Tag Archives: Goldman Sachs

Goldman on the Hot Seat Once Again

Posted on by
Reply

GoldmanSachs HQBy now you may have seen the article in the New York Times where a London based executive director of Goldman Sachs resigned with a vengeance. Greg Smith laid it all on the line in the article basically confirming what many of us have thought and expressed for a long time now; that the culture at Goldman is all about making money, and the hell with the client.

Mr. Smith isn’t some lowly guy who just decided to dump on his former employer. This is a seasoned veteran who started out with an idealized view of a storied Wall Street firm and found out that it wasn’t at all what he expected it would be. In fact, he had this to say:

“The place has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify what it stands for…I am sad to say I look around today and see virtually no trace of the culture that made me love working for the firm for many years.”

Ouch.

Then there’s this zinger, aimed right at the top of the heap:

“When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Larry Cohn, lost hold of the firms culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.”

Take that, Lloyd!

Smith hints that Goldman sells products to clients strictly for the money, even if they are wrong for them. This pretty much mirrors what others have said about how Goldman conducts itself.

So, does the market – and Goldman’s clients – really care what this guy has to say – or might it be seen as sour grapes? In looking at the stock, it’s had a nice run lately, up 33% since the beginning of the year. But, where the S&P and Dow are at multi year highs, Goldman is still down 26% off its annual high; that tells you something right there.

Shortly after the article hit the papers, Goldman came out with a memo to its employees that leaked to the press. As expected, Blankfein pointed out that Smith was for the most part an anomaly; that everything was peachy at Goldman, as expressed in feedback surveys by its employees. Please. If you worked for a company where the bulk of your compensation depended on the success of the business, would you go out of your way to bad mouth the company and paint a bleak picture? Hardly. That’s where Smith comes in. He’s no longer beholden to the big, bad beast on Wall Street.

Corzine’s failure may not get the scrutiny it deserves

Posted on by
Reply

MF Global‘s sudden meltdown is a story in and of itself. But, an even bigger story is the failure was led by former Goldman head and governor of New Jersey, Jon Corzine.

Corzine was looking to make MF Global a powerhouse in the investment banking space but the firm made some bad Euro related bets; enough to take the company down. So, a highly seasoned market veteran took the reigns of a struggling company. but was not able to turn it around.

To me the big story is how the press covers Corzine. So far in the early stages of coverage he seems to have escaped any scathing commentary. Yes, it’s being labeled as an embarrassment, but his frequent presence on CNBC and the fact that he was governor of New Jersey seem to shield him unnecessarily from well deserved criticism.

Any way you cut it, Corzine was the man in charge; and thus must bear the responsibility for the company’s failure. Any reference to the fact that he assumed control of a company needing new leadership should be secondary; he was there almost one and one half years, plenty of time to get the company in good shape. Instead, the company made bad bets under his direction, pure and simple.

Of course, Corzine’s role at Goldman and its climb to prominence gives him significant status. But let’s not forget that he lost his re-election bid last year to be governor of New Jersey, so some might argue two strikes against him in a row.

This gets me to asking the question; how does such a prominent individual as Corzine, who is supposed to be both financially and politically savvy, manage to make such bad bets? Is it cockiness, thinking everyone else is betting on the wrong side of the trade? Was it because a big bet that worked out could have given MF Global the financial independence it was looking for, sort of like an “all in” bet? Whatever the case, Corzine simply didn’t get the job done, and now a lot of investors will lose a lot of money.

Perhaps in the scheme of things MF Global’s demise won’t mean much in the world of investment banking. They never got big enough to fall into the “too big to fail” category. Still, it will be interesting to see if Corzine comes out of this just nicked up, or if his 15 minutes of fame is finally over.

Warren Buffet’s Big Bet on BAC

Posted on by
1

Warren Buffet is one of the greatest investors in the history of the world. So, far be it for me to question anything he does on the investment front. Still, I’m puzzled by his recent $5 billion investment (loan) to Bank of America.

In case you hadn’t noticed, BAC has fallen off a cliff lately. BAC was over $15 per share earlier in the year and got at low as 6.01 just the other day, a level it hadn’t approached since March, 2009, the last time the market bottomed.

Buffet did something similar with Goldman Sachs when it was falling apart along with the rest of the financial sector in 2008/09, and his Berkshire Hathaway group was handsomely rewarded. But, what puzzles me is why BAC needs the money in the first place and why they couldn’t have gotten a better deal than the 6% interest they will need to pay for getting access to the $5 billion.

To me, the whole deal is just another red flag; BAC is in big trouble. Rumors started floating around yesterday that JP Morgan would be buying BAC, and that’s why the stock price rose yesterday. But, as we can see, it wasn’t JPM, but Warren Buffet who has come in as a White Knight.

