Goldman is not invincible

I have talked a lot about the conspiratorial tone of frustrated bears lately, and how I take it as a sign that traders are resigned to the market marching ever higher despite the depression grinding on. Much of that anger and awe is directed at Goldman Sachs, which rightly or wrongly is perceived as the all-seeing, all-profiting eye at the top of America’s Ponzi economy. With their men in high places and their high frequency trading bots, they are invincible, or so says their stock price:

Source: Yahoo! Finance

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I am prone to fading consensus wherever I find it, and here I see the chart of a financial behemoth trading at the same level as at the very height of the credit expansion, 2006, back when it was churning out toxic bundles of AAA debt on houses and malls that are today being abandoned. In 2006, the company earned over $9 billion a year with 20% fewer shares and 20% less debt, and the mood in the stock market was of total euphoria: smooth sailing as far as the eye could see, Goldilocks time.

As far as I’m concerned, the rally from $47 to $165 has been one of the greatest short squeezes and dead cat bounces in history. For this stock to have a market cap over 20% greater than at the height of the bubble is absurd. Yes, they earned a record $3.4 billion last quarter, but trading profits come and go, and it’s not as though any of that is doled out to common shareholders: the company pays no dividend.

Expect their political racket to come back to bite them, and hard, as regulations tighten on all kinds of trading and the skeletons start to fall out of the closet. The heyday of finance is over for America, and political power follows economic power.

I suspect that the lows are not in for this pig, and that in fact it may face a crisis of existence at some point in the coming years. Besides, did you ever see a better chart from a short perspective? Its got a ready-made stop, too, in case there is more steam here than I think.

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4 thoughts on “Goldman is not invincible

  1. Hi Mike, maybe GS goes to 247 before a classic double top … aahhh, what a perfect short at that level … that will fit into the V shape recovery scenario head fake … from what I have seen the past three crashes 87, 2000, 2009 … the same exuberance is reborn again and again … very sad imo, the ideals and the foundation of this country were great .. replaced by greed, cheats and dishonesty … but I have a feeling that self correcting events are created out of our own doing … the good’ol reverstion to the mean …. but this process will take time …

  2. Yes, it takes time. I think we’ll bottom 3-6 years from now. However, I believe we are still in the crash phase, where perception rapidly re-adjusts. 12-18 months from top to bottom is not enough.

    And in 87 and ’03, credit was still flowing and balance sheets could be expanded. I believe we are now saturated — no additional debt can be serviced — so this is the big one. It is a bold call, to say that this is an event of an order of magnitude only seen once a century or so, but that is what the data is telling me. Today I have been perusing the big S&P earnings file, and what I see is the productive sector has been hit the hardest: industrials, materials and information companies have fared the worst.

    Burlington Northern and CSX each had revenue off 25%; Caterpillar, 40%; Dupont, 25%; Fedex, 20%; Gannet 18%; IBM 13%; Micron 26%; Ntl Semiconductor 39%; steel producers, 60+%, etc, etc…

    These companies reflect the real GDP. There is no comparison here to ’87 or 2000, only to the ’30s.

    I only see growth where I don’t want to see it: military contractors (war profiteers) and health care (an aging population sucking up capital through a horribly inefficient semi-socialist, lawyer-crippled system).

    I do not anticipate speculation coming back in force, as after those other crashes. That takes debt and time to dull the memory of the crash. Also, the public has turned cynical — I believe they are finally learning that Wall St is a racket to be avoided.

  3. Hi Mish,

    I agree 100% that a simple 12- 18 Mos. Top to Bottom is not enought … history is ladden with examples of lower lows forming a u shaped cup before finally moving up.

    I also agree that the credit is the fuel for growth that no longer exists … Housing rebound? Most of the rebound is in the 0 – 100K houses (mostly foreclosures) and 100K – 200K.

    So, here in NC, they are planning to raise taxes:
    1. More Sales Tax
    2. Surcharge for making more than 100K a year!!!

    Now, 2 Obama officials: No guarantee taxes won’t go up
    http://finance.yahoo.com/news/2-Obama-officials-No-apf-2491158742.html?x=0&sec=topStories&pos=main&asset=&ccode=

    How lovely …. TAXES ARE GOING UP NO MATTER What! All States will have to increase taxes ….. are we earning more? No! Will we have more money to spend … NO … will this stimulate the Economy …. NO ….

    I am sure you have seen this from Mish’s blog: http://globaleconomicanalysis.blogspot.com/2009/08/military-vs-non-military-durable-goods.html

    Are we going to WAR? Most countries do this to revive their economy and distract the people from the current problems ….

    Car rebates from our Children and Grand Kids future income:
    http://finance.yahoo.com/news/LaHood-Car-rebates-will-stop-apf-1095811725.html?x=0&sec=topStories&pos=2&asset=&ccode=

    As usual …. spend now pay later … can anyone in America do some basic MATH ANYMORE????? Shifting the cost of spending now to future generations will completely weaken this countries future wealth building ….

    http://finance.yahoo.com/news/LaHood-Car-rebates-will-stop-apf-1095811725.html?x=0&sec=topStories&pos=2&asset=&ccode=

    Whao .. a government drunk on the same modus opperandi … buy now pay later (write it off) … Deficit building ad nauseum … at some point all our creditors are going to demand a highier roi … higher % rates to follow … higher cost of debt to us .. inflation ..

    Was watching CNN today – State of the Union – and they interviewd some Citizens …. none borught up the issue of how we are going to pay for all this deficit spending …

    The next time down will break the will and trust of all investors …. who is going to invest in the stock market then after all this propeganda??? God help us … is all I have to say ….

  4. Hi Mike,
    I’ve been looking to short both GS and MS for at least 3 months, but it looks like I was lucky enough not to rush into the trade. Otherwise, I agree with you, both GS and MS will probably hit again the very lows they touched during the panic, and probably even lower.

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