Why Goldman Sachs Cannot Be Wrong

When it comes to equities, they play both sides of the argument.

From Business Insider:

You’ve got to be kidding us, Goldman Sachs.

In recent weeks, at least four different strategists from Goldman Sachs (honestly we’ve lost count) have offered different opinions on the direction of the stock markets.  They range from extremely bullish to uber bearish:

David Kostin, Chief Equity US Strategist: BEARISH

Back in December, Kostin said he thought the S&P 500 would end 2012 at 1,250.  This officially made him one of the most bearish strategists on all of Wall Street.  And despite the monster rally in stocks since then, Kostin hasn’t budged.

Jim O’Neill, Chairman of Goldman Sachs Asset Management: BULLISH

When O’Neill published his 11 predictions for 2012, his position was that the S&P 500 was more likely to head to 1,400 than 1,000.  His call came two weeks after Kostin’s 1,250 call.

Abby Joseph Cohen, President of the Goldman Sachs Global Markets Institute and Senior Investment Strategist: BULLISH

It’s hard to think of a time when Cohen wasn’t bullish.  She made a name for herself in the late 1990’s by being bullish as the stock markets soared during the dotcom bubble.

Peter Oppenheimer, Co-Head of Economics, Commodities and Strategy Research in Europe: BULLISH

Everyone’s still buzzing about Oppenheimer’s note titled The Long Good Buy; the Case for Equities where he argued that the equity risk premium made stocks look incredibly cheap.

“The prospects for future returns in equities relative to bonds are as good as they have been in a generation,” he concluded.

The embarrassing thing for Goldman is that their uncertainty and disagreement over where markets are going reflects that the masters of the universe — no matter how well connected — are just as clueless as the rest of us.

The problem for muppets (i.e. Goldman clients) is that it is impossible to be both short and long. Muppets will have to decide whose arguments to listen to for themselves, and will have be responsible for gains or losses. The difference between the masters and the muppets is that Goldman don’t have to take responsibility for their actions. If Goldman screws up — say, by purchasing CDS from a counter-party that goes bust, like they did in 2008 — they can easily get a bailout, and  a boatload of loose QE money to turn their balance sheet around.

Underwater equities? Balance sheet full of junk? No problem for Goldman — merely “hunt elephants” (as Greg Smith put it): encourage your clients to put their money into whatever Goldman wants to sell.

Problem with regulation? No problem: just call up any of their friends in government. The friendship starts at the top.

From Firedoglake:

Certainly, Obama sucked at the teats of Goldman Sachs more than any other politician in recent times. It began for him as little-known Senator from Illinois with a razor- thin resume whose ambitions outshone his accomplishments. Obama’s eloquent, heavily prepped address to the Democratic National Convention caught not only the eyes of the Democratic top brass, but that of the big bankers. As early as the Spring of 2006, Senator Barack Obama was intimately involved with Bob Rubin and Goldman Sachs through his involvement with the Hamilton Project.

Fittingly, Senator Obama was chosen by Rubin and the Hamilton Project to give the inaugural address of the Hamilton Project in April, 2006. An excellent, seminal discussion of the Hamilton Project by Dr. Kirk James Murphy, M.D., can be found here. A video clip of then Senator Barack Obama speaking at the inauguration of the Hamilton Project in April, 2006 can be found here and here (with an excellent discussion) and here.

Obama not helpful? Is he having one of those days where he needs to pretend to be a populist to keep his muppets (i.e. voters) on board? That’s fine — Goldman can try Geithner, Robert Rubin, Larry Summers, Hillary Clinton, Peter Orszag, William Dudley, or any of the other Goldmanites in positions of power.

Muppets may not be so well-connected. Muppets don’t get bailouts, or QE slush money.

11 thoughts on “Why Goldman Sachs Cannot Be Wrong

  1. The housing bubble burst ! The banks got caught with their pants down. The banks are now
    buying up stocks. What dont you understand about giving your money away.

    • Yes, I am just a stupid muppet who has to sacrifice his and his children’s future so that Blankfein can keep getting bonuses. Keynesian multipliers forever!

  2. At risk of starting a flame war, muppets do sometimes get QE money. Yes it is all Keynesian multipliers, and yes the banks get it to spend it a lower asset prices. QE is pretty unfair, but at the same time there are many worse alternatives.

    • Absolute B.S. Getting money by multiplier is not “getting money”. The people getting money are the banks who get to offload worthless assets at a price floor (i.e. an inflated price pushed up by artificial Fed demand). It’s simply about giving insiders free stuff. Keynesian central bankers/planners are welcome to buy some worthless toilet paper from me for a few million. I will spend that money, thereby raising aggregate demand. Everyone wins, right? Nope. Some pigs wins more equally than others. The beneficiaries of insider advantage win more equally than everyone else.

  3. You’re right about Goldman and all their evil ways of course, and about Obama sucking their teet.
    But I seem to recall The Squid have been Romneys’ top donors this time around. Although Obama could hardly have done more for them, they rightly figure Romney will bend over even further.

    • Absolutely. Just as they play both sides when it comes to equities, Goldman don’t discriminate between political parties — they buy Republicans just like they buy Democrats.

  4. All Politicians are corrupt, because good men would not join their ilk, save for a few delluded noble souls, whose forays into the den of theives, would leave them so angered, they would have cause for a complete mistrust of mankind.

    Goodbye guys I am off to greener pastures. I hope you make the change you are looking for.

    When good is bad and bad is good.


  5. Whilst I am on an Easter quest:


    Being born without religion, perhaps societies ills may be best eased by a return to the knowledge and wisdom of the ancients. For this ancient oral tradition amongst our most learned men, and shared amongst other tribes of ancient learned men at regular festivals, hath no greater equal.

  6. Why QE when you can just churn the Fed’s portfolio for them in blind auctions? The banks just put the $1.5T back on deposit with the Fed anyways. With OT, there is no need to stroke more hyper-inflation scares while proping up the TBTF banks with transaction fees and fire-sale auction prices!

    • Not as simple as that. Twisting does not juice much wealth effect. QE “works” for the Fed by juicing up the hopium. Most of the QE money has just sat. It’s monetary voodoo.

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