Tag Archives: John Paulson

The Golden Hedge

Investors who do not hold gold or view it purely as a temporary safe haven asset are failing to harness its full potential to protect wealth, according to a new study published by the World Gold Council (WGC). In the analysis the WGC shows that during the period between October 2007 and March 2009—the height of the global financial meltdown—an investor with a portfolio of US$10 million experienced an additional US$500,000 financial loss simply by not maintaining a position in gold.

“In 18 of the 24 tail risk scenarios analysed by the WGC, portfolios which included gold outperformed those which did not.”

World Gold Council

Perhaps not big news, but yet an important documentation: In its latest report – “Gold: Hedging Against Tail Risk” – the WGC shows that a modest, consistent holding of gold mitigates the potential for significant loss of value during extreme market events.

In the analysis the WGC shows that during the period between October 2007 and March 2009—the height of the global financial meltdown—an investor with a portfolio of US$10 million experienced an additional US$500,000 financial loss simply by not maintaining a position in gold.

The study used a composition similar to a benchmark portfolio,1 which included an 8.5% allocation to gold, to show that total losses incurred during the period reduced by 5% relative to an equivalent portfolio without gold.

In 18 of the 24 tail risk scenarios2 analysed by the WGC, portfolios which included gold outperformed those which did not.

The term tail risk refers to extreme events that may be considered unlikely, such as the “Black Monday” market crash of October 1987, but which tend to have a considerably negative effect on an investor’s capital when they do occur.

“In the last decade we have seen two of the worst bear markets in the last hundred years. As one might expect, sensitivity to risk still runs high for investors around the world, and as assets are rebuilt an ability to protect capital irrespective of market conditions is paramount. Considering portfolio diversification is clearly important, but protecting against systemic risk can be an entirely separate matter. This research shows that gold protects against tail risk events, but equally in more positive times reduces the volatility of a portfolio without sacrificing expected returns,” Investment Research Manager Juan Carlos Artigas at the World Gold Council, and author of
the research report, says in a statement.

The analysis also suggests that even relatively small allocations to gold, ranging from 2.3% to 9.0%, can have a positive impact.

On average, such allocations can reduce the Value at Risk (VaR) while maintaining a similar return profile to equivalent portfolios which do not include gold.

Conceptually, VaR is a way of measuring the maximum amount an investor could expect to lose in a given period of time, with a certain degree of confidence, in the case of an unlikely, yet possible, event occurring.

“We now inhabit a world characterised by greater volatility and higher levels of investment risk. Robust asset allocation strategies are central to a return to financial stability. Gold’s ability to move independently of most assets usually held by institutions and individuals, and to hedge against inflation and currency fluctuations, all mean that it is highly effective as a preserver of long term wealth and should form a foundation of any long term investment portfolio. This report sets out how gold can protect against negative events, which are not easy to predict but can substantially erode wealth,” managing director Marcus Grubb at WGC says.

Here’s a copy of the full report: Gold Investment Digest October 2010.

Press release.

See also: Positive Long-Term Gold Price Trend Underpinned By Appetite For Gold’s Wealth Preservation Properties.


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Filed under International Econnomic Politics, National Economic Politics

Goldman Sachs Charged With Fraud – Here's The SEC filing

I’ve checked; it’s not an April fool’s joke. The seemingly untouchable financial firm, allegedly the main bank behind the financial crisis, is charged  with fraud by the U.S. regulators. The story is just breaking. Here’s a copy of the original SEC filing, and a summary of what’s being reported so far.

“The Commission seeks injunctive relief, disgorgement of profits, prejudgment interest, civil penalties and other appropriate and necessary equitable relief from both defendants.”

The U.S. Security and Exchange Commission

This is a short message from The Washington Post:

“Federal regulators charge Wall Street firm with civil fraud for involvement in subprime mortgage securities.”

Here’s a copy of the SEC filing.

For more information, visit washingtonpost.com:

The Wall Street Journal have just published the following article:

The Securities and Exchange Commission on Friday charged Goldman Sachs Group Inc. with defrauding investors by allegedly marketing a financial product tied to subprime mortgages without telling them a big hedge fund was on the other side of the trade.

