Market Rap 15 September 2009

Meanwhile, back at the office, I am consulting with one of the most important people in my network, X. We are talking about a few different ways that quant traders at Goldman Sachs are making money right now. The number one trade over at the trader’s pit of government workers — Goldman — is gunning the S&P higher by going long the euro yen spread against the dollar. Thanks to the overweight of euros to yen in the dollar index, as you buy EURJPY with dollars, the dollar is pushed lower, and the S&P higher. As soon as this structure is in place, you lever long S&Ps.

These are the trades that are making Goldman’s trading stats so good right here and now — a tremendous record to say the least. I know tons of traders over at Goldie, and we speak on a regular basis. Some of them are my very good friends. Speaking to one of them the other night, I said, “Your track record is really good.” If nothing else, good trader’s know that the tape can be very humbling. He agreed.

Sometimes when trading records are too good — like with Enron — no one asks the right questions until it is too late. Whatever happens, I hope my trader pals at Goldie will be all right.

After that, we recapped today’s scores.

The S&P 500 is up 16.5% YTD and was up 3.29 points or .31% today.

The move higher in gold continued. The only bearish thing I can ask about gold is this: if the price index numbers released today were more inflationary than expected, why was gold not up even more? Other than that, it seems like the move in gold is holding and strengthening. One miner of note — Newmount (NEM) — sold bonds in exchange for $2 billion dollars ($900 million senior notes 5.125% due 2019 and $1.1 billion of 6.250% due 2039). The raise was 8.7% of the companies market cap. The smartest traders of gold are likely the miners themselves. It is notable that more than one of them is raising cash — through one mechanism or another.

If you are watching the scores all day, be sure that the symbols of the big five (Citigroup, AIG, Citi, Fannie and Freddie) are on your screen. Those five are making up 30% of the volume in today’s exchange of cash for shares. It was reported today that the US government may sell it’s 34% stake in Citigroup (C) over the next 6-8 months, starting as early as October. The government would not be announcing selling their stake unless they could show a trading profit. I’d think if the US government is selling, they won’t be selling into a down tape.

As I write, The Financial Times is reporting that some of Lehman Brothers’ creditors are challenging the sale to Barclays. They are claiming that up to $8 billion in cash and securities was transferred without the court’s knowledge!

At the same time, Warren Buffet is on sports television talking about Lehman one year ago. The sensationalism of the crash of 2008 is at all time highs, but momentum markets are tough to fade.

And the beat goes on.