Yesterday the Wall Street journal wrote that Goldman Sachs may be in the process of shutting down their “Sigma X” dark pool clearing. Little more than 2 weeks ago they first announced that they would no longer “play” in the HFT games and followed this by announcing they would give up their “Designated Market Maker” status on the NYSE. Why, what’s up with this?
Speculation on my part but it seems to me like “they know.” They know that something VERY BIG is afoot. This “something” could be one of many possibilities but a firm like Goldman Sachs who has gorged at the table of American financial plenty forever would never ever leave if there was still food at the table. Please remember that they are second only to JPM with their “trading” prowess over the last few years. They have had less than a handful of “losing days” while JPM has had 1,300+ straight days of trading gains without a single loss. I have written on this before and won’t go into it again but I will say that this is absolutely impossible. This track record could never mathematically or statistically happen except where the casino is “rigged” with an iron fist.
Maybe this is exactly what Goldman is looking at. Maybe they see that the “iron fist” is just beginning to or will lose its grip? Maybe they see that regulators cannot look the other way anymore? Maybe their “profits” have gotten skinny and they are making a business decision that the only thing left is bone as the flesh and muscle have already been consumed? Maybe they feel like they are expending too much “effort” and not being “paid” for this effort. Maybe they feel like there are just too many markets with “loose threads” hanging out there to keep track of? Maybe they feel like the “weight” of painting all markets 24/7 to keep the rig in place has gotten too heavy for them? Or, maybe it’s a little of all of the above and they know what is coming and have decided to simply “get out of the way?” “Getting out of the way” would be my guess.
Thinking back to 2003 or ’04, Rothschilds made this decision regarding gold and exited the “London price fix” arrangement in my opinion because they knew what was coming. They knew that the “pressure” was to the upside and decided to no longer lean against it. I believe that Goldman understands that what is coming will take almost everything with it. There will be no “bail outs” this time and there will be no “TARP’s” because the funds available and the ability of governments to sack the Treasuries (again) no longer exists…they are broke. I believe that Goldman is adopting the “every man for himself” strategy and pulling in their horns. They don’t want their capital “in the way” and are simply withdrawing it similar to a player standing up and walking away from the poker table.
The thing is this, Goldman was the “house” or at least was betting with the house and they obviously see that something is wrong. I believe that they understand that everything is “mispriced.” Not just mispriced but grossly mispriced and that their trading played a huge part in the “mispricing” as they provided capital used to push, pull, smash and levitate the various markets. I have said all along that the markets were all, each and every market, part of a grand “painting.” This painting has been used by Washington and Wall Street (and their foreign counterparts) to point to as proof that their policies were working. LOOK! They would say at the stock market…or interest rates or what have you as proof that “all is well.”
Please understand that no matter what you think about Goldman Sachs from a moral standpoint (and no they are not doing “God’s work), THEY KNOW HOW TO MAKE MONEY! If you will recall 5 or 6 years back when the late Adrian Douglas would follow Goldman’s gold short position on the TOCOM, Goldman closed up shop and went flat. Since those days, Goldman has no longer shown up in the gold arena…and for the most part gold has gone much higher since their exit. I think that in this case also, they just “got out of the way.”
Zero Hedge wrote yesterday and pointed out a quote in Michael Lewis’ book “Flash Boys” that the co-heads of Goldmans global markets said, “Unless there are some changes, there’s going to be a massive crash, a flash crash times ten.” Think about this for a moment, the “flash crash” was 1,000 Dow points down in about an hour…with the Dow trading at 70% of where it is now…….then, multiply this by 10!!! Will it happen? I don’t know, Isuspect something like this will but I do know that something like this “COULD” happen. I can say this simply because of the debt outstanding and the “$1 quadrillion+” number of outstanding derivatives. The conditions do exist…and apparently Goldman knows this and I believe that they are acting on this knowledge.
To wrap this up, they said “unless there are some changes,” my take is that Goldman has decided that no changes have been made. They have made the decision to get out of the way of the coming financial train wreck. It is what “we” have expected all along but the important thing is that Goldman Sachs…who would never leave a feast unless all that was left was crumbs…is getting up and leaving. Maybe you should too!