OK, I have heard all the explanations, spreads are wider because there are fewer market makers, asset prices are rallying (market making firms are structurally long; it’s difficult and costly to go net short on that big a balance sheet), Goldman is currently the trading kingpin.
But I still find these factoids remarkable: Goldman lost money trading only one day last quarter and only two days the prior quarter.
Now maybe I am just hopelessly out of touch, or perhaps more accurately, the Fed has created such a ridiculously favorable environment for banks and traders that if you are moderately competent, making money is like shooting fish in a barrel. But a winning streak this consistent looks like a rigged game. Is this just, ahem, “information advantages”? Greater ease in pushing markets around that have fewer players? Just a function of those monstrously wide bid-asked spreads? I’m curious for a sanity check from people closer to the action.
The party line comes in the Financial Times:
The performance – revealed on Wednesday in a regulatory filing – compares with two losing trading days in the previous quarter and confirms that the authorities’ drive to revive markets after the crisis is yielding huge windfalls for some banks.
Before the crisis, banks regularly recorded trading losses on several days in a quarter.
Goldman made more than $100m in profits on 36 of the 65 days in the three months to September and recorded more than $50m in profit on more than eight out of 10 trading days, the filing shows.
These figures were down from the second quarter, when Goldman reported record trading revenues and had 46 days with $100m-plus in profits. The smaller number of days with $100m-plus profits in the third quarter partly reflects the bank’s decision to rein in risk-taking in areas such as interest rates and equities.
There is a suggestion here that banks like Goldman might be taking advantage of the Fed and Treasury (although that might be by design, yet another hidden subsidy), as has been intimated elsewhere:
Dealers say banks have made big profits by the timing of Fed purchases of government debt and subsequent Treasury debt sales, and by betting that the relationship between Treasury bonds and other fixed-income securities would normalise.
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Does anyone complain when Barrick Gold does well when the price of gold soars. You can’t deny Exxon their windfalls when crude oil spikes to $140 a barrel. GS is in an extractive industry like those companies. You may complain they have significant help from the Treasury and Federal Reserve. Well what do you think the priorities of the Interior and Energy Departments have been since 1980?
Ive heard wispers that they could 10x that, but wish to keep it on the low down. Oh and did you see that they are not using the 60min window anymore just the 3min and 60sec.
Skippy…pump it up baby…faster you go the harder you’ll hit the wall.
There was another guy who showed similar eerily consistent gains and no losses. I think his name was “Madoff” or something like that.
Ask not for whom the closing bell tolls…it tolls for market credibility and thus for the market itself. You’d have to be crazy or an idiot to get in the pool with the Squid. Ergo, equity markets are dead. Guess no one “important” cares. Anyone see the lack of volume and how the bulk of what there is is just gaming zombie bank shares?
It is our Stonehenge, a wonder for later eras to ponder.
I’m off to the 10-Qs, perhaps one can discern what the trades were. I doubt it, but then, one never knows. As to stiffing Treasury, that’s probably very close to truth, however, the game plan we are being fed is that its necessary so that we can reconstitute the financial system.
Whether there is nepotism, or any other ism, here or not, the Treasury needs the ‘primary dealer’ net work in order to facilitate the operation of the government.
I once recall that we felt that having a bank charter was akin to having a license to steal. Today, the big license is to be deemed to be a ‘primary dealer’ bank, TBTF in you prefer.
“But a winning streak this consistent looks like a rigged game. Is this just, ahem, “information advantages”? ”
Of course it is rigged and of course it is under the FED and Treasury sponsorship. This is a hidden tax on everyone else for the benefit of these firms. Now, if this was done to guaranty the health of the banking system then some can say well so be it. Where I really get angry is that this “fraud” is being perpetrated to increase the size of the bonuses of these banksters. Agter the Madoff debacle you would expect an SEC or FBI to look into such an stellar performance. Do not hold your breath this is sponsored fraud by the “change you can believe in” administration and will go on un-investigated . A $1M here a $1M there gets you the best government money can buy. JMHO
Drew,
I have no idea what you’re referring to in stating that the Fed and Treasury have helped oil and gold prices to soar “since 1980”. Does this maybe have something to do with your feelings about Reagan?
If so, then isn’t it a shame when reality doesn’t fit your political views?
After all, gold prices peaked in January 1980, and fell for the next 21 years.
Oil prices similarly peaked in 1980, and didn’t pass their 1980 price levels until roughly 2007.
Note that these price levels are not inflation adjusted.
If oil and gold markets are rigged to benefit corporate interests, then how was it good for Exxon when the oil price peaked in 1980, and also good for Exxon when it crashed to $8.00 in 1986; good for Exxon when it rose back to $30 or so in the Gulf War but just as good for Exxon when it fell back to $18 in 1998; good for Exxon when it went parabolic last year, and at the same time good for Exxon when it fell by 2/3 this year? Please explain how all this was done courtesy of the Department of Interior and the Fed.
Joe
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