Goldman Sachs Has First Perfect Quarter With Zero Trading Loss(bloomberg.com)
bloomberg.com
Goldman Sachs Has First Perfect Quarter With Zero Trading Loss
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHRgsfzJINXw&pos=5
7 comments
Liquidity, mostly.
They are 'market makers'. If you're a big {pension, real estate, rrsp}fund and want to make a trade, say a purchase, you need to call your trader directly. The trader will sell you some of their own (if they have it on their books), or will contact other people who they think may have extra supply on your behalf.
They are the 'grease of the economy'. In theory, it makes markets run smoother, which leads to greater efficiencies for everyone, and makes the world a better place.
(in theory)
They are 'market makers'. If you're a big {pension, real estate, rrsp}fund and want to make a trade, say a purchase, you need to call your trader directly. The trader will sell you some of their own (if they have it on their books), or will contact other people who they think may have extra supply on your behalf.
They are the 'grease of the economy'. In theory, it makes markets run smoother, which leads to greater efficiencies for everyone, and makes the world a better place.
(in theory)
The thing is that it goes both ways. The liquidity that they provide can just as quickly be pulled back as we saw during the Lehman collapse. I'm not sure it provides value.
Someone has to create the wealth that supports liquidity.
I think you are suggesting that there's something less worthwhile about wealth made via liquidity creation than other forms of wealth.
On that theme - would you say that it is more noble to be a mechanic than programmer, and more noble to be a farmer than a mechanic?
On that theme - would you say that it is more noble to be a mechanic than programmer, and more noble to be a farmer than a mechanic?
Theoretically, they are finding inefficiencies in the market and eliminating them through a better allocation of capital (and of course profiting from the effort).This is the role of any trader/speculator in a market. Some will be right in their analysis, others wrong, and all known information gets reflected in an asset price. Not having a single down day an an entire quarter basically means that at the end of each day the aggregate of their bets were on the winning side. Given the presumed stochastic nature over small time frames of the markets, that's quite a feat. That said, given the other headlines they've made recently,I strongly emphasize the first word of this reply.
It should be noted it's $25 million profit per day for 63 days, or $1.575 Billion for the quarter. To put it in perspective, that's not very far from Google's quarterly profit (~1.9B)
Yes same stated profit, but they pay half their revenues to their employees. Otherwise their profit would be far higher.
A lot of the money they make is on high-speed passive market-making, and they value of this is far tighter spreads on stocks. Compare spreads on the NYSE now to twenty years ago. (Moe, we have to stop meeting like this.)
[deleted]
Not hard to get zero trading loss if the government bails you out when you lose... ;-)
Pavlovian anti-GS hysteria at its best...
Note the visual indication of what's known as a "joke".
The joke is no longer amusing. Everyone is attacking GS, from utterly clueless uneducated morons to utterly devious dumb politicians with a private agenda. By attacking GS in such a gratuitous manner, one reminds others of such tragicomedy.
So everyone who criticizes Goldman is stupid? Is that by definition, or is there an intelligent critique out there that hasn't yet been made? What, if anything, would cause you to criticize Goldman? What, if anything would cause you to laugh at Goldman?
These aren't sarcastic rhetorical questions, I really want to know. From where I'm standing, it seems that Wall Street is deeply corrupt, and Goldman's success comes from their unparalleled ability to turn that to their advantage. Reasonable and more knowledgeable people may disagree, and many do (eg, Warren Buffet). But I'm puzzled by those who get angry at the suggestion that Goldman in particular and Wall Street in general are anything less than paragons of virtue.
Surely this is a legitimate topic for discussion. If these guys screw up we all suffer, and there are a lot of people suffering acutely right now. I'm wrong, fine. I'm willing to be educated. But I don't appreciate being dismissed as a moron.
These aren't sarcastic rhetorical questions, I really want to know. From where I'm standing, it seems that Wall Street is deeply corrupt, and Goldman's success comes from their unparalleled ability to turn that to their advantage. Reasonable and more knowledgeable people may disagree, and many do (eg, Warren Buffet). But I'm puzzled by those who get angry at the suggestion that Goldman in particular and Wall Street in general are anything less than paragons of virtue.
Surely this is a legitimate topic for discussion. If these guys screw up we all suffer, and there are a lot of people suffering acutely right now. I'm wrong, fine. I'm willing to be educated. But I don't appreciate being dismissed as a moron.
Reasonable and more knowledgeable people may disagree, and many do (eg, Warren Buffet).