The SEC’s civil lawsuit is one of the biggest moves by authorities in response to the financial crisis of 2007-08, and it sent Goldman shares sharply lower. The firm’s shares were down about 12% around midday, and the Dow Jones Industrial Average was off more than 1%.

In a statement, Goldman said, “The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

The lawsuit is connected to trades that brought big profits to a hedge fund, Paulson & Co. The fund’s chief, John Paulson, bet that the housing market would collapse and risky mortgages would tumble in value. Paulson & Co. made $15 billion in 2007, a payday that put Mr. Paulson in the pantheon of some of Wall Street’s most successful traders.

Mr. Paulson wasn’t charged by the SEC. He didn’t immediately respond to a request for comment.

According to the SEC, Goldman structured and marketed a synthetic collateralized-debt obligation, or CDO, that hinged on the performance of subprime residential-mortgage-backed securities. The CDO was created in early 2007 when the U.S. housing market and related securities were beginning to show signs of distress, the SEC complaint said.

“Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc., with economic interests directly adverse to investors in the [CDO], played a significant role in the portfolio selection process,” the complaint said.

The complaint said Paulson had an incentive to stuff the CDO with mortgage-backed securities that were likely to get into trouble. SEC enforcement chief Robert Khuzami alleged that Goldman misled investors by telling them that the securities “were selected by an independent, objective third party.”

“The product was new and complex but the deception and conflicts are old and simple,” said Mr. Khuzami.

By January 2008, 99% of the CDO’s portfolio had been downgraded, the complaint said. As a result of that bet, Paulson made about $1 billion and investors lost more than $1 billion, SEC said. Goldman was paid $15 million for the deal with Paulson.

The complaint didn’t name Paulson because the firm didn’t make any disclosures to investors, said Mr. Khuzami. Most SEC complaints involve improper disclosures.

The SEC also named Goldman employee Fabrice Tourre in the complaint, saying he was “principally responsible” for creating the CDO. Mr. Tourre, 31 years old, currently works in London as an executive director of Goldman Sachs International. A lawyer for Mr. Tourre couldn’t immediately be reached.

Read the full article at online.wsj.com

Here’s More:

From Seeking Alpha:

GS Fraud Charge Crushes Financials

Woe to the Financials: SEC Complaint vs. Goldman Opens Pandora’s Box

GS Charges Having Wide Impact

Goldman’s CDO Troubles

Here’s Goldman Sachs’ response.

CNBC reports:

Goldman Defrauded Investors, Costing Them $1 Billion: SEC

Paulson’s Hedge Fund Made Billions on Subprime Crisis

Goldman CDS Cost Jumps on SEC Fraud Charges

GS Real Estate Fund Lost 98 Cents on the Dollar

From Zero Hedge:

SEC Charges Goldman Sachs With Fraud On Subprime Mortgages, Paulson & Co. Implicated

Did Goldman Short Itself, Reuters Reports Goldman Was Told In Advance It Faced SEC Action

GOP Leader Calls Goldman “Obama’s Top Wall Street Ally” Asks “Just Whose Side Is President Obama On?”

Latest from Yahoo Finance:

Financial stocks take a hit after Goldman charges

Can the SEC Beat Goldman Sachs?

Video: Goldman says SEC charges unfounded

Goldman: Questions legitimate, answers unclear

More to come….

Related by the Econotwist:

Are Governments Producing Conspiracy Theories?

The Great Golden Lie

Who’s Hiding In The Sherwood Forrest?

Goldman Sachs: “Damn American Bastards!”

AIG: What Did FED Bail Out and Why?

EU Wants Answers From Wall St. On Greek Debt

The Bailout Package Under The Christmas Tree

2010 Analysis: Zero Interst Rate until 2012

“An Embarrassing Report”

Wall Street: “God’s Work”

Robots Gone Wild On Wall Street

Sirkus Wall Street

Gullringenes Herre


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Filed under International Econnomic Politics, National Economic Politics