock credit but I think credit was tight because of concerns over the Lehman CDS settlements. Now that is out of the way, anything can happen, which means that everything will probably happen all at once.

Was Friday's Rally Just a Hedge Fund Short Squeeze?

So hedge funds had to cough up $400+ billion to pay for their Lehman's CDS positions. The market was very very nervous of more defaults before the settlement last Friday, but it looks like it's all been settled in a fairly orderly manner. Now one side is down $400+ billion and the other side is long $400+ billion. My guess is that the side that's now long $400+ billion is going to use their new cash to squeeze the heck out of the market shorts and make more money. What can be a better time to do this than now? So, perhaps, just perhaps, we can expect the rally of a lifetime soon as the shorts run for cover from a tsunami of buying. But, I might be completely wrong. Still, it is a scenario that makes sense. The world governments have done more than enough to unlock credit but I think credit was tight because of concerns over the Lehman CDS settlements. Now that is out of the way, anything can happen, which means that everything will probably happen all at once.

Counterparty Risk Management: How Could So Many Be So Wrong for So Long?

The nature of risk management has been simplified over the years as more and more people and consultancies flood into this field and attempt to create methods which dumb down this important area. Basically, for most "risk managers", risk is segregated into credit risk, where ratings are all important, and market risk, which measures the sensitivities of a trade or portfolio. Since many of the MBS are new products in 2005-2007, they relied simply on historical default rates for pricing (and introduced a high incidence of error as historical data would have been scarce). They then used ratings insurance to qualify these products as AAA. Banks then bought paper based on these AAA ratings without questioning their underlying viability to pay back principal or even interest. This is odd as normally a structured swap would be investigated carefully before issuance but for whatever reason, for MBS, people are happy to buy other issuers' paper based purely on nothing more than the rating, a free lunch and a pat on the back.

I have always taken a holistic view on risk, and for my bank, I have always advised against taking on these products, as the SUM of the risks (if calculated correctly) causes risk profile to rise exponentially to a point where the paper becomes too expensive to buy. Eg. mortgage default risk, issuer risk, guarantor risk, interest rate risk, economic risk, trend risk. People forgot about all that and just bought AAA paper because they did not do (or want to do) their homework. Or maybe their risk management team did not consider all the factors that go into a proper Monte-Carlo simulation for such products. Why was this not done? That will always puzzle me.

In short, despite what many people think, risk is not a business area that can be easily standardised, and in my experience, there are far too many "risk" people around who do not understand how to apply the basic management rules for risk, especially for new structured products.

American Express Calls Investment Banks' Bluff

There is no need for metrics in your article, which, even though I am bullish in general, I have to agree with.

For me, the pertinent statement is from AXP: Chenault continued, “In light of the magnitude of the negative economic trends and our experience, we now believe the economic weakness in the US will likely worsen throughout the remainder of the year and negatively impact credit and business trends ... we now expect that our lending write-off rate in the third and fourth quarter will be higher than June levels.”

Add this to what Jamie Dimon has been telling us, again without deceit, and we basically saw 2 straight dudes calling the credit situation as it is (and it ain't looking too good), versus a crowd of shysters and bottom-feeding pumpers selling snake oil.

Saying this though, I really don't want to see those criminal naked shorts back again. Let the markets find their own true levels without any more hysterical bashing or pumping.

News Flash: Major Market Turns Aren't Announced In Advance

Tom, I am not a bear but I think we should all heed warnings from AXP and JPM about things probably getting worse, a lot worse. I fail to see how you can call a bottom now before we can see the extent of the problems highlighted by the honest insider predictions from AXP and JPM. Or do you know more than they do? I was worried by the frenzied buying of financials recently. Personally, I would have been happier with a slower rise amid pockets of sinking banks, which would have been a calmer and more reflective statement of confidence. But, instead virtually every bank shot up in unison and that has given yet another opportunity for bears to set their traps. Be warned - you may just be abetting yet another bear trap.

Bill Ackman's Plan to Save Fannie and Freddie

I wonder if Ackman is still short FNM and FRE...

Banks: Is This the Biggest Bear Squeeze in History?

Another site from a market professional about the subject:

megamata.com/forum/vie...

He would not advise clients to even do their IPOs in the USA. What has the SEC done to the financial markets in the US? Who is accountable? We need a guaranteed stock delivery LAW NOW.

Banks: Is This the Biggest Bear Squeeze in History?

There is NO EXCUSE for the shorts selling MORE THAN THE ENTIRE FLOAT of stock in EVERY CATEGORY. This is just raping the entire American investment community and it is being done by criminals and their friends in the hedge fund business and abetted by the SEC not keeping an eye on the crazy volume of FTDs. I think a law should just be passed to force every naked short to deliver after 3 days, like in Europe. Then we will have a fair market again. We need this law and we need it NOW. Screw it if it bankrupt the shorts. They deserve it.

A 'Buy the Loser' Rally

Time to hurt the shorts, I say.

Read this please. It's worth your time, I promise.

www.deepcapture.com/

Then if you want to see more, have a look at this:

www.deepcapturethemovi...

And another site about the subject:

megamata.com/forum/vie...

Then sign this...

www.petitiononline.com...

The SEC's 'Sacred Cow' List: Where Are WaMu and Wachovia?

Excellent post. Short selling is real and destructive and done by some of the same banks on the protected list. But it seems like they don't like to be on the receiving end of the same treatment.

Read the following please. It's worth your time, I promise.

www.deepcapture.com/

Then if you want to see more, have a look at this:

www.deepcapturethemovi...

And another site about the subject:

megamata.com/forum/vie...

Then sign this...

www.petitiononline.com...

Banks Hit Bottom – Cramer’s Mad Money (7/21/08)

Isn't this the same Jim Cramer who told us about "toxic rivers of debt" and to sell JPM, USB, WFC and BAC just a few weeks ago? I suspect he may just be a "pump and dump". Anyway, I have a laugh looking over his past videos. He MUST be working in collusion with some hedge fund. I cannot believe anything this idiot says.

Read this please. It's worth your time, I promise.

www.deepcapture.com/

Then if you want to see more, have a look at this:

www.deepcapturethemovi...

And another site about the subject:

megamata.com/forum/vie...

Then sign this...

www.petitiononline.com...

Banks: Is This the Biggest Bear Squeeze in History?

Everyone should read this and realise why shorts in financials will soon be crushed. Please do look through the site - I promise it will be worth the effort. It's about the financial establishment against Patrick Byrne.

www.deepcapture.com/

Then watch this, if your interest has been aroused.

www.deepcapturethemovi...

Then sign this please:

www.petitiononline.com...