It is possible that the $5 billion cash infusion is just a stop gap. Maybe President Obama called on his friend to pony up the money to make BAC look in better shape that it is in. Buffet apparently said the idea came to him when he was taking a bath earlier in the week. Whatever the case, I’m going to keep a close eye on BAC in the near future to see if the initial boost to its share price will hold. If not, they might have more to worry about.

If Goldman can’t get it right…

Posted on by
1

According to Reuters, Goldman Sachs has cut its US GDP forecast…again. I say “again” because this is Goldman’s third cut since August, so basically over a 3 week period.

Now, I don’t know about you, but really, 3 times in 3 weeks? So we’re basically on a once a week forecast plan? Goldman explained that they made the change because of fresh economic data, but perhaps they realized that they blew it by being overly optimistic. Even their key Market Strategist Abby Joseph Cohen said late last week that as bad as things are we won’t be heading into another recession. Sorry Abby, but you are wrong once again, and you might want to huddle with other analysts at Goldman and get your collective acts together on where the economy is headed.

Seriously, Goldman was once the golden child of Wall Street and now has been reduced to making calls like this. It’s no wonder the stock has been in the tank; their credibility in a number of areas has been seriously compromised.

Of course, the truth is, world economies have come apart quickly and everyone is trying to get a handle on what is going on out there. But I would still expect more from a company like Goldman than to change their minds three times in three weeks. It’s really embarrassing.

The bottom line is that there is a lot of confusion and uncertainty in the market so even the pros are left to scramble. This leaves it up to the little guys like us to try to make sense of where things might be headed.

Dick Bove – Sort of like the market

Posted on by
1

I just read an article in the Wall Street Journal with the title, “Goldman Sachs: Dick Bove Approved“. The article goes on to say Bove raised his rating on Goldman Sachs from a sell to buy.

Now, I’m not sure who out there follows Bove, but from my observation, he has been all over the map, from buy the banks not long ago, to dump everything, to buy on the dip, to stay on the sidelines. I mean, if you are the type of person who is looking for steady and consistent advice from someone who is supposed to have a handle on what is going on out there, I don’t think Bove is your man.

Bove’s all over the map approach reminds me of the current market that is looking for a bottom. There’s so much turmoil out there that traders are left scratching their collective heads.

So, if a so called expert such as Bove can’t make heads or tails of the market, how is the average trader expected to figure it out?

It points out the importance of technical analysis and understanding what the market is trying to tell us, which right now is to stand aside. Bove’s upgrade of Goldman Sachs appears to be based upon fundamentals, when a technical review of the chart is telling us to stay away from the stock. So, the “old rules” don’t apply here, which makes it difficult for analysts like Bove to get things right.

It may seem like I pick on Bove from time to time but there’s a reason for that. He seems to have no problem reversing his outlook when its to his advantage, and to me, that takes objectivity out of the equation. Thus, it becomes very difficult to take his proclamations seriously.

Bottom line: Do what you can to draw your own market related conclusions by relying on individuals you trust while letting the charts guide you in your trading decisions.

Goldman getting what it deserves

Posted on by
1

Have you seen the stock of Goldman Sachs lately? If not, all you need to know is that it just hit a two year low. In fact, you have to go back to May, 2009 to see it as low as it is today, which is 27% lower than it was in January of this year. On the other hand, the S&P is pretty flat for the same period of time, so Goldman has gotten hammered.

You know, this really doesn’t surprise me. Goldman has been sucking wind for a while, always under the microscope of regulators, and many people aren’t too fond of its CEO, Lloyd Blankfein. This is the same guy who proclaimed banks do Gods work when we experienced an economic meltdown a few year back. Right. The same guy who is reportedly worth half a billion dollars.

In fact, Goldman has been accused of so many wrong doings I can’t really keep track of them. And, when one company is constantly under fire, then there’s probably something going on under all the smoke that stinks.

Accordingly, while the rest of the market tries to hang on and find its footing here, Goldman is clearly out of favor. To me, it looks like the stock could easily be heading to $100 a share, which would represent a 43% haircut from its January peak of $175.

I do have to wonder if Blankfein will be forced out of the company at some point; Goldman has always been thought of as a high caliber outfit. But, if the stock continues to sink, Blankfein might just well become the scapegoat. If I were him I might consider saying a little prayer. After all, he seems to have a pipeline to the Man!

Goldman Sachs can’t win for losing

Posted on by
1

When a company is in a slump, it doesn’t matter what they do, the critics will come out in droves. Just recently, Goldman Sachs was hammered by Michigan Senator Carl Levin, who criticized them for playing clients against each other. It was a blistering report.

Now, after they reported earnings, the critics are lambasting them for – get ready for this – having too much capital on hand! They’ve basically been accused of now being too risk adverse.

