Saturday, May 02, 2009

GS Conspiracy Theory Explained

I have mentioned that I've heard rumors of how Goldman Sachs could be controlling the markets these days. No, I didn't get it from, never actually been to the site...yet. I've heard mention of this from several different sources, but a recent article by Zero Hedge explains a lot. So much that I had to read it 2 or 3 times to digest all the big, hard words like "Pricipal Trader," which means trading not on behalf of its clients but for its own benefit. Here's some highlights from the posting:

"...Goldman has seen its share of Principal trading go from 60% all the way into 90%: a vast majority of all its trades are merely for its own benefit (and potentially as an SLP funnel)."
NOTE: read the article for a definition of SLP, it's the point of the whole post.

"...while the total amount of total Principal trading as a portion of NYSE PT has stayed relatively flat, at about half of total PT volumes, Goldman's share has exploded over the past six months: while GS was responsible for around 27% of Principal NYSE stock trading in Q3 and most of Q4, that number has risen to the low 50% range over the past 3 months."

"...traditional market neutral, high-frequency quants, aka independent liquidity providers have not only suffered
significant P&L losses in April, but have deleveraged to a point where their presence in the market is negligible, resulting in dramatic volatility spikes on low volume. Could it be that Goldman is singlehandedly benefitting from being the liquidity provider of last resort, even more so as there are virtually no other participants in the SLP program? And, as is expected, with a liquidity "monopoly", come unprecedented opportunities to take advantage of this, depending on one's view of the market."

Thanks to

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