You do know that Buffet has a $5 billion investment with Goldman Sachs? Of course he would defend them.
You do know that Buffet has a $5 billion investment with Goldman Sachs? Of course he would defend them.
Yes, I'm aware of his investment. But he seems pretty reasonable, and he's definitely more knowledgeable than I am.
What's interesting about Buffet's position is that - aside from the Goldman investment - his stated philosophy and track record are at odds with Wall Street. See, for example, his criticism of hedge funds, and his preference for investing rather than trading. Is his involvement with Goldman a departure from his usual MO?
What's interesting about Buffet's position is that - aside from the Goldman investment - his stated philosophy and track record are at odds with Wall Street. See, for example, his criticism of hedge funds, and his preference for investing rather than trading. Is his involvement with Goldman a departure from his usual MO?
you can drive a truck trough his usual MO as portrayed by his PR!
first he calls derivatives "weapons of mass destruction", next thing you know he's loading up on index options!
first he calls derivatives "weapons of mass destruction", next thing you know he's loading up on index options!
Thanks for the intelligent comment. Finally!
I am not against intelligent critique of GS, the government, whatever. In fact, such critique is required to ensure the proper functioning of the system, closing the feedback loop and providing the required checks. What I am against is Pavlovian unintelligent critique, and one sees a lot of that when the topic is Wall Street. And even though a lot of HN'ers are deeply knowledgeable about Finance, the majority is clearly clueless. This is HN, after all, not NucPhyn.
I am no GS'er, nor am I their useful idiot. They are merely maximizing their utility through whatever means necessary. The one difference between me and you guys is that I don't claim that I am a saint who would be uncapable of doing what GS is doing if I were on their shoes. It's easy to be full of virtue when one does not have the chance to do any evil. Business is hard, but the players in the financial market are voluntary participants. If GS has an information edge and rapes everyone else on a regular basis, maybe the prey should leave the market. It's a winner-take-all scenario, whether we like it or not.
Change the regulation, they will find a new way of gaming the system. Increase taxes, and they will find a loophole. The only way of taming these hyper-motivated people is by eliminating all economic freedom, and I oppose that on ideological grounds. So, I am happier to have a market where GS pillages their counterparties than to have the alternative scenarios. No one said that the best of all worlds was ever attainable. It sucks. One could try to change human nature, but we all know how that worked in the past...
I am not against intelligent critique of GS, the government, whatever. In fact, such critique is required to ensure the proper functioning of the system, closing the feedback loop and providing the required checks. What I am against is Pavlovian unintelligent critique, and one sees a lot of that when the topic is Wall Street. And even though a lot of HN'ers are deeply knowledgeable about Finance, the majority is clearly clueless. This is HN, after all, not NucPhyn.
I am no GS'er, nor am I their useful idiot. They are merely maximizing their utility through whatever means necessary. The one difference between me and you guys is that I don't claim that I am a saint who would be uncapable of doing what GS is doing if I were on their shoes. It's easy to be full of virtue when one does not have the chance to do any evil. Business is hard, but the players in the financial market are voluntary participants. If GS has an information edge and rapes everyone else on a regular basis, maybe the prey should leave the market. It's a winner-take-all scenario, whether we like it or not.
Change the regulation, they will find a new way of gaming the system. Increase taxes, and they will find a loophole. The only way of taming these hyper-motivated people is by eliminating all economic freedom, and I oppose that on ideological grounds. So, I am happier to have a market where GS pillages their counterparties than to have the alternative scenarios. No one said that the best of all worlds was ever attainable. It sucks. One could try to change human nature, but we all know how that worked in the past...
If GS has an information edge and rapes everyone else on a regular basis, maybe the prey should leave the market. It's a winner-take-all scenario, whether we like it or not.
Hardly the definition of a well-functioning market. Pretty much all economists agree that monopoly outcomes are a bad thing.
What I find unsettling about this report is the supposed consistency of GS - they came out ahead of the market every single day? Really? The phrase 'too good to be true' springs to mind.
Hardly the definition of a well-functioning market. Pretty much all economists agree that monopoly outcomes are a bad thing.
What I find unsettling about this report is the supposed consistency of GS - they came out ahead of the market every single day? Really? The phrase 'too good to be true' springs to mind.
Even if you're not playing in the financial markets yourself, in the end you still pay higher prices for goods and services for every extra middleman in the value chain (from shareholders to suppliers to manufacturers ...) taking his/her cut.
