The people at Goldman Sachs (NYSE: GS) are supposed to be genetically different from the rest of Wall Streeet. They are supposed to be smarter and more astute at taking risks. That may be why the firm's losses have not been as great as those at most other financial companies.
The folks at Goldman looked downright human as news came out that one of its large hedge funds is $1 billion lighter than it was at the beginning of the year. According to the FT, "Goldman Sachs Investment Partners, which was hailed in January as one of the biggest hedge fund launches, raising more than $6bn, has told investors that it had lost $989m by September."
Goldman did have an excuse. The firm said that the hedge fund business was bad everywhere. Cold comfort to investors who lost money.
Unstated by most ,but nonetheless true, missteps by Goldman have hurt its image and brought it down to the level of most other investment banks. Its image as "elite" probably changed with its transformation to being a commercial bank to qualify for one of the federal programs that provides financial aid to U.S. banks. Wall Street wondered why the premier company in the industry would have to do that.
The news about its big hedge fund loss is just one more piece of data. Goldman is no longer special. The credit crisis has made it "ordinary" and there is not much evidence that it can recover from that fall.
Douglas A. McIntyre is an editor at 247wallst.com.
Analysts are speculating that Goldman Sachs (NYSE: GS) may post its first quarterly loss as a public company. According to Reuters, "The potential for a quarterly loss, combined with the generally weaker environment for financial institutions, has some investors wondering if Goldman Sachs really deserves to trade at a higher valuation than Morgan Stanley (NYSE: MS)." Based on that point of view, a bad quarter could cause the premier investment bank's shares to fall sharply.
The factors that may cause the red ink are write-downs in the value of public and private assets and the firm's real estate portfolio.
Leaving Goldman aside, the analysis is an indication that the worst may not be behind many other large U.S. banks and brokerages. If the best-run company in the industry faces substantial losses, what about the rest of the group?
Most investment bank shares are off 60% or more this year. A month or two ago, some were off closer to 80%. More bad news from any firm in the sector could push these stocks to new bottoms. Shares in Morgan, which has recovered to $17, could be driven back down to $7, its 52-week low.
Financial stocks could be heading for another big sell-off.
Douglas A. McIntyre is an editor at 247wallst.com.
Goldman Sachs Group Inc. (NYSE: GS) today handed the keys to Wall Street's most lucrative kingdom to 94 lucky souls named "partner."
These folks are the best of the best. Perversely, the timing could not have been better since as Bloomberg News notes it is "a designation that gives them a bigger share of a bonus pool that's likely to shrink this year amid the worst financial crisis since the Great Depression."
It certainly is quite a time to be a partner at New York-based Goldman. Shares of the company are down 56%. Profit for the first nine months of the fiscal year was $4.44 billion, down 47% from last year. A mere $11.7 billion is available for compensation, down 32% from 2007.
These new Wall Street prince and princesses should find plenty of places eager to take their money. A host of New York City businesses ranging from Tiffany & Co. (NYSE: TIF) to the local nannies have been decimated by the tens of thousands of layoffs on Wall Street. Even the hard-working strippers who serve Wall Street clients are starting to feel pinched -- economically, according to The New York Post. As the paper's Page Six gossip column recently eloquently put it: "Wall Street's financial crisis has trickled down to Manhattan's mammary meccas."
Meanwhile, New York State Attorney General Andrew Cuomo has asked for information about executive pay from nine banks getting rescued under the Treasury Department's TARP plan. Goldman, of course, did not need to be rescued but in the eyes of politicians a bank is a bank is a bank. By naming partners now, Goldman is only showing how out of touch it is with the lives of ordinary Americans.
For those who have followed "my pal Warren" Buffett for years, or even decades, these cautionary stories of him losing his edge are as silly as trying to predict where the DJIA will be on a given date. As for Peter suggesting that he was early buying into Goldman Sachs Group (NYSE: GS) or General Electric (NYSE: GE) three weeks ago, well my gosh, it has only been three weeks!
I understand that the prevailing wisdom seems to be running against the buy and hold approach. But three weeks is kind of short to be passing judgment, don't you think? The DJIA is down 42% while Berkshire is only down 31% from its high of $5059.
