Fear and Loathing … of Goldman Sachs

Goldman Sachs (GS) closed at $135 on Friday on rumours of a Federal Investigation into mortgage securities sold prior to the 2007 mortgage bubble and 2008 stock market crash.

Goldman is certainly guilty of shorting mortgages while selling them to customers, and for selling them for more than they thought they were worth, but that’s not illegal. (Hey, here’s a tip: don’t get investment advice solely from the people selling the investment!). Much was made of internal emails indicating that some Goldman staff thought that one of their deals was “shitty”. I’m pretty sure I could find a guy at Microsoft that thought Vista was shitty: does that mean that anyone who sold Vista was a crook? Of course not. Some products are good, and some are not.

Goldman is down 13% from where I purchased it last month, making the return even better from this inherently good company, but I think this Federal Investigation will beat the stock up for months to come. I predict that the Government needs to make Goldman suffer. They will keep after them until the stock hits a low at around $100 and then say, “Look how low the stock is…they have been punished enough.”. Meanwhile the earnings will have been as strong as ever and, once people’s gaze moves on to the next shiny object, the stock price will come roaring back.

UPDATE

Goldman Sachs has indeed gone below $100 but this has had little to do with the fuss surrounding the firm and more to do with the debt crisis in Europe. Writing today, on 30th December 2011, Goldman is at $90.43 (67% of book value!) and in the doldrums along with all other major financial stocks.

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UPDATE

Today, 15th March 2012, Goldman is at $123. A decent recovery, but not as good as its peers. Negative press continues and Goldman has not shaken it’s reputation as the selfish banker. They need to work on their PR!

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UPDATE

Writing today, August 10th 2012, it seems that the second part of my prediction has come true: the US Department of Justice has indicated that it will not be prosecuting Goldman for any alleged wrongdoings in the 2008 stock market crash or the preceding mortgage bubble.

The price has yet to recover.  GS is still at $122.

UPDATE

Writing today, 15th February 2013, GS is at $155.  Prediction has come true, but it took a long time.

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