The stock market is now down four weeks in a row. In past years, four straight down weeks has been a harbinger of some pretty significant down moves. In a world of wackiness as we have now, anything can happen.
The newest numbers are out for the largest corporations in the world and the changes from 2008 are pretty interesting. Anyone guess who is number one? It's actually a European company, Royal Dutch Shell. Exxon Mobil is number two followed by the 2008 winner, Wal Mart. This is the first time in a decade that an American company is not number one!
Oil is still king. Seven of the ten largest corporations are oil companies. Things are definitely going the way of all Chinese. It looks increasingly likely that China will be the dominant commander of the world's finances going forward. Sinopec is now number 9 and National Petroleum is now the world's 11th largest firm. There are now 37 Chinese companies in the Fortune 500 list, the greatest presence ever.
Things are still rocky in China. Exports dropped 21% last month after dropping 26% in May. The May numbers were the worst ever so things (if you believe American investors) are really improving. Before we get too excited, they are having trouble selling bonds which does not bode well for our country. Our bond sales so far are OK but the world is rapidly losing patience with us.
Goldman Sachs is poised to announce blow-your-socks-out-of-the-water profits this week. Literally three months after the world's financial system collapsed, Goldman was right there to gather the spoils and has emerged as the victor of choice. With your help and ours, Goldman Sachs got a bailout and apparently put it to good use. So good, in fact, that after paying us back they (within a suspiciously short time) are going to reward every single one of their 28,000 employees with eye-popping bonuses averaging $600,000 per person! If only we could land a job in the mail room we could be set for life.
But there is a rumor that ethics may not be forging the path to prosperity. Let us illustrate a point for a moment. Let's say that our small, humble firm wants to buy a position in a stock or fund. And, let us say that the fund we want to buy trades 15,000 shares a day. And we decide to buy 45,000 shares. What would happen? The market would jump about 20% that day because the demand would be so extreme. And let us imagine that we personally bought that security just before we executed the trade. If we had actually done that, we would find our sorry keisters smack dab in the federal pen. This is called front running and is highly illegal. By the way, the scenario above actually happened last year. We bought so much of a fund that the fund spiked in price. You will be happy to know that we did not, however, front run this trade!
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So what does all this have to do with Goldman Sachs? Goldman apparently (rumor has it and it is not confirmed but appears to be the solid truth) has engaged in an insidious version of front running. Many people are not aware that Goldman Sachs and other firms make inordinate amounts of cash trading their own account. All those profits are not the result of solid banking activities but rather the result of market manipulation.
They have some pretty smart computer folks on staff too. Somehow they figured out an algorithm that allowed them to see large trades that had been placed but not yet executed. Now keep in mind that a great many of the trades are executed within seconds so this is no small feat. But wait, there is more. Once the computers spotted the orders, they were then able to execute their own orders and get them filled before the other orders! In other words, they are engaging in high tech front running. Rolling Stone magazine just published a damning article on Goldman Sachs that describes how dozens of federal officials in power are ex-Goldman alumni. Guess who won't find their keisters in jail for this egregious crime?
Fitch (the bond rating organization like Moody's and Standard and Poor) just downgraded another 543 mortgage backed securities from the 2005-2007 period. They reported that approximately 50% of borrowers in the 2005-2007 period are now "underwater" in their loans meaning they owe more than the home is worth. Here is where it gets interesting. Because of skyrocketing unemployment in California, declining home values and the unconscionable budget debacle, they expect home prices to fall another 12.5% nationally and 36% in California. There is your answer folks to the nagging question: should I buy property now? Do you really want to buy a $300,000 house that may very well be worth only $200,000 next year?
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