.Replace("GS", "Pirates")
I can't. The trademark is already registered ;-)
http://en.wikipedia.org/wiki/Pirate_Capital_LLC
http://en.wikipedia.org/wiki/Pirate_Capital_LLC
The only way of taming these hyper-motivated people is by eliminating all economic freedom, and I oppose that on ideological grounds
speaking of ideology, the premise of Free Market is that government and society at least try to prevent fraud.
I'm myself not sure that GS is fraud, but maybe that's how their business of front-running and "intelligent market-making" will be defined by their former clients and society in few years from now.
speaking of ideology, the premise of Free Market is that government and society at least try to prevent fraud.
I'm myself not sure that GS is fraud, but maybe that's how their business of front-running and "intelligent market-making" will be defined by their former clients and society in few years from now.
From below: "They didn't have a single trading day in which they made less than $ 25 million"
Anyone who makes more than 25M per day can take a little heckling, if you ask me.
Anyone who makes more than 25M per day can take a little heckling, if you ask me.
[deleted](1)
> Everyone is attacking GS, from utterly clueless uneducated morons to utterly devious dumb politicians with a private agenda.
The above assumes that all attacks are baseless.
The SEC charges appear to be trumped up but GS was a major beneficiary of the AIG bailout. GS should lose money when it's counter-party risk assessment is wrong, as it was in the AIG case.
The above assumes that all attacks are baseless.
The SEC charges appear to be trumped up but GS was a major beneficiary of the AIG bailout. GS should lose money when it's counter-party risk assessment is wrong, as it was in the AIG case.
I don't think the SEC charges are trumped up, myself, but as neither a professional economist, lawyer, or trader, my opinion is necessarily superficial.
You might be interested in some remarks from a friend of mine, whose identity I prefer to keep private but who has given me permission to repost. He is a senior VP of derivatives trading at another Wall Street firm, albeit a much smaller one than GS, so weight as you feel appropriate.
Goldman will settle the civil suit. The SEC has them bang to rights on Rule 10b-5 violations, and anyone familiar with securities regulations knows this. They will claim that they are going to settle because it's in their shareholders' interests.
They've been trying to spin this by saying that they're market-makers. The WSJ had an editorial on Wednesday arguing this (probably assisted in the writing by GS), the execs said as much in Washington, and a friend of mine who works there, probably repeating an internal memo, made the same argument. It goes like this - if you buy GE stock and it goes down, you can't sue the NYSE or the broker.
The reason it's crap is that there is a huge difference, both conceptually and from a regulatory standpoint, between origination/new issues/primary market on the one hand, and secondary market trading on the other. GS are arguing as though the former is part of the latter. It isn't.
You might be interested in some remarks from a friend of mine, whose identity I prefer to keep private but who has given me permission to repost. He is a senior VP of derivatives trading at another Wall Street firm, albeit a much smaller one than GS, so weight as you feel appropriate.
Goldman will settle the civil suit. The SEC has them bang to rights on Rule 10b-5 violations, and anyone familiar with securities regulations knows this. They will claim that they are going to settle because it's in their shareholders' interests.
They've been trying to spin this by saying that they're market-makers. The WSJ had an editorial on Wednesday arguing this (probably assisted in the writing by GS), the execs said as much in Washington, and a friend of mine who works there, probably repeating an internal memo, made the same argument. It goes like this - if you buy GE stock and it goes down, you can't sue the NYSE or the broker.
The reason it's crap is that there is a huge difference, both conceptually and from a regulatory standpoint, between origination/new issues/primary market on the one hand, and secondary market trading on the other. GS are arguing as though the former is part of the latter. It isn't.
Not quite. Populist and pavlovian attacks are baseless. But intelligent ones are not. Personally, I not only distrust the SEC, but I also believe that "should" is a word to be left out of the discussion. What matters is what can be implemented, not what is morally right. It's like realpolitik applied to the context of Wall Street.
poor, poor, Goldman Sachs.
Impressive feat. I guess that stat arb and whatnot is easier now because people are no longer leveraged to move the world and the margins can be a bit tighter. I would be interested to see loss days compared to a quarter of total gain/loss.
They didn't have a single trading day in which they made less than $ 25 million. And they had 35 days over $100 million.
http://www.sec.gov/Archives/edgar/data/886982/00009501231004...
(net revenues are in millions)
http://www.sec.gov/Archives/edgar/data/886982/00009501231004...
(net revenues are in millions)
I guess I wasn't clear. I mean compared to other quarters where they (or other firms) made similar or greater amounts of money. Is the constant winning a side product of less risky bets, less leveraged & more fearful markets or...?
