Displaying items by tag: Capital Markets

This is part three of my opinion and analysis on Goldman's apparent ramp up of Facebook shares in the face of, and in direct contravention to, SEC rules to the contrary. See Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private! and Here’s A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores The SEC & Peddles Private Shares To The Public Without Full Disclosure. For the first two installments. Here I will outline the actual costs as reportedly explained in the fund marketing material, and next I will illustrate the ramp ups in actual valuation, as compared to the  private equity vehicle mechanics that can prevent Goldman from taking a loss, as was illustrated in the previous piece. Before I go on, here a few interesting tidbits from the mainstream news flow:

Bloomberg: Goldman Sachs May Sell, Hedge Facebook Stake Without Warning to Investors

Goldman Sachs Group Inc. clients considering whether to buy shares in closely held Facebook Inc. should take heed: Wall Street’s most profitable securities firm could unload its own holdings without letting them know. In the last sentence of a one-page investment profile sent to private wealth clients, the firm explains: “GS Group may at any time further reduce its exposure to its investment in Facebook (through hedging arrangements, sales or otherwise), without notice to the fund or investors in the fund.”... “There may be conflicts of interest relating to the underlying investments of the fund and Goldman Sachs,” according to the Facebook offering document’s disclosures section. Material in the documents “is not guaranteed as to accuracy or completeness.”

The phrasing in bold is all an astute investor needs to know in order to come to the conclusion that Goldman itself should be treated as an adversarial trading partner. For those with shorter term memories, Bloomberg assists with the reminisce...

This mornings news flow is essentially a "Didn't Reggie tell us this in full detail up to two years ago" fest. Indebted Europe is falling apart for the new year just a day after the liquidity driven romp in equities. The Portugal T-Bill Yield Almost Doubles in Auction, from 3 months ago. The yield Portugal pays on its debt has increased 522% since this last year. This is after the Pan-European bailout fund was announced and implemented to put an end to such pressures. Alas.... The best laid plans. CNBC reports, as does Bloomberg:

Portugal sold six-month bills today, the first of Europe’s high-deficit nations to test investor demand in 2011 after the threat of default forced Greece and Ireland to seek bailouts last year. The government debt agency, known as IGCP, auctioned 500 million euros ($665 million) of bills repayable in July. The yield jumped to 3.686 percent from 2.045 percent at a sale of similar maturity securities in September, with investors bidding for 2.6 times the amount offered. A year ago, the country paid just 0.592 percent to borrow for six months.

Yeah, this is sustainable. What is so interesting that mathematically, a default is definitely in the Portuguese cards, but the mains stream media does not drill down on this. Why? We, at BoomBustBlog have literally given away a complete mathematical analysis that shows the default happening - in real time, and for free. See The Anatomy of a Portugal Default: A Graphical Step by Step Guide to the Beginning of the Largest String of Sovereign Defaults in Recent History Tuesday, December 7th, 2010 and The Truth Behind Portugal’s Inevitable Default – Arithmetic Evidence Available Only Through BoomBustBlog Monday, December 6th, 2010. The line of default demarcation has been drawn in the sand t 2013, but does anyone truly believe that all of these deeply indebted states will float for that long. Could you imagine your interest rates rising over 500% and continue to climb during YOUR time of need?

Yesterday, I attempted to pull the wool from some of the more complacent eyes of news media consumers by outlining the potential goals for Goldman's half billion "investment" in Facebook while at the same time pondering the market for a different type of media concern. A media concern that is heavy on the analysis and investigation, yet light on the political correctness and conflicts of interest (see Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!). I definitely don't want to be condescending, but there is obviously (at least to me) a need for such an entity amongst the mainstream rags for as I read through the comment sections of the articles written on the topic, I see such naivete as, "Wow!!! If Goldman is putting their money in this, it must be serious!" I say do myself, "It's a damn shame if that is actually a real person's viewpoint and not a Goldman equity underwriting employee".

You see, this is not about Goldman's attempt to create capital gains through investment, its about their attempt to create income through commissions, fees and spreads.

Primarily Dealer Credit Facility

Note: Paying subscribers may download the fully scrubbed model containing all of the date output by the Fed regarding the PDCF as an Excel pivot table here, Primarily Dealer Credit Facility Analysis. Those who are interested in subscribing to our research should click here.

Yesterday, I illustrated how the Fed buried TARP 2.0 amongst a spreadsheet dump of over 70,000 trades and what amounted to probably a million cells of spreadsheet data distributed among a plethora files, see Buried Deep Within The Files That The Federal Reserve Released On Thier MBS Purchase Program, We Found TARP 2.0!!! More Taxpayer Money To The Banks!. Today, we will review another one of those files, dealing with the lending program that the Fed instituted for its Primary Dealer banks.

