Thursday, July 14, 2011

Is Goldman Sachs’s Stock Joining Bank Of America In Breaking To New Post-Bailout Lows?

To my knowledge, this is the only source on planet earth who has stated repeatedly that the long term viability of Goldman Sachs is in question.   Politicians and the mainstream press have been too busy fawning over their brilliance.  So, when Goldman lobbies our government, they listen.  You know, because Goldman only hires the smartest people on earth.   It’s pretty easy to appear intelligence when lobbying sets the rules of competition and success in your favor.  I could have made a few billion dollars under that scenario.   We got a true glimpse of that superior intelligence last year during the Congressional testimony before Carl Levin and the Senate.  I think Goldman Sachs  might consider a new measure of what intelligence truly is. 

On the surface it may sound completely ridiculous to most people but then we have made some very accurate calls on our financial system over the years.  Calls that most people would have laughed at just months or a few years before.  Those calls weren’t luck.  They were based on a substantial understanding of our financial system and its weaknesses and a substantial amount of hard work.

There are very compelling reasons to be concerned  about the viability of Goldman Sachs’ business model.  I’m not going to list them out in this post but we have cited some of them in prior posts.  In a nutshell, Goldman Sachs is a poster child for the Ponzi economy.  Much of how they make revenue and profit either used to be substantially regulated (and eventually will be again when we get real financial reform), or was regulated out of existence or is completely impossible to replicate over the long run without having an advantage garnered through lobbying. 

Goldman got a reprieve during the crisis by being allowed to become a government-protected and taxpayer-backed bank.  I have no problem attempting to save Goldman Sachs from themselves but they should have been forced to change their business model to receive this special privilege. 

It is substantially obvious to me that if Goldman is going to survive long term, it will be because they are granted special consideration.  In other words, I believe the fate of Goldman Sachs may lie with society or the government.     Yes, this all sounds ridiculous.  But then I recall making comment that there was once another hallowed institution a century old that didn’t have a sustainable business model either.   I didn’t read anyone else remarking of the concern about that institution’s fate at that time.  That is, until they were on the verge of collapse and were saved from themselves only by a government bailout/sale to Bank of America.  It once seemed impossible Merrill Lynch would cease to exist as well.

All in due time.  For now, it seems that if Goldman’s stock price breaks much further, it could be headed for another move down to retest the 2008 crisis lows.   Now why would that be?

Update: Forgot to mention something.  Notice how the spikes and movements upward and downward are the same in all three graphics?  This is because we are in an environment where Wall Street and computers buy baskets of all stocks using leverage.  ie, Everything moves in tandem regardless of fundamentals affecting markets or individual companies.  The use of derivatives has increased thousands of times in the last twelve years.   Pricing in equities has no relationship with fundamentals as we have ranted incessantly.  Fair value for the S&P is 80-90% south of current pricing.   Unless you believe bandaids and paper clips can hold this system together, that’s where we are eventually headed.  There is zero intelligence in equity markets.  Their movements only tell us if the system is close to breaking again.  They don’t tell us anything about reality or the clairvoyance of the mythical all-knowing market.

posted by TimingLogic at 12:12 PM