Goldman gets 'annihilated' in FX market, loses $1 Billion, tries to talk up positions

With such a spectacular source of impeccably timed, if always wrong, FX trading recommendations as Tom Stolper, who has cost his muppets clients tens of thousands of pips in currency losses in the past 5 years, and thus generated the inverse amount in profits for Goldman's trading desks, the last thing we expected to learn was that Goldman's currency traders, who by definition takes the opposite side of its Kermitted clients - because prop trading is now long forbidden, (right Volcker rule?) and any prop trading blow up in the aftermath of the London Whale fiasco is not only a humiliation but probably illegal - had lost massive amounts on an FX trade gone wrong. Which is precisely what happened.

According to the WSJ, "a complex bet in the foreign-exchange market backfired on Goldman Sachs Group Inc. during the third quarter, people familiar with the matter said, contributing to a revenue slump that prompted senior executives to defend the firm's trading strategy. Revenue in Goldman's currency-trading business fell sharply in the third quarter from the second. Within that group, the firm's foreign-exchange options desk posted a net loss during the period, the people said." The trade in question: "A structured options trade tied to the U.S. dollar and Japanese yen steepened the decline, according to the people. It isn't clear how large the trade was or how long it was in place."

Curious: does this perhaps explain why just after Q3 ended, on October 3, Goldman's head FX strategist Tom Stolper came out with an FX trade in which Goldman "recommend going short $/JPY at current levels of about 97.30 for a tactical target of 94.00, with a stop on a close above 98.80." Obviously, we promptly took the inverse side: "The only question we have: will the length of time before Stolper is once again Stolpered out be measured in days, or hours?" Naturally, Stolper was stolpered stopped out in a few short days, leading to a few hundred pips in profits for those who faded Stolper... and yet we wonder: was Goldman merely trying to offload its USDJPY exposure gone wrong on its clients in the days after the "trade tied to the USD and the JPY steepened the decline"? If so, that would be even more illegal than Goldman pretending to be complying with the Volcker Rule.

As for the size of the total loss we had a hint that something had gone very wrong when we reported Goldman's Q3 earnings broken down by group. Back then we said "the only bright light were Investment banking revenues which were $1.7 billion, unchanged from a year ago, if down 25% from Q2. It's all downhill from here, because the all important Fixed Income, Currency and Commodities group printed just $1.247 billion, down a whopping 44% Y/Y, well below expectations." Indicatively, Goldman had made $2.5 billion in FICC the prior quarter, and $2.2 billion a year prior. Obviously something bad had happened.

We now know that that something was an FX trading crashing and burning in Goldman's face. Reuters added:

Goldman Sachs Group Inc lost more than $1 billion on currency trades during the third quarter, recent regulatory filings show, offering some insight into why the firm, considered one of Wall Street's most savvy traders, reported its worst quarter in a key trading unit since the financial crisis.

Goldman's currency-trading problems came from the way the bank had positioned itself in emerging markets, two sources familiar with the matter said.

Specific positions could not be learned, but the bank was anticipating that the Federal Reserve would begin winding down its monetary-easing programs, the sources said. When the Fed unexpectedly announced that it would keep its massive bond-buying program in place,Goldman was left with positions that, "absolutely got annihilated," as one person familiar with the matter put it.

Since as the WSJ first reported the position involved the USDJPY, which first spiked then plunged following the Fed's non-taper announcement, and kept sliding until it hit 96.50 in early October just when Stolper suggested putting on the short USDJPY trade (when USDJPY soared), it seems that at least this one time both Goldman's prop traders and the trade recommended by Stolper were on the same side.

Which resulted in a $1+ billion loss for Goldman.

Congratulations Tom: that in itself is worth ignoring that Goldman completely made a mockery out of any and all Volcker prop-trading prohibitions. In fact, keep it up and keep those trade recommendations coming.

http://www.zerohedge.com/news/2013-11-20/lets-hear-it-volcker-rule-goldman-loses-over-1-billion-fx-trade-gone-bad-q3

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US government released fake unemployment numbers

The U.S. government in the final months leading up to the 2012 presidential election released “faked” unemployment data, according to a bombshell report from the New York Post.

