Goldman Sachs Top Ten Trades For 2010

Ambrose Evans Pritchard reports on 8 top ‘ten’ trades for 2010 from Goldman Sachs. Perhaps surprisingly it contains –


Short Spain/ Long Ireland.. This is interesting. Goldman Sachs says both countries are “boom-bust” property disasters but Ireland “looks better placed to outgrow its debt” and has shown “greater resolve” in taking the axe to spending. Spain’s “behind-the-scenes” bank cleansing is not credible. I agree totally. Goldman Sachs plays this through 5-year credit default stops (CDS). Don’t ask me how to do it. This is hedge fund stuff.

They must have missed yesterday’s Neville Chamberlain moment, or perhaps they’re up-to-date and have factored in today’s apparent U-turn?

  • Drumlins Rock

    Didnt realise things were that dire in Spain!

  • OC

    I thought CDS meant “credit default swap“?

  • NCM

    Funny, my bet is short capitalism/long socialism.

  • Sure, I don’t understand how GS actually make all their plays.

    They write their own software in-house and this software makes micro-trades thousands and possibly millions of times a second. They trade on the slightest fluctuation in stock prices, in the blink of an eye.

    Recently they sued, and had jailed a former programmer who they accused of taking the code he’s written with him, when he left. There was an article about it in the NY Times.

  • welfare state

    Euro Ireland has been massively buying cheap sterling Ireland in consumables, durables and investments since the 30% drop.

    It’s been doing that for 15 years of course, but now our prices are rock bottom and we’re not able to buy.

    It’s brilliant for us in terms of our current account, but way way bad for our future economy.

    Yeah. I know. We don’t have one.

    Only kiddin

  • Mack

    OC –

    You’re right it does, presumably a typo..

  • DC

    The problem with Goldman Sachs is that they always take the economic view and leave the social consequences to others.

    By all accounts we would have had a neo-liberal response of doing nothing to plug the collapse in global finance had Goldman Sachs CEOs been running the place; so in many ways Ireland is doing what is necessary but taking advice from Goldman Sachs is like asking for human sympathy from Hitler-types.

  • Jud

    Don’t bet against the house – and these days the house is GS.
    The trouble is there is no way for plebs like us to know how they themselves are betting – what they say is not necessarily what they will do.

    The other problem is they have so much capital and political muscle that they themselves can often bring about the desired outcome.

    Looking at GS as a punter on the sidelines is not the way to view them. They are more like a combination of the referee and both managers.

  • Greenflag

    jud ,

    Don’t bet against the house – and these days the house is GS”

    The USA President and Congress need to break up GS , Bank of America, and the other major financial services players who have profitted off the effective emisseration of the American middle and working classes over the past 25 years .

    Goldman Sachs as effective holders of the USA Presidency may not be as far fetched as some might think. Now that the Clinton heir is hooking up to the GS crowd the path to even further financial services domination of USA economic policy is looking brighter than ever . What odds on a future President Mezvinsky/Clinton or vice versa ?

    Chelsea works for a hedge fund, Mezvinksky is a Goldman Sachs investment banker, so this will be a marriage that starts off fairly well-capitalized.

    His father, Edward Mezvinsky, was an Iowa congressman in the 1970s who was later convicted of financial fraud scam and was released from federal prison in April 2008.(served 8 years )

    ‘”They are more like a combination of the referee and both managers’

    And now presumably will be sleeping together as well 😉

    They’re beginning to make the British Royal family and the top echelons of the British Tory party not to mention the Roman Catholic hierarchy in Ireland look like paragons of moral and ethical rectitude and flawless upholders of family values .I’m sorry if there are some on slugger out there who still believe in the above named ‘ínstitutions ‘as examples for ‘humanity’to follow .

    Still we’ll wish Chelsea all the best. Never mind the knight in shining armour eh – when you can hook a GS man 😉 A bright lass that one .

  • Greenflag

    OC,

    ”I thought CDS meant “credit default swap”?’

