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Today's Top News1. Goldman Sachs predicted Obama victory
In the final days of the presidential campaign, both sides waxed extremely confident about their changes on election night. Blogger Nate Silver emerged as a controversial figure for his widely watched poll analysis. Both parties purported to have their own top-notch number crunchers on staff, and their respective big-data-like analyses showed their candidates on the verge of a big victory. Obviously, both couldn't be right. As it turned out, Goldman Sachs turned some of its analysts loose on the issue. "Goldman research, citing pre-election polling data, says results imply President Obama will win 303 electoral college votes and Gov. Romney 235," notes Deal Journal. The analysts also noted some "good news news for investors," which was that " stock markets tend to react more positively after competitive elections." Goldman analysts added that, "By the end of the week following the election (i.e., November 16 this year) the median gain in the S&P 500 has been 1.9%, compared with 0.3% following less competitive races. The reaction in Treasuries is inconsistent; the yield on the 10-year Treasury has risen following competitive elections and declined slightly following less competitive contests, but is characterized by large moves in either direction in a few election years, and very small moves in most others." For more: Read more about: Goldman Sachs, elections
2. Wall Street ponders election results
Since the presidential election heated up in earnest, Wall Street seemed to be yearning for a Romney victory. Now that a President Obama victory has dawned, one might think that Wall Street is in for a tough time, but that's not likely to be case. The fact is that all the major reform efforts that the 2008 financial crisis demanded have already been enacted. We are firmly into the implementation phase of several big rules, such as the Volcker Rule, the OTC derivatives rules, the alternative investment registration and disclosure rules and so on. The financial services industry has lobbied hard to ensure that these new rules are implemented in ways that the industry finds palatable, and you would be hard pressed to find anyone that would disagree with the notion that the lobbying effort has gone well for the industry. At this point, one might credibly argue that Wall Street has adjusted to the new regulatory climates ushered in after the financial crisis, and is better off going with the "foe they know," even if they do not much like him. I do not anticipate a lot of massive changes for Wall Street that aren't already underway. One might think that the private equity industry has a lot to lose still. Taxation issues might loom large. We may likely see a more serious attempt to tax carried interest at ordinary income rate as opposed to the capital gains rate. But all in all, the industry knows what it is getting. There are no real surprises looming as a result of the President's victory. For more: Related articles: Read more about: Wall Street, elections 3. JPMorgan in settlement talks with SEC
The issue of buyer's remorse has cropped up again in the industry, as banks continue to face investigations of possible wrong-doing committed by banks acquired in the midst of the financial meltdown of 2008. Barney Frank, an author of Dodd-Frank and a persistent critic of the banking industry, has said that banks should not be prosecuted for the activity of the banks that they were asked to buy by government officials. That sentiment has not stopped government regulators from suing JPMorgan for the sins of Bear Stearns, which it bought for a pittance in 2008. The Financial Times reports that the bank is now in settlement negotiations with the SEC over allegations that the Bear Stearns failed to properly disclose various risks and failed to "pass on proceeds recovered from loan originators for soured mortgage loans to a trust managing residential mortgage-backed securities." I fully expect a settlement to be announced soon. The trickier investigation involves New York state AG Eric Schneiderman, who sued the bank recently on similar grounds. There are various other enforcement actions underway as well. All in all, the issue of whether JPMorgan should be held liable for the sins of Bear Stearns is moot in the eyes of prosecutors. Which means a lot of settlements are on the way. The question is how much money will be involved. For more: Related articles: Read more about: Enforcement Action, JPMorgan. SEC 4. Tim Geithner eyes the private sector
Tim Geithner will have to put up with a lot of revolving door stories when he makes his next move, which is coming, but he'll most likely end up in the private sector. He'll no doubt have his pick of employers, which will pay him handsomely. Bloomberg reports that, "asset management and private-equity shop BlackRock (is) often mentioned as a potential landing post. The chatter has been fueled by Geithner's frequent conversations with BlackRock Chairman Laurence Fink: The two spoke 49 times over the past 18 months, according to Geithner's calendar. (Fink, it's worth noting, is also mentioned as a potential successor to Geithner if Obama wins a second term.)" What are the chances that Geithner will end up at a premiere bank, where the payday would likely be higher? "Less likely, say those who know Geithner, is that he'll end up at a big bank like JPMorgan Chase or Goldman Sachs," Bloomberg notes. The rationale is that it would make for "bad optics" as the "Obama administration spent the better part of four years chastising Wall Street for its practices while Geithner has been criticized for being too soft on bailed-out banks." My sense is that he always got something of a bum rap, as critics hectored him as an apologist for big banks. He is in fact a career civil servant, and he rose through the ranks all the way to Treasury Secretary. You can't blame him for wanting to cash out just a bit, especially with a child heading to college. One rumor holds that he might be in line to run Dartmouth. For more:
Read more about: Timothy Geithner, Treasury Department 5. A skeptical look at derivative margin requirements
Now that the clock is ticking on the new Dodd-Frank rules that will effectively create a new OTC derivatives market--I've likened this to a Big Bang--the issue of margin has reared up all over again. DealBook has weighed in with a skeptical look at some of the dire projections we've heard about the margins that participants will be forced to post. The ISDA aims of course to highlight the burdens that the new rules impose. It has argued that initial margin rules would likely to lead to a "significant liquidity drain" on the market, estimated to be in the region of $15.7 trillion to $29.9 trillion." But DealBook says the lower bound assumes that many banks "calculate their derivatives exposures in an advantageous manner sanctioned by the proposed regulations. Specifically, the rules allow banks to offset certain trades with each other. This has the effect of reducing a bank's overall derivatives exposure for the purposes of calculating margin. The upshot: less margin is needed. At one stage in its analysis, the derivatives association says using this approach might reduce by half the overall amount of derivatives in the calculation. But why wouldn't the reduction be far more than $14 trillion, or roughly 50 percent? After all, net exposure can be reduced quite sharply by using the offsetting method. For instance, a bank may have $50 billion on trades betting that stocks go up and $49 billion on trades betting stocks go down, leading to a $1 billion net exposure for the bank." The essay suggests that the 50 percent figure is arbitrary. My sense is that we will really not know exactly what the margin burdens will be until trading begins in earnest. But the danger is that some legitimate hedgers will be forced out of the market. The speculators will be just fine. For more: Read more about: OTC Derivatives Also Noted
SPOTLIGHT ON... Hedge funds sink in October The tough stretch in the hedge fund industry continued in October. Funds on average lost nearly 2 percent for the month. The October decline lowered the industry's gains so far this year to an average 1.1 percent, compared with a 13 percent gain for the major stock indices. There's still time to pare losses, though that can be a dangerous play. Article Company News:
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Thursday, November 8, 2012
| 11.08.12 | Did Goldman Sachs predict Obama victory?
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