Recall that the unemployment rate from August to September dropped precipitously to 7.8 percent from 8.1 percent. This raised suspicion among certain members of the business community, most notably formerGeneral Electric CEO Jack Welch.

“Unbelievable jobs numbers,” Welch said in an Oct. 5 tweet, “these Chicago guys will do anything…can’t debate so change numbers.”

He was quickly attacked by cable news pundits and branded by one group as an “unemployment-rate truther.”

http://www.theblaze.com/stories/2013/11/18/if-these-claims-by-reliable-sources-are-proven-true-the-obama-administration-will-be-dealing-with-another-huge-scandal/ 

Along with Zero Hedge and Jack Welch, CNBC's Rick Santelli was among the most vocal "jobs truther" in the run-up to last year's election - and suffered the same snark from the mainstream media at such conspiracy theories as to suggest the most important number in the world could be (or would be) manipulated. One year on, we now know the truth and asSantelli rages "if we knew then, what we know now," the world could be a very different place, as "all outcomes could have changed." Santelli raged at the time, "things just didn't feel right," and he was right, perhaps, as he concludes in the brief clip below, the American media "must do better."

http://www.zerohedge.com/news/2013-11-19/santelli-slams-jobs-manipulation-scandal-american-media-you-can-do-better

The Forex Paradox - Is Forex a net loser?

The Forex market is the largest in the world and the least understood.  Since the late 90's, traders and asset managers have flocked to it as an alternative to trade, compared to other common markets (Stocks, Bonds, Futures).  

But due to the fact that the market is decentralized, and unregulated, it also attracted a large amount of fraud, on many levels.  First, there was outright theft by groups such as the one led by Trevor Cook ($190 Million Ponzi scheme).  Then there were sham brokers, in the most extreme case, like One World Forex, that simply didn't bother clearing client orders and used client funds to finance lavish lifestyles and a movie that was never released featuring Busta Rhymes.  Those in the new growing retail market on both sides of the dealing desk developed a special bond going through a unique experience that just wasn't possible in other markets.  

It was said that this was a retail problem, that serious institutional Forex was not aparty to such nonsense.  But now the world's largest investment banks are under investigation by the Department of Justice for Forex market rigging.  This includes names such as Goldman Sachs, Lloyds of London, JP Morgan Chase, Barclays, Citigroup, just to name a few (the full list of names has not been released).

It was always a question that Forex outsiders would ask, why the big banks didn't get into retail Forex trading.  Now we know that not only were some banks charging 7% (700 pip) spread on deliverable transactions, they were 'banging the close' and had basically a near complete control over the price.  So why would they take any risk?

But one of the most overlooked news stories is that of FX Concepts, known as the Rolls Royce of Forex funds, being the first in the business and eventually the largest FX hedge fund.

From Hedge Fund Alert:

Less than a year before his currency-trading shop filed for
bankruptcy, FX Concepts founder John Taylor personally guaranteed a
chunk of the debt his firm owes to its largest creditor.

Asset Management Finance, a Credit Suisse unit that has invested
in a number of prominent hedge fund-management firms in the past decade,
provided $40 million of debt financing to FX Concepts via two
revenue-sharing agreements in 2006 and 2010. But in December 2012, as
opportunities in the currency market continued to fade and redemptions
mounted, Taylor was forced to renegotiate the financing package. The
Credit Suisse unit agreed to defer eight quarterly revenue-sharing
payments in exchange for Taylor’s personal guarantee for those
obligations. As of Oct. 17, when the firm filed for Chapter 11, FX
Concepts owed Asset Management Finance $34.4 million, with Taylor on the
hook for $5 million of the total. “AMF is going to clearly try to get money out of John,” a source said. “By any stretch of the imagination, it’s not there.”

The terms of the refinancing deal with Asset Management Finance,
spelled out in recent court documents, suggest FX Concepts was in even
worse shape than previously understood. The fact that Taylor had to
personally guarantee his firm’s obligations underscores a dramatic
decline for a business that for years was the world’s largest
currency-fund operator, with more than $12 billion of assets. As
recently as the first quarter, FX Concepts had $1 billion under
management. 

