Why will the dollar rally?

[Phone Booth]

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one thing i've noticed is that CDS markets seem to very strongly overreact and if i could find a way to go long a CDS index on 1 company (namely goldman) i'd think that it could be a profitable trade. i'd want to build a position though as the cost of insurance against goldman debt might rise as the extent of their exposure increases (they and mnay other banks might be practicing accounting tricks to get the total amount spread over a few quarters...though it may be more attractive to get it over with in one fell swooop...who knows what they'll choose to do)


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This is true - not being able to trade CDS as an individual in small denominations sucks in this market.

At the same, with the notional amount of CDS market being in gazillion dollars and big banks generally being net insurers/investors in this market, this does make you wonder about who's lost a ton (probably synthetic CDO investors) and may be forced to liquidate or deleverage.

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i'll offer you even money that goldman does not post any negative earnings in the next 3 quarters. to rephrase, goldman will post a positive profit for the next 3 (or 4 whatever you want) quarters. you can name your price.


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Nah, he won't take this bet on the basis that earnings don't mean anything when broker-dealers can just mark-to-whatever. Which is a valid objection, but I don't think brokerage firms are lying by much. Big commercial banks, on the other hand, I have no idea.

[gonebroke2]

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Nah, he won't take this bet on the basis that earnings don't mean anything when broker-dealers can just mark-to-whatever. Which is a valid objection, but I don't think brokerage firms are lying by much. Big commercial banks, on the other hand, I have no idea.

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Exactly. These companies are cooking the books by marking to model and not to market. When they eventually mark to market, some of these guys are going bust. I am not saying Goldman is going broke, but I sure as hell wouldn't be buying them. I am buying puts on them. This is not over by a longshot. Just beginning in my opinion.

[gonebroke2]

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lol, riiiiiiiiiiiight...the only thing keeping f*cking goldman sachs afloat is liquidity injections and a devaluation of the dollar.

Barron

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Keep laughing Barron. I haven't seen you make one right call yet on these forums. These stocks are over inflated pigs and they are going to get slaughtered. Sitting on massive profits in gold and you were the one calling me an idiot for being long on it. Stick to your textbooks and the world of academia.

[PLOlover]

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lol, riiiiiiiiiiiight...the only thing keeping f*cking goldman sachs afloat is liquidity injections and a devaluation of the dollar.

it couldn't be that even if every single dollar goldman has invested in subprime paper off and on balance sheet were worth absolutely nothing, goldman would still be an extremely valueable company. their earnings were solid, but suspect. even if the suspect part (8bil trading profits w/ 2.5bil coming from inhouse pricing models of illiquid "level III" assets) was worth nothing they'd still have 5.5bil in profits. they were also smart enough to big time short mortgage backed assets and made a ton there. so point is that goldman is not a bank standing on a shaky cliff.

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why is the fed pumping money to them then?

[DcifrThs]

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Nah, he won't take this bet on the basis that earnings don't mean anything when broker-dealers can just mark-to-whatever. Which is a valid objection, but I don't think brokerage firms are lying by much. Big commercial banks, on the other hand, I have no idea.

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Exactly. These companies are cooking the books by marking to model and not to market. When they eventually mark to market, some of these guys are going bust. I am not saying Goldman is going broke, but I sure as hell wouldn't be buying them. I am buying puts on them. This is not over by a longshot. Just beginning in my opinion.

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ok, so let's change the bet.

i'll completely neglect (count as zero) all gains goldman claims on level III trading activities. specifically, all gains on assets/sales that are "marked to model." in this case, of the $8bil trading profits, i'd count only 5.5bil of trading profits instead of the $8bil reported due to $2.5bil of level III profits.

further, ANYTHING marked to model i'll count as absolutely worthless (i.e. zero)

i'll now offer even money on those terms that goldman sachs does not report 1 quarter of negative earnings in the next 5 quarters.

given your previous statement that i won't quote here now but will gladly if you don't take this offer, this should be the easiest bet for you in the world.

Barron

[DcifrThs]

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lol, riiiiiiiiiiiight...the only thing keeping f*cking goldman sachs afloat is liquidity injections and a devaluation of the dollar.

Barron

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Keep laughing Barron. I haven't seen you make one right call yet on these forums. These stocks are over inflated pigs and they are going to get slaughtered. Sitting on massive profits in gold and you were the one calling me an idiot for being long on it. Stick to your textbooks and the world of academia.

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selection bias FTW!!!

Barron

[The once and future king]

Barclays Bank predicted to take a 40% profit hit.

[The once and future king]

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one thing i've noticed is that CDS markets seem to very strongly overreact

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CDS trader warns of blood on the streets.

[DcifrThs]

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one thing i've noticed is that CDS markets seem to very strongly overreact

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CDS trader warns of blood on the streets.

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that actually doesn't seem like the over-reaction i was thinking of...(citi jumping from 27 to still well under 100)

when goldman's cost of insurance rose to over 100bps, that was definitely the type of overreaction i had in mind...

Barron

[DcifrThs]

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lol, riiiiiiiiiiiight...the only thing keeping f*cking goldman sachs afloat is liquidity injections and a devaluation of the dollar.

it couldn't be that even if every single dollar goldman has invested in subprime paper off and on balance sheet were worth absolutely nothing, goldman would still be an extremely valueable company. their earnings were solid, but suspect. even if the suspect part (8bil trading profits w/ 2.5bil coming from inhouse pricing models of illiquid "level III" assets) was worth nothing they'd still have 5.5bil in profits. they were also smart enough to big time short mortgage backed assets and made a ton there. so point is that goldman is not a bank standing on a shaky cliff.

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why is the fed pumping money to them then?

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what?? the fed (rightly or wrongly) is not "pumping money to them" as it is to the economy in order to attempt to reduce the chance of a recession. the last quarters growth #s were rediculously good and probably won't last another quarter or two.

the employment situation also looks amazing especially given all the turmoil in the credit markets.

one very real possibility is that it will take a few months to a year or so for the turmoil to work its way into the real economy...

...but, it will also take many months (about 6, maybe more w/ the housing mechanism in poor shape) for the effect of interest rate cuts to work their way through to the real economy.

so the fed is simply trying to move in ahead of any huge fall in growth, not specifically to prop up failed insurers. bernanke (and his counterpart at the BoE) is aware of the moral hazard that can lead to similar problems in the future and i don't think he is happy about having to cut rates w/ inflationary pressures so high and growth still pretty strong in order to avert the big threats to growth down the line.

that being said, it is very clear the fed has a bias for lower rates.

anyways, i think i went far to deep given the level of your post...short answer: "lol, the fed could raise rates and goldman would still post a profit & the fed isn't cutting rates w/ goldman sachs's bottom line in their scope"

Barron