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Oh Goldman, what should we do with you?



November 12, 2009 – Comments (2) | RELATED TICKERS: GS

I have this crazy love/hate relationship with Goldman Sachs. I'm totally in awe of the amount of money the company makes, but I'm definitely unnerved by the fact that so much of what they do is hidden from the eye of shareholders -- and everyone else for that matter.

Of course we can easily identify the fact that the company's trading operation is the segment that investors have to be betting on to make the company's valuation reasonable. But what exactly goes on in those trading rooms? More importantly, can Goldman keep it up? And taking this all into account, is Goldman's stock worth buying?

I took a look at the situation on today.

I'd love to hear some thoughts from the CAPS community on whether or not you see Goldman as a safe bet...


2 Comments – Post Your Own

#1) On November 12, 2009 at 4:43 PM, AdirondackFund (< 20) wrote:

I could speak for years on how Goldman earns their money, but most folks wouldn't understand most of it...and frankly, I'm a bit tired and don't have the energy.  So, let me skip to the last straw.  I would not buy GS stock just as every employee at Goldman would tell you the same. 

The reason?  It is a very dangerous business, as we found out a year ago.  Things can go terribly wrong very quickly.  Most of GS's employees liquidate their stock once they receive it and it is part of a 'ladder system' which assures selling pressure at a certain point.  Partners, Politicians, and Power Brokers are given stock first, then favored clients and investors, then companies and conglomerates and finally employees themselves.  Each time this occurs, the price ratchets up a notch until there simply isn't anyone else to give or sell stock to, it's all been handed out or sold.  At that point, earnings which have been 'withheld' are then pushed into the present to spur retail demand.  All stocks actually work this way to some degree.

Right now, I would gather a guess that their earnings are being fully reported, at least for the near term.  There probably isn't much withholding going on right now, as everyone is watching, including the Feds who have a stake and interest in the whole thing.  If anything, the FEDS are concerned about the high bonuses simply because it depletes the firm of liquid capital, liquid capital that could be used to support other markets.  Obviously, they don't want to support markets right now, or they would be doing something completely different.  What we are seeing here is a slow distribution at vastly higher prices and a rotation that is simply bizarre, as many of the firms that are the subject of the rotation (Banks) are clearly bankrupt themselves.

On Wall St, there is a very old saying, "do what you want, but don't get caught".  Goldman Sachs has been caught, several times already, and has been quite deliberate and cocky about the whole thing.  From the bulldozer job done by the Goldman Wives in the Hamptons during a Charity event (of all things), to flash trading, to HFT trading, it is all a tawdry tale.  They have simply gone off the rails themselves and are pushing their risk on everyone else on the street and sooner or later the street will rise up against them, as they have always done under past circumstances, and hurt them bad.  The crash of 2008 was one such attempt.  Goldman, more than anyone else knows their days are numbered.  Right now they are simply living on borrowed time with the benefit of taxpayer dollars.  It won't last. 

Their once great M & A business was taken down with a few simple words ... "stock swap merger".  It was an idea I had after the '87 crash and mentioned to someone and before you knew it, there were no more cash deals and Goldman was screwed.  That's when they went into electronic trading bigtime and made of themselves in the process... Public Enemy #1.

I don't like Goldman, I don't trust them and I certainly wouldn't own any of their stock.  Instead look to 'real' economic entities like Industrial companies which pay a dividend, can raise or lower prices as market conditions require, and have been a permanent fixture on the economic scene for a good long time.

I would venture a guess that this is exactly what Buffet is thinking in deciding to buy the railroads.  And Buffet is usually right.  It is a defensive play which revolves around the concept Mark Twain referred to in saying "I'm not looking for a return on my money, I am looking for a return of my money."

'Nuff said.     

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#2) On November 12, 2009 at 5:07 PM, TMFKopp (97.89) wrote:


Interesting take and thanks a lot for sharing. I'm in about the same place in that I can't seem to get myself to trust the company enough to feel comfortable investing in the stock.

Also, can't help but mention, since you brought up Buffett, that he does own Goldman preferred. Granted, that's a much different security than common shareholders have access to... but just sayin...


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