Are the Goldman Sachs results today the top of the rally?
Posted on 14 April 2009 with no comments from readers
When China made a $3 billion investment in Blackstone Group this just had to mark the top of the private equity bubble. It did.
Likewise Goldman Sachs raising $5 billion off the back of the best Wall Street rally since 1933 ought to invite the same degree of skepticism.
Is Goldman about to use its $1.8 billion in profits from the first quarter rally to generate enthusiasm for a stock issue whose value is bound to fall off the edge of a cliff as this sucker’s rally comes to its logical conclusion: another massive plunge downwards like the summer of 1930?
Let us not forget that global trade fell by more than it did in 1930 in the first quarter, and global GDP is crumbling. There is no recovery, this is a slump. Stocks will not rally much higher in this global economic crisis.
Humble logic
Goldman are a tremendous trading house and trying to second guess them is perhaps also an exercise for suckers. But humble logic can flaw the greatest genius.
Recapitalization outside of government intervention is the holy grail for global banking at present, and HSBC’s successful mega rights issue shows that the bold can still be beautiful in raising funds. And it is true that Goldman has delivered long term performance for its shareholders and indeed was the last investment bank still standing on Wall Street in the crash.
Whether that means now is the moment for shareholders to put up new money is another issue. If, as this website argued over the weekend, this is just a sucker’s rally:
http://arabianmoney.net/2009/04/13/suckers-rally-now-coming-to-an-end
then buying Goldman stock at the top of such a rally is clearly going to prove to be fool’s gold.
Bear market rules
In a true bear market it could be many years until shares regain their current nominal values again, and even that may obscure real value erosion by inflation.
The point is surely not that Goldman Sachs is not a great company, or that the house is not fantastic at trading a massive rally like the one in the first quarter, but simply that investors at this time risk overpaying like the Chinese did for Blackstone by jumping into private equity just as that particular game was up.
Indeed, stock in Goldman Sachs might be available later this year at far more attractive price levels, so why buy now?
