Interesting article on Goldman Sachs' "luck" in escaping unscathed from the sub-prime mortgage mess:
Goldman’s good fortune cannot be explained by luck alone. Late last year, as the markets roared along, David A. Viniar, Goldman’s chief financial officer, called a “mortgage risk” meeting in his meticulous 30th-floor office in Lower Manhattan.
At that point, the holdings of Goldman’s mortgage desk were down somewhat, but the notoriously nervous Mr. Viniar was worried about bigger problems. After reviewing the full portfolio with other executives, his message was clear: the bank should reduce its stockpile of mortgages and mortgage-related securities and buy expensive insurance as protection against further losses, a person briefed on the meeting said.
The article fails to mention that Goldman Sachs (GS) is Wall Street. They might as well own it outright. And now they're making inroads into government where policy and oversight reside. They don't play the game, they are the game.
But in the end, even if you practically own the place, risk and its management is the real game:
At Goldman, the controller’s office — the group responsible for valuing the firm’s huge positions — has 1,100 people, including 20 Ph.D.’s. If there is a dispute, the controller is always deemed right unless the trading desk can make a convincing case for an alternate valuation. The bank says risk managers swap jobs with traders and bankers over a career and can be paid the same multimillion-dollar salaries as investment bankers.
One of my favourite market axioms is "Discipline over conviction." There is no point in risking ruin when you don't have to. Coming back to play another day is a prime victory. Had Niederhoffer hired one or two risk controllers, he wouldn't have blown up (again).
This graph tells the whole story:
bear stearns, chief financial officer, citigroup, controller, goldman sachs, GS, merril lynch, Niederhoffer, risk, sub prime mortgage
I've been busy with other projects and life this last month. Boy I missed blogging. I'm really looking forward to continuing the blog and revisiting some of the previous posts.
I was the first trading blog to talk about Victor Niederhoffer's demise. Many lambasted me for "rumor mongering". The "rumors" turned to be true. Vic did in fact blow up. As with most spectacular blow ups on Wall Street, he will continue to trade but on a much smaller scale. Who knows? He might even make a comeback and go for a three-peat.
I'll follow up on MitoPharm's spectacular swan dive off a cliff. I did my best to warn people but as Lord Overstone said, "No warning can save a people determined to grow suddenly rich."
As well Agloco deserves some more thrashing since they have come out with a hilarious payment schedule. And of course, I'll also write more market related commentary where more than a few plates of crow are on the menu.
But I did mention, and I hope you listened, to "Sell Something!" when the S&P 500 was around 1520. Since then the indices moved slightly higher (1560) but for the most part chopped and are now lower (1460).
Calling the intermediate market top as well as repeated calls for a bottom in mid August and early September, are rare feats. I doubt I can keep this up. But it will be fun to try.
As you might have noticed, I removed Google Adsense and will be monetizing using more unobtrusive methods. I've also tidied up the place a bit and will probably spruce up the theme and upgrade to the newest Wordpress version in a short while. So bear with me if things get a bit wonky.
There is a rumor that the (in)famous trader, Vic Niederhoffer, has blown up... again.
For those that aren't familiar with Niederhoffer nor his history, click here to read his wikipedia entry.
For those keeping track, this monumental blow up makes it 2 for 2. Vic came close last summer when he suffered a debilitating loss of around 30% !
Incredibly Matador (his hedge fund) clawed it's way back from the brink and survived.
But the rumor is that this time it is definitely over.
According to the unsubstantiated rumor, Matador has lost 93% of its funds! Their prime broker apparently forced a liquidation of their positions.
Seems the fund was short 15,000 1000 strike August '08 puts.
The same source is claiming that the Wall Street Journal will be coming out with an article about this. So keep an eye out for it.blow up, hedge fund, matador, Niederhoffer, wall street journal
Victor Niederhoffer's Matador Fund lost almost a third of its assets in May. If you know about Vic's history this isn't that surprising. The timing is interesting as he was just emerging from the shadow of his spectacular blow up in 1997 with great performance in his fund, a feature article in Bloomberg magazine and honors from his peers.
Apparently he was massively leveraged on the long side into the slide (he perennially prefers the long side). It turns out that after all he still hasn't learned humility (or risk management). The stock market is a wonderful teacher, but a very expensive one.
Consider what he said at the MARhedge party in April:
"The ridiculous thing, in all candor, is that I think I've had the greatest run of success in the history of speculation,"
Such extravagant and meaningless exaggeration is signature Niederhoffer.
Unless he can pull a rabbit of out of his proverbial hat, he's going to go down in flames again. A drop of 30% means he has to earn 50% just to come back to where he was. Can he do it? Yes, it's possible. But will his investors stick with him through such volatility? I doubt it. Most hedge funds, in fact, close up when faced with the task of climbing such a trough because even if they accomplish it (due to the high watermark) they're not getting paid for that performance.
Here is a relevant excerpt from a recent Bloomberg article:
"I'm really humble about my ignorance,'' says Jim Leitner of Falcon Management Corp., who estimates he's made more than $2 billion for investors and employers in his trading career. "Many traders I've met over the years approach the market as if they're smarter than other people. I have found this approach eventually leads to disaster when the market proves them wrong.''
Indeed.hedge fund, humility, Niederhoffer