Perhaps investors have punished the stock because GS and GE are down. Maybe it is because Berkshire has been buying up railroads and that strategy is less important with oil prices falling 55% since the summer high of $147 a barrel. It could also be because people have lost their minds -- who knows?
As if the economic recession wasn't hard enough on Americans, seeing the government spend billions to bail out Wall Street has made it all even harder for the average person to take. Yes, we all want to avoid global financial collapse. But the way the government rescue of the banking industry is playing out seems to be adding insult to injury.
Here are eight recent examples:
Wall Streeters can still expect big bonuses this year When the government agreed to bail out Wall Street, the goal was to provide funds to shore up banks' capital bases so they would start lending again. It wasn't to help them fund the bonus pool. But estimates run that as much as $70 billion will get paid out in bonuses to bankers this year. That amount equals 10% of the $700 billion bailout. Sure, the bonuses will be smaller than last year and fewer people will get them, but there will still be lots of six-figure payouts to go around.
A Goldman hot shot got the job of doling out all that money Neel Kashkari, a 35-year-old former Goldman Sachs whiz kid who believes in free markets, is getting the job at the Treasury Department of dispersing the government's $700 billion rescue. Is he really the right person for the job? Gawker has been merciless, publishing his high school yearbook page that features a Ferrari and lyrics from the rock band Rush. But lots of observers have wondered if a seasoned vet with a little more political experience might be a better fit for the task at hand.
This post is part of a feature on companies and products that our bloggers think are in need of a makeover.See all 26.
You may have noticed, as I did, that Treasury Secretary Henry Paulson seemed colossally uncomfortable during his testimony before Congress in September. Obviously, no one would enjoy jumping into Paulson's shoes and defending the merits of the government's $700-billion bailout bill to skeptical senators. However, the good Secretary's level of discomfort went up to 11 when the legislators began grilling him about the obscenely fat pay packages received by Wall Street CEOs -- even those who, you know, bankrupted their companies and stuff?
I can't blame Hank for breaking a sweat. Before he assumed the role of Treasury Secretary, Paulson was better known as the handsomely compensated CEO of Goldman Sachs (NYSE: GS). To his credit, Goldman is one of the few titans of Wall Street still standing in the wake of the mortgage-backed securities mess. Although he managed not to drive his company into the ground, I'd argue that Paulson is not quite impartial enough to lead the charge for CEO pay reform.
On the other hand, I have never received a salary that could be described as "scandalous." Plus, I have a healthy amount of indignant rage regarding the pay packages scored by such Wall Street ne'er-do-wells as Richard Fuld of Lehman Brothers and Martin Sullivan of AIG (NYSE: AIG). With this arbitrary sense of entitlement, I feel more than qualified to suggest some new guidelines for executive pay.
Goldman Sachs analyst William Tanona reinstated coverage of Citigroup Inc. (NYSE: C) today with a s Sell rating and a six-month price target of $11. In a note to clients, the analyst wrote, "We believe weak economic data will keep the stock under pressure over the next six months, and it is tough to see why the stock would head higher over this period."
In fact, Tanona expects the shares to decline. Citigroup closed yesterday at $15.09, which means the analyst expects about 27% downside during the next six months. To emphasize the depths of his bearish sentiment, Tanona added Citigroup to Goldman's "conviction sell" list, and warned that the Dow component may not return to profitability until the second half of 2009.
On the other hand, the broker feels bullish toward Morgan Stanley (NYSE: MS), which he expects to generate profits over the next four quarters. He cited Morgan's limited exposure to consumer credit as a positive catalyst for the stock. In order to play on these starkly contrasting expectations, Tanona recommended a paired trading strategy on the two banks; he advises investors to go short Citigroup and long Morgan Stanley.
In morning activity, traders seem to be taking heed -- Citigroup shares are down 2.8%, while MS is approaching a 4% gain.