When traders would debate "is anyone making money in FX" - proponents of Forex investing and trading would point to FX Concepts as an example as a group that was continually successful.  For years they had multiple products that continued to acheive above average returns in the mysterious FX market.  Until now.  Not only is FX Concepts shutting down, creditors are going after the founder who pledged personal guarantees on capital when performance started struggling.

Certainly not every Forex trader or strategy loses, but with the losses incurred by FX Concepts, we should rethink our approach to trading Forex.

http://www.zerohedge.com/contributed/2013-11-14/forex-paradox-forex-net-loser

CME Hacked

The Chicago Mercantile Exchange admits that in July it was hacked:

• *CME HAD CYBER INTRUSION IN JULY, SOME CUSTOMER INFO COMPROMISED
• *CME: SOME CUSTOMER INFO ON CME CLEARPORT PLATFORM COMPROMISED
• *CME GROUP NO EVIDENCE TRADES ON CME GLOBEX ADVERSELY IMPACTED

Algos # 0001 through #9999 now have their Vacuum Tube Security Number leaked

Via CME,

In a communication to certain customers today, CME Group confirmed it was the victim of a cyber intrusion in July, making it one of the many organizations subject to this type of crime in recent months.

To date, there is no evidence that trades on CME Globex were adversely impacted, or that the provision of clearing services by CME Clearing or CME Clearing Europe, or trading in CME markets, were disrupted.

CME Group takes these events very seriously and places a high priority on protecting its customers' information and ensuring the integrity of its markets.  Though CME Group maintains sophisticated systems, teams and processes to prevent such incidents, and promptly took significant actions to address the incident, CME Group has learned that certain customer information relating to the CME ClearPort platform was compromised.  To protect participants, CME Group forced a change to customer credentials impacted by the incident, and is corresponding directly with the impacted customers.

The incident is the subject of an ongoing federal criminal investigation and CME Group is cooperating with law enforcement in its investigation into this matter.

http://www.zerohedge.com/news/2013-11-15/cme-hacked

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Chart: Major Central Banks Asset Growth vs. GDP Growth

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Ron Paul Exposes The Fed-Driven Erosion Of US Living Standards

One of the least discussed, but potentially most significant, provisions in President Obama’s budget is the use of the “chained consumer price index” (chained CPI), to measure the effect of inflation on people’s standard of living. Chained CPI is an effort to alter the perceived impact of inflation via the gimmick of “full substitution." This is the assumption that when the price of one consumer product increases, consumers will simply substitute a similar, lower-cost product with no adverse effect. Thus, the government decides your standard of living is not affected if you can no longer afford to eat steak, as long as you can afford to eat hamburger.
The problem with “full substitution” should be obvious to anyone not on the government payroll. Since consumers did not choose to buy lower-priced beef before inflation raised the price of steak, they obviously preferred steak. So if the Federal Reserve’s policies create inflation that forces you to purchase hamburger instead of steak, your standard of living is lowered. CPI already uses this sort of substitution to mask the costs of inflation, but chained CPI uses those substitutions more frequently, thereby lowering the reported rate of inflation.
Supporters of chained CPI also argue that the government should take into account technology and other advances that enhance the quality of the products we buy. By this theory, increasing prices signal an increase in our standard of living! While it is certainly true that advances in technology improve our standard of living, it is also true that, left undisturbed, market processes tend to lower the prices of goods. Remember the mobile phones from the 1980s? They had limited service, constantly needed charging, and were extremely expensive. Today, almost all Americans can easily afford a mobile device to make and receive calls, texts, and e-mails, as well as use the Internet, watch movies, read books, and more.
The same process occurred with personal computers, cars, and numerous other products. If left alone, the operations of the market place will deliver higher quality and lower prices. It is only when the government interferes with the operation of the market, especially via fiat money, that consumers must contend with constant price increases.
The goal of chained CPI is to decrease the government's obligation to meet its promise to keep up with the cost of living in programs like Social Security. But it does not prevent individuals who have a nominal increase in income from being pushed into a higher income bracket. Both are achieved without a vote of Congress.
Noted financial analyst Peter Schiff correctly calls chained CPI a measurement of the cost of survival. Instead of using inflation statistics as a political ploy to raise taxes and artificially cut spending, the President and Congress should use a measurement that actually captures the eroding standard of living caused by the Federal Reserve’s inflationary policies. Changing government statistics to exploit the decline in the American way of life and benefit big spending politicians and their cronies in the big banks does nothing but harm the American people.