What is it about this particular time that has allowed them to do so well? (and where can I get me summa that!) I guess we won't know since we don't work there...
What is it about this particular time that has allowed them to do so well? (and where can I get me summa that!) I guess we won't know since we don't work there...
This means they aren't taking enough risks.
Seriously - the stock market is risk based. If you aren't taking risks then you're not going to be in those areas that make the most money. Sure, you want to make more than you lose, but if you never lose any money then you aren't taking enough risks to really strike it big by finding something nobody else thought would produce good returns.
Seriously - the stock market is risk based. If you aren't taking risks then you're not going to be in those areas that make the most money. Sure, you want to make more than you lose, but if you never lose any money then you aren't taking enough risks to really strike it big by finding something nobody else thought would produce good returns.
"...how is that possible that they only make money?”
Now wait one minute here. That quote was from the post itself. That someone down-voted it leads me to suspect GS has trolls here. Stop it.
I always downvote comments on HN where someone just posts a quote from the linked article and nothing else.
I don't just vote on whether I agree or disagree, I vote on whether I want more comments like that on HN, and I don't want more people quoting the linked articles without adding anything. If I want to read the linked article, I know where to find it.
I don't just vote on whether I agree or disagree, I vote on whether I want more comments like that on HN, and I don't want more people quoting the linked articles without adding anything. If I want to read the linked article, I know where to find it.
OK, at least that explains why you did it. Thanks.
It wasn't actually me originally, and that downvote wasn't me either!
paranoia
paranoia
"That Goldman Sachs is not a shitty deal"
Front-Running is currently a legal tactic in trading. GS seems to be very efficient at it. And the 1/8th point higher you have to pay when you buy a stock isn't that much anyways.
This is complete nonsense.
Front running your client's trades is completely illegal. Front running on an exchange is not even possible unless you hack the exchange computers (also illegal). The first person to place an order at a given price on a given exchange wins.
The only sort of front running which is legal is guessing ahead of time what a third party might do and placing orders before they actually do it. I.e., you might guess that Apple plans to buy Yahoo and buy Yahoo shares in anticipation of this event. Do you have evidence GS has done this?
Front running your client's trades is completely illegal. Front running on an exchange is not even possible unless you hack the exchange computers (also illegal). The first person to place an order at a given price on a given exchange wins.
The only sort of front running which is legal is guessing ahead of time what a third party might do and placing orders before they actually do it. I.e., you might guess that Apple plans to buy Yahoo and buy Yahoo shares in anticipation of this event. Do you have evidence GS has done this?
While front running may be illegal it seems that is possible to do front running if you’re properly placed in the stock exchanges. Max Keiser and Hellen Brown discuss this in the video [1] regarding how this can be done by “specialist brokers.”
For good measure read also Hellen’s article [2].
[1] http://www.youtube.com/watch?v=V5G7zBWMpIs&feature=playe...
[2] http://www.huffingtonpost.com/ellen-brown/stock-market-colla...
For good measure read also Hellen’s article [2].
[1] http://www.youtube.com/watch?v=V5G7zBWMpIs&feature=playe...
[2] http://www.huffingtonpost.com/ellen-brown/stock-market-colla...
Your second link has nothing to do with front running. Your first link just reveals Hellen Brown is full of crap.
In the old days, market makers could potentially front run by physically ignoring the proper market ordering (i.e., in a physical trading pit), perhaps when the broker ahead of them in the queue is distracted with another trade. This is completely impossible in an electronic exchange. There is no "front run this trade" message in either FIX or OUCH (the wire protocols used for trading).
In the old days, market makers could potentially front run by physically ignoring the proper market ordering (i.e., in a physical trading pit), perhaps when the broker ahead of them in the queue is distracted with another trade. This is completely impossible in an electronic exchange. There is no "front run this trade" message in either FIX or OUCH (the wire protocols used for trading).
There is more than one exchange. If you see a Bid of 10$ come up on the NYSE you can put in a bid of 9.99 on another exchange and if that order gets filled you can then turn around and try to match that bid of $10 on the NYSE if you are fast enough.