This line (subscription required) from today's Wall Street Journal pretty much tells you everything you need to know about how not useful Wall Street analysts are:
Just a month ago, Goldman's commodity analysts predicted crude oil would average $148 a barrel next year. On Sept. 16, they trimmed that forecast to $123. On Monday, they slashed it to $86 a barrel.
That's right: analysts are being paid millions of dollars and receiving tax deductions on pinstripe suits to raise estimates as prices rise and then slash them when they fall. Such analysis is truly priceless -- almost as valuable as a solar-powered flashlight or a Wiimote-powered Roomba. And keep in mind that Goldman Sachs (NYSE: GS) is actually probably the best firm on Wall Street.
The point is this: most of the analysts you see on networks like CNBC are just expressing their mood on that particular day.
If you're in it for the long-term, the best thing you can do is nothing -- live within your means, invest regularly, and don't pay too much attention to the news.
One way to go broke is to buy oil when the analysts says it's going to $148 and then sell it after the downgrade.
Does today's record 936 point rally in the Dow mean that happy days are here again? I think it's a gift to investors who want to stop their losses after having seen their portfolios plummet in the last year. Last week, the Dow fell 22%, destroying $2.4 trillion in market value -- it gained back $940 billion of that today. As an unpleasant reminder, after today's 11% rally, the S&P 500 has lost 36% of its value in the last year. And, while I hope I am wrong, I don't see the conditions yet in place to believe that we have reached bottom with the economy and can now expect the earnings growth that would justify investment in stocks
Today's rally feels good but it is highly likely that there was an element of short covering driving up the market. Last Wednesday, the SEC lifted its ban on short selling. Investors who shorted financial and insurance companies were doing quite well last week as fears of another financial bankruptcy mounted. With today's successful save of Morgan Stanley (NYSE: MS), anyone who was short that firm -- or other financial stocks -- was forced to buy those stocks as they spiked in order to repay their stock loans. This probably contributed significantly to a buying panic.
If you need your money in the next six years, you could sell first thing tomorrow morning and you will be able to limit the losses that could come from unpleasant surprises. What kind of surprises? Here are two:
Credit Default Swap settlements. There is no central repository of information about who owes how much to whom for their CDS obligations. Nor is there solid data on how much these CDS counterparties have in their capital accounts in the event of a default that triggers their obligation to pay up. For instance, I was surprised to learn that Goldman Sachs (NYSE: GS) had a $20 billion obligation in the event of an American International Group (NYSE: AIG) failure. Who else is out there with such obligations? Do each of these counterparties have the ability to get the government to bail them out by taking over the company to prevent them from having to pay? Probably not.
Alcoa Inc. (NYSE: AA) kicks off the new earnings seasons when it reports third quarter results on Tuesday. The Pittsburgh-based aluminum producer, which celebrated its 120th anniversary with the launch of its website, is expected to post a profit of 54 cents per share, down 15.6% from the same quarter of last year, on revenue of $7.2 billion, down 2.1%. While Alcoa has tended to fall short of estimates in recent quarters, in the second quarter it did offer a positive surprise of almost 3%. Its long-term earnings per share growth forecast is 14.8%, a little less than the S&P 500, and analysts polled by Thomson Financial on average recommend buying Alcoa, and have for more than 90 days. Shares reached a new 52-week low last week, and are down 48.9% from a year ago.
General Electric Co. (NYSE: GE) is also expected to report a slip in earnings this week. Analysts anticipate that the conglomerate will post a third-quarter profit of 45 cents per share, down just 6.3% from a year ago, on revenue of $47.7 billion, which is up 12.1%. GE has tended to eke out small positive surprises in recent quarters, by less than 1% in the second quarter. GE's long-term earnings per share growth forecast is only 11.0%, which is less than the sector average and the S&P 500. The consensus recommendation has recently swung to hold GE, but Warren Buffett has bought in to the tune of $3 billion. GE also reached a new 52-week low last week as the markets tumbled. GE shares are down 48.1% from a year ago.
Goldman Sachs (NYSE: GS - option chain) shares are rising today as the markets bounce back from yesterday's bloodbath and the company announces that is is looking to buy up to $50 billion in assets as a way to become a major player in the banking industry now that it is a bank holding company. If you think that the stock won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on GS.