    The new ‘weapon of mass economic destruction is now the CLO ( Corporate Loan Obligations) Apparently some 3,100 companies in the USA employing some millions of people are being ‘knifed ‘by private equity çompanies in an as yet little recognized next wave of company closures which could put another 2 to 3 million out of work . All is revealed in Josh Kosman’s new book which was recently interviewed on US radio station http://www.npr.org .

    The fit is expected to really hit the shan later in 2010 ND 2011 .

    Having only perused the book to date It seems to be ‘promising ‘a rerun of the sub prime mortgage debacle except this time on a corporate scale and the amount of ‘dosh’ vanishing into the stratosphere will be only a trillion dollars as compared to the 1.3 trillion for the property ponzi bonanza ;(

    Oh and yes it could have been avoided if those who passed the legislation had more than an average inkling of how human beings and corporations will behave in the real world when they are not curtailed by responsible and effective regulation .

  • Greenflag

    Private equity firms buy undervalued or underappreciated companies, impose short-term improvements and sell them for a fast profit. Some of the companies they’ve bought include Hertz, La Quinta, Dunkin Donuts, and Toys R Us. Josh Kosman, a private equity expert, says that the way the firms have been able to buy these businesses — through leveraged buyouts — means the majority of the money for the buyout has come from loans that the firms dump on the company they’re supposedly fixing.

    Now burdened with debt, many of those companies owned by private equity firms are in danger of defaulting. In a new book, Kosman writes that it’s likely half of the 3,188 American companies bought by private equity firms between 2000 and 2008 could collapse.

    The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis
    By Joshua Kosman
    Hardcover, 288 pages

    Excerpt –

    It is late 2011, months before President Barack Obama will run for reelection. The U.S. economy is gradually recovering from four years of hovering on the brink of disaster. Banks are lending money again, at least to strong companies, and employment is stabilizing.

    President Obama has finally begun to breathe a bit more easily, when the secretary of the Treasury walks into his office one day.

    “You better sit down,” the secretary says. “I’ve got bad news. First Data, the largest merchant credit card processor, has defaulted on $22 billion in loans. Clear Channel Communications, which owns more than twelve hundred radio stations, is on the brink. The other credit tsunami that we knew was out there has begun.”

    The Treasury secretary is talking about private equity. It’s not the private-equity firms themselves but the companies they own that are defaulting. During the boom years of 2001—7, private investors bought thousands of U.S. companies. They did it by having the acquired companies take on enormous loans using the same cheap credit that fueled the housing boom. That debt is now starting to come due.

    “Considering what we have already been through, how bad can it be?” Obama asks.

    “Well,” says the Treasury secretary, “PE firms own companies that employ about 7.5 million Americans. Half of those companies, with 3.75 million workers, will collapse between 2012 and 2015. Assuming that those businesses file for bankruptcy and fire only 50 percent of their workers, that leaves 1.875 million out of jobs.

    “To put that in perspective, Mr. President, NAFTA caused the displacement of fewer than 1 million workers, and only a slightly higher 2.6 million people lost jobs in 2008 when the recession took hold.

    “Is this bigger than the subprime crisis?”

    “It is similar in size to the subprime meltdown. In 2007, there were $1.3 trillion of outstanding subprime mortgages. As a result of leveraged buyouts, U.S. companies owe about $1 trillion.

    “Sir, we are on the verge of the Next Great Credit Crisis

    ***

    The picture painted by the Treasury secretary in this imaginary scene, as dire as it is, is not total fantasy, nor is it a worse-case scenario. There are people in the financial world, including the head of restructuring at one of the biggest banks, who predict this outcome. Some knowledgeable observers say the carnage will start sooner. In December 2008, the Boston Consulting Group, which advises PE firms, predicted that almost 50 percent of PE-owned companies would probably default on their debt by the end of 2011. It also believed there would be significant restructuring at these companies leading to massive cost cuts and difficult layoffs.

