Goldman Sachs Is The Proxy For This Market
If ever there was a proxy for this bull market, it would be Goldman Sachs. Basically anything to do with a liquidity induced economic rebound is in Goldman's portfolio of capabilities. Goldman is a money making machine. Commodity trading; mergers & acquisitions; private equity; services to hedge funds, trading groups and mutual funds, etc. Buying into Goldman's stock gives someone access to all of the assets and sectors that are booming this cycle. Goldman's stock itself is almost the perfect asset allocation model for this cycle.
Let's take a look at Goldman's chart below. Before we do so, a little bit of history. There are three notable dates in Goldman's past. The first IPO in 1906 right before the market collapsed and fell 50% in 1907, the 1929 creation of Goldman Sachs Trading Corporation right before the stock market crash of 90% and the Great Depression and the second IPO in 1999 right before the tech fall of 80% in 2000.
Are there any parallels to Goldman Sachs Trading Corporation of 1929 and the proprietary trading Goldman has ramped up over this bull market? Goldman Sachs Trading's market value went from $500 million to $10 million after 1929. Is Goldman's management more savvy today? We tend to believe we are smarter than generations before us but that is simply inaccurate. Human intelligence has not progressed since 1929. Frankly, there is no evidence innate intelligence in humanity has ever increased. We saw just seven years ago that Wall Street isn't any smarter than they were in 1929. Is there any parallel to Blackstone's slated IPO this year and Goldman's IPO in 1999?
Remember, there is a little bit of luck, a huge amount of ego and a little bit of savvy in the corner offices of every corporation. Goldman is no different than any other company. Senior executives start to believe in their own invincibility and brilliance as we saw in the technology companies of the late 1990s. Society starts to believe these executives are brilliant as well. Some are. Most are not. Are the three historical dates cited above a sign of Goldman's savvy or egomaniacal mistakes made at the height of society's irrational exuberance? Were it not for Goldman Trading's decimation and ruinous effect on their reputation post 1929, I would say it was their savvy. But, given their debacle right before 1929, I lean towards ego and irrational exuberance. Is Goldman about to repeat history? What are the executives in the corner office at Goldman really thinking? We'll never know. I recently saw a comment that Goldman was levered to the hilt in markets and therefore we were not near any type of top because they are "smart money". Historically, that appears inaccurate. Time will tell if this time is different.
Let's look at the chart for some clues. Remember, charting is not a science but an art and chart patterns can and do resolve themselves differently than expected. So, my first rule of charting is never to be wedded to a particular view. The second is to use it as a decision support tool not a primary tool. I've drawn a few patterns on the chart. Since Goldman's IPO in 1999, the stock initially collapsed into a bullish falling wedge. That wedge was resolved to the upside in 2003 into a rising channel. Since then Goldman has been in a rising channel and performed quite handsomely. Recently, Goldman broke through the rising channel into what appears to be a potential false breakout to the upside. The Brave New World crowd is likely playing in the stock now. Encompassing both the falling wedge and rising channel patterns is a longer term bearish megaphone pattern. Longer term patterns trump shorter term patterns. So, unless Goldman resolves itself outside of these set ups, it may be headed for a very unpleasant future. The stock is facing formidable resistance at both the rising channel and megaphone trend lines. Over time the stock could ride these trend lines higher but I'd be very suspect of any sustainability beyond these trend lines. Stocks typically have an upward bias over the longer term but we are in a cycle where that is not a forgone conclusion. Just at the time when Goldman has achieved cult status, are they peaking?
Well, if my longer term thesis is accurate, investors in Goldman are in for a rough ride. One can imagine what that means for the assets and equity sectors that have performed so well this cycle.
Let's take a look at Goldman's chart below. Before we do so, a little bit of history. There are three notable dates in Goldman's past. The first IPO in 1906 right before the market collapsed and fell 50% in 1907, the 1929 creation of Goldman Sachs Trading Corporation right before the stock market crash of 90% and the Great Depression and the second IPO in 1999 right before the tech fall of 80% in 2000.
Are there any parallels to Goldman Sachs Trading Corporation of 1929 and the proprietary trading Goldman has ramped up over this bull market? Goldman Sachs Trading's market value went from $500 million to $10 million after 1929. Is Goldman's management more savvy today? We tend to believe we are smarter than generations before us but that is simply inaccurate. Human intelligence has not progressed since 1929. Frankly, there is no evidence innate intelligence in humanity has ever increased. We saw just seven years ago that Wall Street isn't any smarter than they were in 1929. Is there any parallel to Blackstone's slated IPO this year and Goldman's IPO in 1999?
Remember, there is a little bit of luck, a huge amount of ego and a little bit of savvy in the corner offices of every corporation. Goldman is no different than any other company. Senior executives start to believe in their own invincibility and brilliance as we saw in the technology companies of the late 1990s. Society starts to believe these executives are brilliant as well. Some are. Most are not. Are the three historical dates cited above a sign of Goldman's savvy or egomaniacal mistakes made at the height of society's irrational exuberance? Were it not for Goldman Trading's decimation and ruinous effect on their reputation post 1929, I would say it was their savvy. But, given their debacle right before 1929, I lean towards ego and irrational exuberance. Is Goldman about to repeat history? What are the executives in the corner office at Goldman really thinking? We'll never know. I recently saw a comment that Goldman was levered to the hilt in markets and therefore we were not near any type of top because they are "smart money". Historically, that appears inaccurate. Time will tell if this time is different.
Let's look at the chart for some clues. Remember, charting is not a science but an art and chart patterns can and do resolve themselves differently than expected. So, my first rule of charting is never to be wedded to a particular view. The second is to use it as a decision support tool not a primary tool. I've drawn a few patterns on the chart. Since Goldman's IPO in 1999, the stock initially collapsed into a bullish falling wedge. That wedge was resolved to the upside in 2003 into a rising channel. Since then Goldman has been in a rising channel and performed quite handsomely. Recently, Goldman broke through the rising channel into what appears to be a potential false breakout to the upside. The Brave New World crowd is likely playing in the stock now. Encompassing both the falling wedge and rising channel patterns is a longer term bearish megaphone pattern. Longer term patterns trump shorter term patterns. So, unless Goldman resolves itself outside of these set ups, it may be headed for a very unpleasant future. The stock is facing formidable resistance at both the rising channel and megaphone trend lines. Over time the stock could ride these trend lines higher but I'd be very suspect of any sustainability beyond these trend lines. Stocks typically have an upward bias over the longer term but we are in a cycle where that is not a forgone conclusion. Just at the time when Goldman has achieved cult status, are they peaking?
Well, if my longer term thesis is accurate, investors in Goldman are in for a rough ride. One can imagine what that means for the assets and equity sectors that have performed so well this cycle.
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