Posts Tagged ‘Wall Street’
Traders and investors have been dreaming of predicting the markets since the beginning of formation of trading markets. How nice will it be to know exactly how the market is going to move tomorrow, next week, next month. In fact, the whole concept of Technical Analysis is to analyze the chart representing human behaviour and predict the future movements.
Now it maybe more possible than ever, as reported in New York Times. Being able to crunch what is called big data gives someone a huge advantage. Wall Street, quant traders and hedge fund have been exploring this for years. Data includes news, commentaries, blog posts, social networking sites and tweets (on Twitter). Analysis includes which market or counter is commented upon, adjectives used, words representing sentiments, even emoticons!
There are no lack of mainstream users of this form of market analysis. Alpha Equity Management, a $185 million equities fund in Hartford, uses Thomson Reuters software to measure sentiment over weeks and pumps that information directly into his fund’s trading systems. Bloomberg monitors news articles and Twitter feeds and alerts its customers if a lot of people are suddenly sending Twitter messages about, say, I.B.M.
There has been much controversy over Goldman Sachs recent success despite the sub-prime, financial and subsequently economic crisis. I believe most of the fuss, at least at the consumer level came about with this piece by Matt Taibbi, writer with Rolling Stone. It is strange, I always thought Rolling Stone is a magazine only rockers and emo-kids get from HMV.
Gist of the article
Goldman has a part to play in the Great Depression by playing up investor sentiments thought layers of investment trust.
Goldman’s underwriting standard and tactics for IPO were questionable. Amidst all the enticement for investors to subscribe, they knew the companies were worthless and protected themselves from any losses.
Similarly, Goldman knew the sub-prime mortgages packaged into CDOs would default not long after they started structuring them. Goldman continued to sell them while having a short position in the CDOs.
Through influence they have in the US government, therefore regulations in commodities trading, they are able to manipulate the market. Goldman released analyst reports and forecast for oil to reach US$200 a barrel.
Through this influence too, they are able to rigging the bailout, receiving funds and payment from AIG, letting competitor Lehman Brothers collapse and finally totally unharmed and extremely profitable. Taibbi also has a problem with the fact that Goldman paid so little tax in 2008. US$14 million in tax while paying out $10 billion in compensation and benefits and made a profit of more than $2 billion.
The next big global bubble to be exploited is the carboncredit market. Goldman has been positioning itself to push for the legislative approval for the framework and opening a market for carboncredit. Same reason why oil trading disrupts supply/demand, Goldman wants a big slice of the pie.
Conclusion, Goldman has been inflating bubbles around the financial assets to profit from it and has influence to do so.
Nice piece, I wish I had the narrative gift of Taibbi. However, technically, it has a lot of flaws. Goldman is just better at making money this time round. Many financial institutions are involved in the tech bubble and oil trading as well, and profited from it. I believe that there might be some bending of ethical standards in Goldman’s pursuit of profits, but the conspiracy theory is hard to swallow. Furthermore, the much information and details are that are pieced together have little relevance to the issue.
If you are not afraid of being even more confuse, you can read a view by another columnist. Then again, I’m not sure she is in the finance profession.