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Goldman & BP: Slates Wiped Clean
The fact that news of Goldman’s settlement of its federal charges and BP’s quick capping of its gushing oil occurred within hours of each other screams conspiracy within my cynical side. The two most heavily vilified companies seem to be smelling like roses today.
The most blatantly perverse resolution of the day was the $550M settlement by Goldman Sachs. $550M represents about 16% of 1st quarter 2010 profits or 4% of full year 2009 profits. Goldman contributed $500 million to a charity in 2009 instead of jacking up bonuses (they are doing God’s work)….I guess the Government, SEC and their employers – the taxpayers – really are a charity case for Goldman. This settlement is a joke. The most ridiculous aspect is that the trader indicted in the SEC’s charges, Fabrice Tourre, will fry while Goldman goes free. I bet we hardly hear a whisper about him going forward.
On the other side of the pond, BP might see quite a relief after its announcement of full containment of the gushing disaster plaguing the gulf. Today they get to celebrate after a closing jump in the stock of 7.6% or more than $8B in market cap:
BP Rocket Boosters On!
I am glad that BP capped the well, but when you hear that they will get tax breaks on the cleanup costs it leaves a sour taste in your mouth.
When our politicians push to decrease corporate taxes to “stimulate employment” and push to increase personal income taxes to “decrease our irresponsible federal deficit”, try to keep these two corporate do-gooders in the back of your mind.
Posted in Conspiracy, Markets, Politics.
– July 15, 2010
Lottery for a Retirement Plan
The title might seem that we all should draw straws to see who can retire and who cannot, but instead it addresses the allure of lotteries in general. Most everyone has a story about a friend, distant relative, or some other acquaintance who won a large amount of money in the lottery. Somehow the lottery institution has become the respectable casino. Many of the original forms of lotteries had good intentions; the psychological thrill of possibly winning vast amounts of money attracted small investors to place limited bets in order to fund a greater cause.
The sad truth is now this lottery institution serves as a regressive and very lucrative tax. The Economist just ran a special report Come, all ye gullible: Lotteries are a bad bet, but everybody loves them. Among their enlightening takeaways:
“A study carried out in 2009 by Theos, a British think-tank, found that poor Britons spent a greater part of their income on lottery tickets, particularly scratch cards, than rich ones.”
But it does not stop for Britons:
“ In South Carolina, households with incomes of less than $40,000 a year account for 28% of the state’s population but more than half of its frequent lottery players. More than one American in five thinks that buying lottery tickets constitutes a sound retirement plan, according to a Tax Foundation study. And research carried out by the Federal Reserve Bank of St Louis in seven American states found that much of the money spent on lottery tickets came from some form of government assistance (such as social security, unemployment or disability benefit).”
I am glad that my tax dollars are being spent wisely.
– July 14, 2010
VIX Fights the Rally
July has staged quite a nice rally of over 8% in just 8 trading days. If you find religion in the 8’s, then you might think it is the start of the market’s new order.
S&P 500 Loving July
The volumes have not been tremendous and the sentiment still seems to be negative, but the move upward has been linear. What was interesting to me about today’s trading was that despite a 1.54% rally on the S&P 500, the VIX actually ended the day in positive territory.
23.4 was popular with the VIX at about 11AM
After bouncing around the 23.4 level, the VIX seemed to develop quite positive correlation to equities and actually ended the day at its highs. We could speculate that there are probably a lot of artifacts in current VIX levels due to the looming July expirations, but I think the 200 Day moving average provides an interesting vantage point:
Looks like a strong bounce off of the 200 Day Moving Average
If implied volatility is driving this ship, then it would appear that we are repeating the pattern that emerged June 21st when the VIX last hit its 200 day moving average and subsequently bounced aggressively. It also preceded the last large 8% decline. Perhaps 8 is not such a lucky number.
Posted in Derivatives, Markets, Trading Ideas.
– July 13, 2010
Option Selling on the Nikkei
I am always looking for confirmation that option selling strategies perform well over time and I have focused most of my time on US markets. In general, I have found that selling strangles or straddles on the S&P 500 has been very profitable through market cycles. Please refer to my previous article for that proof.
In a similar vein a fellow blogger has looked at selling options on the Nikkei from March 2006 to June 2010 for his master’s thesis. He also finds that the results are quite robust, especially compared to a long only position on the Nikkei.
Unleveraged Option Selling on the Nikkei March 2006 - June 2010
Hopefully he will be able to gain access to the full set of data and expand out the study. Considering the fact that many investors feel that the United States is following Japan’s deflationary scenario, it would be very interesting to see how an option selling strategy worked from the Japanese bubble bust in 1990 through today. Read the full article here.
Posted in Derivatives, Trading Ideas.
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– July 12, 2010
