Wednesday, May 6, 2009

Goldman Sachs Now Hiring: Replacement Oracle Of Delphi

Goldman Sachs has hit a new trading profit record: in the past quarter the company generated over $100 million trading profit on an absolute record of 34 trading days, according to its 10-Q filed today. Not only that, but GS was profitable on 56 days in the quarter and lost money on only 8, meaning it was profitable 87.5% of the time trading in the last quarter (and this isn't even a weighted number). Notable is that the ratio of +$100MM days to -$100MM days in Q1 is 34 to 0. If one adds the orphan month of December, the $100 million+ days rise to 44, and Total Profitable Days rise to 70. The last record for GS was 28 $100MM+ days in Q1 2008. As all regulators' systems are based on statistical analysis, maybe this multiple sigma deviation event will finally set off some red flags.

Or maybe the simple explanation is that the current Oracle of Delphi at Goldman's trading desk is seeking to retire and effectively predicting every single market move with 87.5% accuracy in order to be allowed to vest her 401(k) immediately.

Sanford Bernstein analyst Brad Hintz, who has a knack for understating, provides the following observation:
“It was a good trading quarter. Their revenue return on trading assets was very, very high because bid-offer spreads were very high.”
Now correct me if I am wrong, but isn't the main reason for the NYSE's Supplemental Liquidity Provider program exactly to reduce the bid-offer spreads? And isn't the fact that Goldman is the de facto sole provider of SLP supposed to be somehow benefiting the exchange and other participants, not so much itself? Maybe this is not a question so much for GS, but really for the NYSE which has been so staunchly pushing for the SLP (and its extension), yet the only member firm it seems to be benefitting so far, is really only Goldman Sachs?

One last observation: GS also discloses not only its VaR for the quarter (which has also risen to an astronomic $266 at the end of March 31), but also the progression of the VaR over the past year. Zero Hedge would like to point out the eerie similarity between the company's overall VaR (as disclosed in the 10-Q), and the percentage of Total NYSE Principal Program trading that Goldman Sachs Principal trading desk controls (as disclosed by the NYSE), a topic Zero Hedge has discussed extensively before. Comments from readers and from Ed Canaday are very welcome.

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