As Bloomberg reports. Goldman lost money on more trading days in the first quarter than Lehman or Morgan Stanley, although its winning days outnumbered its losers by more than four times. Thus, the fact that Goldman outdid its rivals on this peculiar metric is a sign of undue caution on the part of its competitors, consistent with a preoccupation with minimizing losses.
From Bloomberg:
Goldman Sachs Group Inc., the biggest U.S. securities firm by market value, lost money on more trading days during the first quarter than rivals Morgan Stanley or Lehman Brothers Holdings Inc., according to regulatory filings.
In the three months through Feb. 29, Goldman lost money on 17 days, compared with eight days at Morgan Stanley and seven at Lehman Brothers, the filings show. Goldman’s trading department also had more big wins, raking in $100 million or more on 28 occasions, compared with 20 days at Morgan Stanley. Lehman reported it made more than $90 million on 13 days.
“Goldman Sachs takes a more aggressive posture on trading and feels confident doing so because they have some of the most talented people,” said David Killian, a portfolio manager at Stoneridge Investment Partners….“They’re in the business of trading and taking on risk, and they’ve shown that they’re better than peers over the cycle.”
Goldman, under Chief Executive Officer Lloyd Blankfein, depends on trading for 68 percent of the New York-based firm’s revenue, more than either Morgan Stanley or Lehman. While Goldman’s first-quarter trading revenue slumped 27 percent to $5.66 billion from a year ago, it remained higher than Morgan Stanley’s $5.13 billion or Lehman’s $1.67 billion.
The filings also show that Goldman lost $100 million or more on five trading days during the quarter. Morgan Stanley lost more than $100 million on one day, while Lehman reported that it lost more than $60 million on three separate occasions.
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Thus, the fact that Goldman outdid its rivals on this peculiar metric is a sign of undue caution on the part of its competitors, consistent with a preoccupation with minimizing losses.
How does this conclusion necessarily follow from the facts stated? It could just as easily be the case that Goldman is using Black Swan trading logic more effectively than their rivals. If this is true, I’d argue that it is the latter who are more exposed from a risk standpoint.
Or… maybe GS is lucky.
Take more risk, earn more money, but every once in a while you go bankrupt. GS almost went bankrupt with the interest-rate debacle in the early 90s, and they almost went bankrupt again when LTCM went bust. They’ll have another brush with disaster, despite they’re being So Smart.
I have to agree with the others… This is not one of your most brilliant analyses. :-)
I bet Goldman is pissed and will push more chips into a bigger pile to save face!
Goldman also still attempts sells subprime auto loans through one of its many vehicles/subs/entities/structures/conduits (to no avail).
I’m still trying to figure out which role Goldman plays in this “closet drama”, but I think it’s fairly obvious they represent Mephistopheles:
The story concerns the fate of Faust in his quest for the true essence of life (“was die Welt im Innersten zusammenhält”). Frustrated with learning and the limits to his knowledge and power, he attracts the attention of the Devil (represented by Mephistopheles), whom Faust makes a deal to serve until the moment that Faust attains the zenith of human happiness, at which point Mephistopheles may take his soul. Goethe’s Faust is pleased with the deal, as he believes the moment will never come.
Seems like a perfectly logical deduction to me and almost certainly true
remember when we had clarity
http://www.youtube.com/watch?v=_RpSv3HjpEw
So they all happily made billions in trading profits again.
But trading doesn’t add any real value to the assets traded
Do we see another round of pump up the asset prices?
Who were the counterparties in these ‘profitable’ trades? Or are they trading with each other, shuffling garbage around, propping up it’s ‘market value’ in doing so?
I’d like a definition of “trading”. How much of it is because of a protected position, such as being a primary dealer of government securities, or is a follow on to underwriting? Maybe the majority of the dollar volume is from guys sitting there like normal john q. public numbnuts daytraders, only with more capital, but somehow I doubt it. I do know however that most of this money is essentially skimming off the top of returns to the capital of the rest of our society, i.e. yours and my pension, 401K and mutual funds. CF Warren Buffett’s “helpers” analogy. Plus we have to guarantee them because they’re too big to fail. Plus the comment cited from FT on Deutsche Bank yesterday: its like a soccer club, where all of the profits go to the players. Bad cess to them all!
Anonymous 6:02 said it.
I feel like puking when I hear that Goldman Saks makes their money by trading. So do Las Vegas Casinos. The house always wins. They have to let the suckers win a few to keep em coming back.
Gimme a break. This is the outfit who made the vig by shorting the shit they were selling to their customers. Aren’t they wonderful ?
YVES>
Hey, thanks for all you do here, hope your doing well! Here is a gift from Greenspan which is directly related to Goldman exploding today; great stuff IMHO:
http://www.slate.com/id/2096313/
Calculations by market analysts of the “option-adjusted spread” on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners’ annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.
ok, maybe I need to explain that a little above….LOL,
First of all, you have to go to the link: http://www.slate.com/id/2096313/
which goes back to a story from 2/27/2004:
Alan Greenspan: ARMed and DangerousThe Federal Reserve chairman’s weird affection for adjustable-rate mortgages.
By Daniel Gross
Re: Greenspan explained why consumers might be better off considering adjustable-rate mortgages, or ARMs, instead of standard fixed-rate mortgages. While fixed-rate mortgages have their benefits, he noted that: (see previous post).
Is that backwards or what? Anyway, the reference to “option-adjusted spread” is related to Goldman, in regard to Level 3 Assets in the MBS pools they tinker with:
Re: The Investment Adviser will use a sophisticated analytical process including Goldman Sachs’ option-adjusted spread model to assist in structuring and maintaining the Fund’s investment portfolio.
The Investment Adviser will use a sophisticated analytical process involving Goldman Sachs’ proprietary mortgage prepayment model and option-adjusted spread model to structure and maintain the Government Income Fund’s investment portfolio.
Much of the research focus is on understanding model risk, which requires the Investment Adviser to understand how popular prepayment models are biased under different market scenarios. The Investment Adviser constructs a view which attempts to gauge how popular prepayment models will predict prepay activity across the broad spectrum of different mortgage instruments which spans all the major fixed-rate, single family mortgage sectors — level-pay and balloon, agency and non-agency. The Investment Adviser develops an independent view of how these popular models may not have kept up with recent changes in the individual homeowner’s decision process. For example, there have been material changes over the last decade in the way in which homeowners have access to mortgage refinancing: from the evolution of the mortgage broker market to access via internet applications to current trends in underwriters soliciting their own mortgage holder base for refinancing.
The Investment Adviser will use a sophisticated analytical process including Goldman Sachs’ option-adjusted spread model to assist in structuring and maintaining the Fund’s investment portfolio.
The Investment Adviser will use a sophisticated analytical process involving Goldman Sachs’ proprietary mortgage prepayment model and option-adjusted spread model to structure and maintain the Government Income Fund’s investment portfolio.
Much of the research focus is on understanding model risk, which requires the Investment Adviser to understand how popular prepayment models are biased under different market scenarios. The Investment Adviser constructs a view which attempts to gauge how popular prepayment models will predict prepay activity across the broad spectrum of different mortgage instruments which spans all the major fixed-rate, single family mortgage sectors — level-pay and balloon, agency and non-agency. The Investment Adviser develops an independent view of how these popular models may not have kept up with recent changes in the individual homeowner’s decision process. For example, there have been material changes over the last decade in the way in which homeowners have access to mortgage refinancing: from the evolution of the mortgage broker market to access via internet applications to current trends in underwriters soliciting their own mortgage holder base for refinancing.
Maybe I need a vacation?