Goldman Sachs sees nothing worth buying, may start selling

Wall Street titan Goldman Sachs is sat on a $170 billion cash pile and can find nothing worth buying in current markets, reported The Financial Times, adding: ‘If asset prices remain at current levels, Goldman has said it could change gear and begin to sell portfolios’.

Seldom has a larger red flag been raised for investors. For if Goldman can not find anything worth buying what chance for the rest of us? The sole surviving investment bank from the crisis laments that it is just not locating the kind of bargains it needs to do deals and so is sitting tight. The long rebound in markets from the global financial crisis has raised prices beyond what Goldman thinks is a reasonable price.

Major sell-off coming?

Of course, Goldman does not go on to tell the FT that it expects a big correction or major falls in financial, real estate, bond and commodity markets. But then if the bank was really confident about the future it would be out there buying so as not to miss the next rise in prices.

You surely only hoard cash in the expectation of future bargains. You might worry about holding dollars with the Fed printing money like newspapers and hedge with foreign currencies or precious metals. But this does say something about how the brighest stars of Wall Street are thinking.

Goldman bought some $8 billion in mortgage-backed securities last December from State Street, a US trust bank, said the FT. But for one of the world’s most active traders in distressed debt this is comparative peanuts, while other banks have been far more active recently.

Cash is king

Could it be that Goldman is secretly anticipating a big correction in asset values, a phase two of the global financial crisis? If so the bank is ready and waiting with money to invest when things look worst for the rest.

Otherwise what is Goldman up to? Hoping for a big rally in the US dollar? Well that might also come in big asset sell-off. But its shareholders are accustomed to performance that can only come from highly astute turning of the bank’s portfolio.

Has Goldman lost its touch or noticed something that the pack have yet to see? This brings us back to the World Economic Forum this year in Davos as a spectacular exercise in pump and dump by insiders (click here).