Is Goldman Sachs Good or Evil? Buy or Sell?

April 17, 2010

(You may need to increase the font size to enhance your reading pleasure – to do so hold down the Ctrl button and press +) I hate to say this, but I told you so….didn’t I tell you whenever Bernanke & Co opens his mouth and says anything good about the US economy – do the direct opposite! – and if you took my word for it there and then (fortunately all the guilds acted on it pronto): Why when Bernanke’s talks about the road to recovery – I am out of the market!  – and sold of all your US financial positions, that would have saved you a whole lot of grief today – you are sitting so pretty! Give yourself a pat on the back!

If you didn’t then go join the internet is full of lies and disinformation brigade.

As yesterday Goldman shares Ticker: GS nose dived 13% to USD$160 something! – as for Citigroup, they took a 7% fall! As for Synovus Financials it was 7% plus!

As I said, it’s a no brainer and I try to keep things very simple here (that’s why you see no bells and whistles on this blog, no clocks, no RSS, nothing except the essay, it is very zen) – So one more time please, whenever Bernanke & Co opens their mouth to say they have save people & planet – sell, sell, sell! You can never go wrong with that rule!

Now Let’s set that all aside and dive into the deep end: why is the Securities and Exchange Commission charging in on Goldman with guns blazing?

Well it has to do with securities fraud in the underwriting of collateralized-debt obligation backed by subprime mortgages – now if you’re just a simpleton like me – this is very easy to understand – in casino lingo it’s called double dealing on the wheel – just imagine that I am croupier and I manage to sell you the idea that if you win, we split the profits – I tell you to put your money on number 18 – you do that – the kicker is I have rigged it, only the number is not 18 but another number and I even get a fat commission, if you lose  – so what we have here is a just a more polished and refined version of the classical Nigerian goldmine scam. That’s it – it doesn’t get more complicated than that.

But I am not so sure this matter is cut and dried – that’s to say, I am not entirely convinced Goldman Sachs is out to con ordinary folk. Or they are evil. Firstly, the whole deal is transacted by another firm –secondly, Goldman did not benefit from it- in fact, they lost money – and finally, this isn’t a criminal case as it remains a civil matter. Fourthly, the mechanics as I see is kosher (it’s not 100% but it’s 70%)

But there is one thing that you as the investor need to know – what happened on Friday was NOT simply a knee jerk reaction by the market; that’s to the say, the pull out came directly from the clever money segment – the definition of clever money is the direct opposite of stupid money i.e these people are the professionals – why did the clever money pull out? Because what you need to understand is the clever money is always thinking two or three steps ahead of the stupid money – these are the chess players.

For starters; they don’t see this SEC move as simply a reaction to a financial transgression by a big firm – rather to them, it’s a prelude that may lay the ground work for Congress to slap further restrictive controls on Wall Street – in other words, it may be a set up.

The fear in the clever money camp is simply based on this: whatever government touches turns to mud; so the sum of their fears is summarized in these terms: they fear that proprietary trading will be banned, lucrative customized derivatives will be curbed and that more derivatives trading will be forced onto exchanges where instead of a free market what we will probably end up with is a corseted centrally controlled soviet styled command and control system.

Are their fears valid – I don’t think so – but what you need to understand about clever money is they operate exactly like the Mafia, Jewish Lobby and the Freemasons are rolled up into one nasty piece of goods – because when they pull their money; they’re sending out a message to both Congress and the Senate – don’t mess around with our hunting ground!

The $64 million question (that sounds like loose change these days) is will the US government pick up the phone and tell someone in the SEC to hold off the dogs or will they press on for the kill? If they go for the latter, then what the SEC is likely to uncover is what Goldman Sachs did wasn’t a practice confined to only many of their mind boggling derivatives that they used to collateralized-debt obligation relating to the subprime crisis – in truth (and many people may not know this as the intricacies of these instruments can be so complicated it’s like the cockpit of concorde), many other firms are equally culpable as well – as there is so many ways to rig the roulette wheel –this is just one of many ways. So what are they going to do? Sue everyone and put them all in jail?

My bet is this Goldman Sachs affair is going to blow over like a bug on a windscreen at 100 mph –I have absolutely no doubt, the clever money will get right back in (besides they have already made their point); the wild card remains the stupid money i.e the people who don’t know how markets really work – my fear is they’re going to sell, sell and sell – and this may even spread beyond the financial sector –let’s see what happens; only if you were out before the 13% dip on GS or 7% fall out in Citigroup – get right in again; even at USD$ 160 GS, still has one of the lowest price/earnings ratios of any large company in the Standard & Poor’s 500 index – but remember this is strictly a hit and run play – and as far as the stock market is concerned it’s just a giant casino – on that I have absolutely no illusions.

Ultimately, it’s your call. However, please note due to recent developments: the buy recommendationsFOOD, FEAR AND GOLD – What do they have to do with the economy? is still valid for those who wish to take a long term position / if you’re in for a spot of drive by shooting (like I am, as I see maybe a good 20% return) then do consider pulling your bumper up to the financials in the US market – but please note you don’t have to go for goldman, Synovus financials or Citigroup could just as well fit the bill, they have all been pulverized – just make sure you time your entry and exit -it’s your call – remember you’re always in control here.

Darkness 2010

“I want to make one thing absolutely clear to everyone; once you step into the stock market. You are a gambler. The guilds want to talk to me about long term investing, then I say go down to 7/11 and buy a bag of BBQ charcoal  and wait for it to turn into valuable diamonds – as for paper losses that’s just another way of saying, I fucked up, so call me up next year for your money – that’s as good as it gets – the sooner we drive out illusions the better – if you really want to talk about real investing, then I say, you go and build a firm like General Dynamics or Toyota Motors – but as far as this is concerned its gambling – anyone who tells you different has absolutely no respect for himself, his customers or the market – this man doesn’t need any enemies – he is in every sense his worse enemy – as he has absolutely no idea of how to manage himself and others – that is reality. You laminate this, carry it in your wallet….so do not come down here and lecture me about risk management, that’s like talking about parking tickets in a F1 racing circuit – it’s a casino and the goal is to break the house in half!”

Darkness 2004  – response during question time at Primus Aldentes Prime ? The Great Hall / Extracted from the Book of Ages – under the chapter the Age of Reason / Page 2399 – The Brotherhood Press 2010

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