According to John Carney of “Net Net” Goldman’s last earnings report showed their return on equity had fallen from 38% at the beginning of 2009 to 12.2% for the first quarter of this year. In addition, their leverage ratio was once close to 30-1 and now is closer to 12-1. So, Goldman has gone from reckless behavior to being much more conservative; not your father’s Goldman.

Carney goes on to point out that the reason analysts are so cool to Goldman’s report is because that’s not the type of company they are seen as; they are expected to take on more risk, especially since the government is seen as a safety net in case they screwed up again. But, apparently Goldman has learned its lesson well, deciding to take the more conservative road.

I have been a big critic of Goldman, and with good reason. They took on huge risks at one point and the company was an eyelash away from going under. So, to tell you the truth, I for one am glad to hear that they have learned their lesson, are taking government warnings seriously and are taken the steps necessary to get their act together.

Muni Bonds – Believe Goldman Sachs or Meredith Whitney?

Posted on by
1

Bertha Coombs of CNBC has an article today where a number of bond analysts were touting municipal bonds as a wise investment. The more I read the story, the more I thought about sub-prime mortgages and how everyone said that would be a short-lived, “non-event” event. Of course, a few years later, we saw that the sub-prime crisis helped to spur one of the wickedest economic downturns in our history.

Goldman Sachs‘ Chief Investment Officer for the Private Wealth Management Group, Sharmin Mossavar’Rhamani, states: “Munis are trading at the same yield levels as treasuries on a pre tax basis. For clients who have a 1-2 year horizon, they will be looking at pretty attractive returns”.

This reminds me somewhat of the experts who were touting treasury bills just a few months ago when yields on the 10 year were close to 2.3%. Today those same bonds have a yield of close to 3.6%. So, if you locked into a 10 year treasury at 2.3%, your yield is now 56% below the current 3.6%, so if you needed to unload your original position, it would sting big time.

Many bond “experts” are ripping Meredith Whitney for her apocalyptic call that there will be billions of dollars of default in municipal bonds. She contends that the economy is still weak enough that many municipalities won’t be able to cover their obligations. Citigroup’s municipal bond analyst George Friedlander said, “There is a massive difference between a budget crisis and credit crisis” implying that jurisdictions that may face a severe budget crisis aren’t necessarily susceptible to default. This sounds SO MUCH like the ratings agencies before the sub-prime meltdown.

I actually don’t know enough about municipal bonds to predict one way or another what might happen. But, I do know that when enough people start to say a massive default is hogwash, then there’s probably something to the notion that some type of financial problem is coming down the road. Analysts like Meredith Whitney aren’t very popular, because they disrupt the status quo, and that then affects the ability and pocket books of those selling instruments like municipal bonds. Thus, if I had to pick a side, I’m afraid I’d have to go with Whitney on this one.

Abby Joseph Cohen – Still standing after all these years

Posted on by
Reply

I just read an article about Abby Joseph Cohen that appeared in this week’s New York Times Magazine. It was actually a brief interview conducted by Deborah Solomon, and when I finished reading it, I remembered why I had such a dim view of AJC who seems to have been resurrected from the dead. I just remember all of the dreadful calls she made back when the Tech Bubble burst, and now a decade later, she’s right back in the spotlight.

A few excerpts from the interview stand out. First, when she’s asked about the value of the financial services industry, AJC says, “without banks it’s hard to see how businesses would get the money they need to grow and to hire new workers.” I almost choked on this one, since there’s scant evidence banks are lending, and certainly not to small businesses. Instead, they’ve managed quite a nice business scheme; take in deposits, pay almost no interest, borrow from the Fed dirt cheap, buy government treasuries and pocket the difference. With such a low risk way to make nice profits, why go to the trouble of actually lending money to those individuals and companies in need?

Next, AJC goes on to say, “Let’s not lose track of the fact that most people need to borrow in order to buy a home, and if you don’t have banks, that’s not going to happen.” Hello?? Has AJC been keeping track of the housing market lately? Does she realize that over 10% of US homes are vacant? Does she know that big banks, like Wells Fargo, are advocating larger down payments to purchase homes? Exactly who qualifies for home loans these days?

Finally, when asked if she felt any responsibility for the 2008 economic meltdown, she sidesteps, actually saying it’s an odd question to ask. She goes on to say that there were multiple reasons; “bad decisions made by many different entities”. OK, fine. But as usual, and has been the case most often, she never even considers taking any of the responsibility, either as an individual or as a representative of one of the most storied investment bankers in history. No, instead, she would much prefer to have all the glory heaped upon her when she makes a good market call; which hasn’t been all that often.

Abby Joseph Cohen (born 1952 in Queens, New York) is an American economist and financial analyst on Wall Street. She is a partner and—as of March 2008—Senior U.S. investment strategist at Goldman Sachs. Prior to that date, she was Chief Investment Strategist. In 2001 she was named one of the 30 most powerful women in America by Ladies Home Journal. Read more