And here is Ron Paul addressing - among other things - the counter-factual supporting the "but what would we do without them" argument for the Fed...

Whopping 932,000 Americans Drop Out Of Labor Force In October; Participation Rate Drops To Fresh 35 Year Low

The only two charts that matter from today's distroted nonfarm payrolls report.
First, the labor force participation rate, which plunged from 63.2% to 62.8% - the lowest since 1978!
[2]
But more importantly, the number of people not in the labor force exploded by nearly 1 million, or 932,000 to be exact, in just the month of October, to a record 91.5 million Americans! This was the third highest monthly increase in people falling out of the labor force in US history.
[3]
At this pace the people out of the labor force will surpass the working Americans in about 4 years.

http://www.zerohedge.com/print/481190

ECB surprise rate cut sends Euro crashing

In a shocking move, the ECB cut the interest rate by 25 basis points to .25%.

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

1. The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 0.25%, starting from the operation to be settled on 13 November 2013.
   
2. The interest rate on the marginal lending facility will be decreased by 25 basis points to 0.75%, with effect from 13 November 2013.
   
3. The interest rate on the deposit facility will remain unchanged at 0.00%.
   

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 2.30 p.m. CET today.

EUR/USD Hourly chart



ECB Press Conference Live on FJ at 8:30 ET http://www.financialjuice.com

Rich families hoarding cash: Citi

A new survey of family offices by Citi finds that the wealthy are cash heavy—meaning they may fall short of the investment returns they're expecting.
Wealthy families have about 39 percent of their assets in cash, according to a recent poll of more than 50 large family office representatives from 20 countries conducted by Citi Private Bank.
Stocks represented about 25 percent of portfolios on average. Bonds were about 17 percent of the asset mix and various classes of less liquid and alternative investments amounted to 19 percent.

http://www.cnbc.com/id/101157290

The Wall Street Code

http://www.zerohedge.com/contributed/2013-11-04/wall-street-code-released

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DOJ confirms criminal investigation of Forex manipulation by banks

Oct 29 (Reuters) - The U.S. Justice Department is investigating the manipulation of foreign exchange rates, a top federal prosecutor said on Tuesday, in the first public acknowledgement of such a probe in the United States.

Criminal and antitrust authorities have an "active, ongoing investigation" into the possible manipulation, Mythili Raman, the acting head of the department's criminal division, said.

The confirmation comes on the same day Dutch bank Rabobank agreed to pay more than $1 billion to resolve allegations that it manipulated Libor and other benchmark rates. And other European banks that face related probes disclosed they set aside major sums to cover legal costs.

 http://www.reuters.com/article/2013/10/29/forex-probe-idUSL1N0IJ19820131029?feedType=RSS&feedName=financialsSector

 Deutsche Bank confirmed it was cooperating with regulators probing the foreign exchange market as investigators across the globe look into the multi-trillion industry that sets foreign currency rates.

 http://www.reuters.com/article/2013/10/29/forex-probe-deutschebank-idUSL5N0IJ3PK20131029?feedType=RSS&feedName=financialsSector

Banks fined over Libor scandal

Dutch bank Rabobank says it has agreed to pay fines of 774m euros ($1bn; £662m) imposed by US, UK and Dutch regulators over the Libor interest rate-fixing scandal.

http://www.bbc.co.uk/news/business-24730242

Deutsche Bank AG (DBK), Europe’s largest investment bank by revenue, said third-quarter profit slid 94 percent after it set aside 1.2 billion euros ($1.65 billion) to cover potential legal costs and income from debt trading fell.
Net income in the three months through September dropped to 41 million euros from 747 million euros in the year-earlier period, the Frankfurt-based bank said in a statement on its website today. That missed the 430 million-euro average estimate of 12 analysts surveyed by Bloomberg.

http://www.bloomberg.com/news/2013-10-29/deutsche-bank-profit-falls-94-as-trading-revenue-slumps.html