    A rain of defaults is already starting. From January 1 through October 31, 2009, 175 American companies defaulted on their debt. That is almost double the number for all of 2008. Half of those companies have been involved in transactions with PE firms at some point in their corporate life, according to the Standard & Poor’s rating agency.

    For those who may be interested in the full story including a good description of how private equity equity firms operate in the real world of Wall St here’s the link

    http://www.npr.org/templates/story/story.php?storyId=120391729

  • OC

    GF: Thanks for those posts.

    William H. Whyte’s “Organization Man” predicted this behaviour in 1956 – the move away from engineering driven upper management, and replaced by financiers with short-term bottom line business philosophies.

    And now the ebbing tide is exposing more shipwrecks.

    The worst part is any further unemployment. And lost industry.

    I wonder if Moody’s, S&P, et al, are monitoring this better than they did the home mortgage-backed securities collapse?

  • Mack

    OC –

    Industry hasn’t so much been lost as migrated East. I’m pretty sure the planet is producing more now than it ever has.

    Part of the problem has been our inability to compete with cheap Eastern labour and financial tricks have masked that somewhat (Graham Turner’s book on the credit crunch reckons without the bubble we would have had massively high unemployment and a big recession in the West around 2001).

    The solution is probably relatively simple, the pie needs to be divied up more evenly globally. We earn & consume relatively less, as workers in the East earn and consume more..

  • Greenflag

    OC,

    ‘I wonder if Moody’s, S&P, et al, are monitoring this better than they did the home mortgage-backed securities collapse? ‘

    You might want to think that but I would’nt bet the house on it 😉

    For how ‘unthinking’ and short term ‘financialization’ has knocked other world economic and political powers from their perch grab sone of Kevin Phillips books including ‘Bad Money’ pp 162- 174.

  • greenflag

    Mack ,

    ‘The solution is probably relatively simple, the pie needs to be divied up more evenly globally.We earn & consume relatively less, as workers in the East earn and consume more…

    QED Mack eh ;? Now that’s what I would call chutzpah

    I don’t disagree with your sentiments but alas alongside the economic world there is the world of politics , scarce resources , diminishing supplies of fossil fuels etc, rising CO2 emissions etc. What we like to call ‘democracy’ is probably not going to resolve some of these issues . And while ‘innovation’ has to be a part of the solution it can’t do it all and neither can American style capitalism or Chinese ‘authoritarian ‘ style capitalism either .

    And there is the problem of how much relative ’emisseration’ western economies can endure before ‘uniforms are donned and the masses take to the streets ??

  • Mack

    Ah now Greenflag, I wouldn’t be so niave as to think democracy would solve these issues.

    They’ll most likely be solved by floating exchanging rates and a crashing dollar!

  • Mack

    As those circumstances would put Americans back to work again, the relative decline may not appear particularly painful as it does now..

  • Greenflag

    mack ,

    ‘most likely be solved by floating exchanging rates and a crashing dollar! ‘

    You are beginning to sound like the Minister of the First Church of Christ the Optimistic Capitalist 😉

    The dollar has already crashed 40% against the Euro (2000 -2007 ) . How much lower can it go before the USA hires Mr Mugabe’s Governor of the Reserve Bank of Zimbabwe to take over Bernanke’s position ?

    Remember there are 50 million guns in people’s hands in the USA and 3 million incarcerated behind bars already . Many States are in fiscal decline and they are being forced to let the criminals out for cost reasons . With no social safety net Mr Hobbes prognosis for the human condition may be on it’s way back to ‘popularity’!

  • Greenflag

    mack ,

    Some news fresh in – on a local Irish ‘feeder’ into the Madoff Worldwide Ponziprise Thiefstakes !
    I wonder who they are /were ? 380 million is a not inconsiderable ‘fake ‘ profit

    http://www.bloomberg.com/apps/news?pid=20601087&sid=axF6G50ytJaQ&pos=6