About a year ago, after hearing so many pie-in-the-sky perma-bullish pundits and bankers say how banks paid every cent of TARP and government assistance back, I went on the following rant - 10 Ways to say No, the Banks Have Not Paid Back Their Bailout from the Taxpayer! Monday, January 18th, 2010:

Yes, some of the banks repaid TARP, with interest and warrants. Okay. The investment big banks (that were still in existence) were offered expedited financial holding company (bank) charters. That is why they didn’t fail, at least in part. So, running down the list, the banks paid back TARP. That’s a +, but….

1. 1. What was the value for bank charter, to get cheap access to the Fed’s funds? did they pay back this value yet? No!
   1. How about the payment of interest on the banks’ excess reserves at the Fed. Have the banks repaid that yet? No!
   2. The Fed and the Treasury have purchased hundreds of billions of dollars of Agency debt, Agency mortgage-backed securities (MBS) and related securities through Treasury purchase programs. Have the banks paid back the capital behind those purchases yet? No!
   3. How about the Term Auction Facility? Has the capital behind the benefits of that program been paid back? No!
   4. Then there is the Primary Dealer Credit Facility (PDCF), has this been paid back? No!
   5. Do you remember the Term Asset-Backed Securities Loan Facility (TALF)? Have the funds behind that been paid back? No!
   6. What about the PPIP? No!
   7. Hey, there’s the Foreign Exchange Swap programs (the currency swap lines, that saved not only our banks but out banks facing counterparties who were short on dollars), has that been paid back? No!
   8. There’s the Commercial Paper Funding Facility (CPFF), have the funds behind that been paid back? No!
   9. Most importantly, the opportunity cost of ZIRP, which hurts those who do not speculate (or have not speculated) with near free money! How do you pay that back to grandma and her .017% CDs?

Well, all rants aside, if you bothered to go through the mass dump of data that the Fed produced as a result of the Bloomberg FOIL suit, you will find that not only did the banks not pay back the massive amount of assistance that was given to them, they were actually granted more in the form of MOPTARP (MBS Overpayment Troubled Asset Repayment Program), and yes, I did make that up. How much more? Well, potentially more than the original TARP bailout! I'm getting ahead of myself though, so let's backtrack.

From CNBC: Spanish Yields Climb at Auction, Pressure Continues

Spain was forced to pay a hefty premium at its final bond auction of the year on Thursday, in a key test of investor appetite for euro zone peripheral debt a day after Moody's said it may cut the country's rating.

The Spanish Treasury raised 2.4 billion euros ($3.20 billion), within the targeted range of 2-3 billion euros but disappointing some analyst who expected more debt to be sold.

Average yields on the two issues rose between 80 and 140 basis points from previous auctions of the same maturities.

That was a touch lower than what was expected according to trade in the secondary market ahead of the auction but analysts said the price paid by the Spanish government showed it remained at real risk of having to seek outside help next year.

"In the short term this should reduce pressure on the Spanish market, but I think when one looks at the bigger picture and considers the small amount sold, with low bid-covers, yet at a high yield, then it seems clear that peripheral markets remain under pressure and in need of support from policymakers," said Peter Chatwell, rate strategist at Credit Agricole in London.

Repeat "analysts said the price paid by the Spanish government showed it remained at real risk of having to seek outside help next year" - This was clearly illustrated and anticipated in Will Spain Default? The Answer Is Not Hard To Determine If You Take An Objective Look At The Numbers And Recent History! December 13th, 2010, to wit:

Spain is unique among the aforementioned group in that the amount of capital necessary to bail out this country is likely beyond the ken of the EU/IMF, and will likely assure a contagion effect. While it is true that Spain is not as indebted as the smaller periphery countries from a proportionate perspective, it is likely that it is not on a sustainable path and the efforts to make said path sustainable will may require restructuring/default, particularly if the smaller periphery states default.  Of course, Spain doesn’t necessarily see it his way, at least according to the mainstream media. From CNBC:

Spain Not Next in Line for EU Bailout: Finance Minister

Spain will not be next in line for a rescue package from Europe but a common economic policy is needed to support a single currency, Spanish Economy Minister Elena Salgado told BBC Radio on Friday.

This is a current snapshot of Spain as it stands now (excerpted from our subscription report Spain public finances projections_033010 and the online restructuring model - The Spain Sovereign Debt Haircut Analysis for Professional Subscribers):