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alstry (< 20)

What is anything worth???? Goldman recommends shorting



April 11, 2008 – Comments (9)

April 11 (Bloomberg) -- Goldman Sachs Group Inc. downgraded shares of General Electric Co. to ``neutral,'' saying the company's surprise first-quarter profit decline raises ``credibility concerns.''

April 11 (Bloomberg) -- Washington Mutual Inc.'s full-year loss will be wider than first estimated, according to Goldman Sachs Group Inc. analysts, who recommended selling the shares short. ...``WaMu is most exposed to states where we forecast severe home price depreciation, and subsequent mortgage credit deterioration,'' the analysts wrote. Goldman expects mortgage- related losses between $17 billion and $23 billion, the analysts said. Washington Mutual may have a $14 billion provision charge in 2008, the analysts said.

Financial assets are imploding everywhere.  Auction rate securites.  Mortgage backed securities.  Corporate Debt.  Credit Card Portfolios.  Auto Loan Portfolios.  ect......

These assets represent tens of trillions of dollars of value all over the world.  They were the foundation for trillions in profits over the past seven years.  Heck, half of GE's earnings came from financially related activities for a company that was once primarily a manufacturer.

Some of us have been pointing out that book value of HBs is no where close to the amount represented by many HBs.  We have seen deals recently transact at $0.16 on the dollar.  We know that some of the companies are LYING about the value of their assets.  This is simply HBs and something tangible like land.

What about all the companies in America with Financial assets.  We have seen companies recently write down the value of Auction Rate Instruments that had been parked as an alternative to cash.  What about credit card portfolios for retailers.  What about mortgages for banks and commercial real estate loans.  We are talking about trillions and trillions of represented value that may be illusory.

With a key stroke, a company could be solvent one day and bankrupt the next.....only by valuing its assets at market value.  Amazing.

Now Goldman is telling us that credibility may be in question.  Don't you think its about time?

Could you imagine what the true book value of HBs, or many other public and private companies would be, if they were simply honest with shareholders about the value of their assets.  At this point, what is anything worth if fair market value were presented?

9 Comments – Post Your Own

#1) On April 11, 2008 at 4:18 PM, mandrake66 (74.22) wrote:

I've been wondering about Goldman's credibility also for quite a while. I anxiously await the news release in which Goldman downgrades Goldman to sell, because its credibility is in question. Like that ever-growing pile of Level 3 assets they're sitting on.

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#2) On April 11, 2008 at 4:32 PM, cubanstockpicker (20.95) wrote:

Actually their Level 3 assets rose in value 


Goldman Sachs Group Inc. reported a surge in illiquid assets in the latest quarter as more mortgage-related assets were transferred to hard-to-value status amid the credit crisis.

Until now, Goldman's Level 3 assets -- or illiquid, write-down-prone securities -- weren't jumping as much as some smaller brokerage firms like Lehman Brothers Holdings Inc., which said Wednesday its Level 3 assets were 14% of total assets at fair value at the end of February.

Goldman's Level 3 figure rose to $96.39 billion, or 13% of total assets at fair value, from $69.15 billion, or 10% of such assets, at the end of November. The Level 3 assets for which it bears economic exposure rose to $82.32 billion, or 11% of total assets at fair value, from $54.71 billion, or 8%.

The increases are a sign that more firms are seeing illiquid assets pile up on their books amid the subprime mortgage meltdown. Level 3 assets are holdings that are so illiquid or trade so infrequently that they have no reliable price, so their valuations are based on management's best guess. 

Morgage-related assets were the biggest source of Level 3 assets in Goldman's fiscal first quarter -- $24.99 billion -- with private-equity and real-estate fund investments were making up $18.83 billion and bank loans being were the source of $17.68 billion.

Commercial and residential mortgage loans and securities represented the biggest source of new Level 3 assets. In total, Goldman transferred $14.57 billion of assets to Level 3 status, primarily from Level 2, in the quarter because of "reduced price transparency." In the prior-year period, a net $1.02 billion of assets were transferred out of Level 3.

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#3) On April 11, 2008 at 4:56 PM, alstry (< 20) wrote:

Things are really heating up right now.  Asset values are now uncertain.  Income streams, especially those based on financial activities are now in doubt.  We are talking about the basis for 40% of the S&P's earnings. 

Can you imagine if America wakes up one morning and learns that a key basis for corporate earnings over the past seven years is now evaporating faster than FloridaBuilder's strike after today's behavior.

Anyone think Goldman might be short after today's short recommendation.  They sure made a killing on subprime debt.  These guys seem to really know a lot.

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#4) On April 11, 2008 at 5:16 PM, mandrake66 (74.22) wrote:

They knew before anyone else when to get rid of their subprime exposure. They are very shrewd. And they just kept making money even in the first quarter when they rode the trading boom in commodities. If there is an angle to make money on something, Goldman will find it.

But I think they're running out of angles. In CAPS I've been short GS for weeks, and still expect to make a tidy point gain from them. But it wouldn't surprise me if it took a few more weeks. They are held in very high regard, and function as the flight-to-safety bank pick, which I can understand to a degree. I can't understand it at all with Bank of America. 

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#5) On April 11, 2008 at 5:26 PM, StKitt (28.41) wrote:

Goldman cannot be trusted, period. Always hedge their advice... THEY DO!

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#6) On April 11, 2008 at 5:30 PM, jester112358 (28.08) wrote:

Asset values, unfortunately, are always uncertain.   We consider cash to be liquid and valuable only because one can exchange it in the free market for any other asset.  But in post war Germany, cash was worthless.  It took a wheelbarrel load to buy a loaf of bread.  So, any asset needs "faith" and optimism to support its value and market.ability When trust unwinds as it is now, banks won't lend to other banks, people don't trust their institutions, and governments are helpless.

 Which is why I'm so heavily weighted in Ag and Energy commodities and and Energy and Ag stocks.  Food will always be valuable because life depends on it.  I could say the same about good health.  Energy is in very short supply relative to demand and is very inelastic.

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#7) On April 11, 2008 at 5:44 PM, EScroogeJr (< 20) wrote:

That's free advice from a financial company. Shall we value this piece of advice at what we payed for it, or shall we say it's worth less than that?


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#8) On April 11, 2008 at 6:45 PM, abitare (29.91) wrote:

Marc Faber doesn't know either.


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#9) On May 01, 2008 at 5:01 PM, joelbow7 (32.04) wrote:

A short recap on WM stock since this "short" call:

4/11/08 close: 10.95

5/1/08 close:  12.52

The reality is that no one has a clue.  The Fed has bailed out everyone in the banking sector so far and the market players are expecting more of the same.

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