GS opened this morning at $126.89. So far today the stock has hit a low of $124.50 and a high of $129.00. As of 12:45, GS is trading at $127.38, up $6.68 (5.5%). The chart for GS looks bearish and S&P gives GS a 3 STARS (out of 5) hold ranking.
For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in just eight weeks as long as GS is above $50 at November expiration. Goldman would have to fall by more than 60% before we would start to lose money. Learn more about this type of trade here.
It looks like Berkshire Hathaway Inc (NYSE: BRK.A) CEO Warren Buffett needs another bite of the big apple. Bloomberg News reports that last night Buffett bought a stake in The Goldman Sachs Group (NYSE: GS). Let's hope he has better luck with this investment than the last time he ventured into New York to buy an investment bank -- his 1987 buy of a stake in bond trader, Salomon Brothers. Back then, Buffett doubled his money in a decade -- and went through nine months of misery cleaning it up after a bond trading scandal.
But let's get back to the present -- what exactly did Buffet do with Goldman? He bought "$5 billion of perpetual preferred stock with a 10 percent dividend. Berkshire also gets warrants to buy $5 billion of common stock at $115 a share at any time in the next five years," according to Bloomberg. Goldman can buy Berkshire's preferred stock in Goldman "at any time at a 10 percent premium" and it yields a "10 percent dividend," according to Bloomberg.
Will this work out better for Buffett than his ill-fated Salomon Brothers deal? in September 1987, 21 years ago, Buffett bought "$700 million of Salomon convertible preferred stock -- pay[ing] 9% and convertible after three years into Salomon common stock at $38 a share--against the $30 for which the stock had been selling. This equated to a 12% stake in the company," according to Carol Loomis.
Goldman Sachs (NYSE: GS) is recently trading at $134.50 in pre-open trading, above its close of $125.05. GS agreed to sell $5 billion of perpetual preferred stock to Berkshire Hathaway, in addition GS is raising at least $2.5 billion in common equity in a public offering. Deutsche Bank says: "Less risk and lower returns likely with Buffett stake." GS October call option implied volatility is at 89, puts are at 98; above its 26-week average of 53 according to Track Data, suggesting larger price movement.
Morgan Stanley (NYSE: MS) is recently trading at $30.75 in pre-open trading, above its close of $28. MS October call option implied volatility is at 139, puts are at 163; above its 26-week average of 58 according to Track Data, suggesting large price movement.
TheStreet.com's Jim Cramer says he at least recognizes value when he sees it.
Warren Buffett is not an idiot. He has kept his powder dry through all of this madness and suddenly, within one week, he has opened his coffers and picked up not one, but two multi-billion-dollar steals, Constellation Energy (NYSE: CEG) (Cramer's Take) and Goldman Sachs (NYSE: GS) (Cramer's Take).
These investments are the first sign that someone, some grown-up, is coming in from the sidelines, not because he has been talked into something that he doesn't want to do or understand -- which has been the case in all of the other bank financings -- but because he sees a delicious rate of return that will be hard to take away now that he has put his balance sheet to work, one of the last with any firepower to make a difference.
First, Constellation. Here's a perfectly good utility that, because of its business model, needs capital to work. It made several miscues that brought it to its knees -- a business that is a regular, good generator of income gone bad because of financing. I have no idea how low it would have gone, but as long as it was intact, it was worth a lot more than it was selling for to someone who has financing, and that's what Buffett has in spades. He stole the company.
Analysts are speculating that 
It was only seven weeks ago that I posted 
As if the economic recession wasn't hard enough on Americans, seeing the government spend billions to bail out Wall Street has made it all even harder for the average person to take. Yes, we all want to avoid global financial collapse. But the way the government rescue of the banking industry is playing out seems to be adding insult to injury. 
This post is part of a feature on companies and products that our bloggers think are in need of a makeover. 
This 
Alcoa Inc.
It looks like 
Goldman Sachs
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Is Berkshire Hathaway better than S&P Index?
Closing Bell: Torch Passing on a Friday Rally