The bid of 9.99 will NOT get filled before the bid of 10, except under very special circumstances, even on separate exchanges. The exchange with the lower bid is required to route the trade to the exchange with the higher bid as a result of RegNMS.
http://en.wikipedia.org/wiki/Regulation_NMS
The only time this rule fails to apply is under extremely high latency scenarios. For example, last thurs when nasdaq left the machines on but NYSE switched to human matching, RegNMS was suspended.
http://en.wikipedia.org/wiki/Regulation_NMS
The only time this rule fails to apply is under extremely high latency scenarios. For example, last thurs when nasdaq left the machines on but NYSE switched to human matching, RegNMS was suspended.
not very reliable source, i know, but try
http://www.google.com/search?q=goldman+sachs+front+running
http://www.google.com/search?q=goldman+sachs+front+running
The top link just links to a criticism of flash orders, which are not front running at all [1]. Could you be more specific in your links?
[1] I'm undecided about whether I think front running is fair, but flash orders are a separate issue.
[1] I'm undecided about whether I think front running is fair, but flash orders are a separate issue.
Intercepting flash orders is front running. I don't see how you could even be confused about this issue. That is why the SEC wants to ban it, and some exchanges have removed the feature. This corrupt business practice creates artificial information disparity which wouldn't normally exist.
I'm undecided about whether I think front running is fair
This is a red flag that no one here should be asking you for moral advice.
I'm undecided about whether I think front running is fair
This is a red flag that no one here should be asking you for moral advice.
Front running: Joe wants to buy shares. I buy ahead of Joe, driving up the price, let him buy, then I sell my shares, profiting off the price delta. This costs Joe money, since he buys at a high price and sells at a lower price.
Flash trading: Joe wants to buy shares at price 10 or better and places an order on NYSE. The best ask on ARCA is 9.99, but the best ask on NYSE is 10. NYSE gives me the option of filling Joe's order at price 9.99 (rather than routing the trade to ARCA), saving Joe the cost of routing.
Flash trading and front running are just not the same thing. Flash trading only happens to traders who chose for their orders to be flashed. All flash trading does is moves the trade from ARCA to NYSE.
Flash trading: Joe wants to buy shares at price 10 or better and places an order on NYSE. The best ask on ARCA is 9.99, but the best ask on NYSE is 10. NYSE gives me the option of filling Joe's order at price 9.99 (rather than routing the trade to ARCA), saving Joe the cost of routing.
Flash trading and front running are just not the same thing. Flash trading only happens to traders who chose for their orders to be flashed. All flash trading does is moves the trade from ARCA to NYSE.
Flash trading: Joe wants to buy shares at price 10 or better.
You are Goldman Sachs, you see Joe's order before anyone else.
You see shares costing 9.80, so you buy it up quickly, and sell it to Joe for 10, making a profit of 0.20 per share while driving up prices for Joe.
That is front running.
You see shares costing 9.80, so you buy it up quickly, and sell it to Joe for 10, making a profit of 0.20 per share while driving up prices for Joe.
That is front running.
You apparently do not know what a flash trade is.
A flash trade gives Goldman the opportunity to fill Joe's order at the NBBO price before it is routed to another exchange. It does absolutely nothing else. The person receiving the flash is even prohibited from making offers on that security on other exchanges for a few milliseconds after receiving the flash.
This gives Goldman an advantage over other high frequency traders since it gives Goldman a higher fill rate, which is definitely unfair.
A flash trade gives Goldman the opportunity to fill Joe's order at the NBBO price before it is routed to another exchange. It does absolutely nothing else. The person receiving the flash is even prohibited from making offers on that security on other exchanges for a few milliseconds after receiving the flash.
This gives Goldman an advantage over other high frequency traders since it gives Goldman a higher fill rate, which is definitely unfair.
Apparently you don't. The allure behind flash trading is to avoid rule 602 in regulation NMS: you are not required to fill the order at the NBBO. You can use dark pools to fill orders.
Yes, but the order would not be filled at the dark pool price without the flash trade. Joe's order would be filled at the NBBO on another exchange (NOT the darkpool) and Joe would pay an extra routing fee.
If Joe wanted to fill the order himself on a darkpool, he would not have asked the exchange to flash his order.
If Joe wanted to fill the order himself on a darkpool, he would not have asked the exchange to flash his order.
This comment and the upvotes demonstrate the problems with financial stuff in this forum.
Go to the wikipedia page for front-running. The first sentence says that it's illegal. The first sentence. And indeed it is. Thus, it's quite a claim to say that GS make money from it.
Marltod, where did you get all this from?
Go to the wikipedia page for front-running. The first sentence says that it's illegal. The first sentence. And indeed it is. Thus, it's quite a claim to say that GS make money from it.
Marltod, where did you get all this from?
My underlying question would be: Are they a symptom of a systemic flaw (basically a parasite) or does their role in the financial ecosystem somehow justify that kind of profits?