I’m looking at the earnings report from Goldman Sachs (GS) yesterday, July 20, as the second part of the company’s fine for bad behavior.
The first part, the official part, was the company’s $550 million settlement with the SEC (Securities & Exchange Commission.) The second part is the big 39% drop in net revenue from trading and principal investments from the level recorded in the second quarter of 2009. The biggest part of that drop, Goldman said, was a result of trading losses from increasing volatility in stocks during the quarter. Goldman’s clients, the company said, went short to hedge their risk and that resulted in Goldman winding up long stocks in a quarter when stocks fell.
In other words, Goldman took a big trading loss in the quarter because it traded in its clients’ interests before its own.
If you’re really, really cynical, you can see that trading loss as a demonstration designed to refute arguments raised during the SEC investigation that Goldman took care of its own profits even if it meant clients suffered.
Me? I’m just that cynical.
Knowing that everybody in the world would be looking over its shoulder this quarter, Goldman decided to play not just by the rules but by the most conservative possible interpretation of those rules. And if that resulted in a big drop in trading revenue in a quarter when all Goldman’s competitors were reporting trading losses, well, that would be okay.
Just the cost of doing business.
You think that’s too cynical, too conspiratorial?
We’re talking about Goldman here. Learned anything about the company in recent hearings and investigations to suggest that it isn’t fully capable of cold-bloodedly assessing how much it has to pay in the short-term to restore its long-term ability to do business as usual?
That means the key question for investors is How long will it be before Goldman figures it can go back to being the biggest shark on Wall Street?
grindy2424,
Personally, I like the plays in China a LOT more than the indexes. In Brazil, I’m exactly the opposite, preferring various index ETF’s.
On CSKI, I may add to my position at $8 or $9 if it drops that low.
One thing to be careful about when you are buying index ETF’s, regardless of what part of the world they are located: Major index and large cap ETF’s tend to be top-heavy with banks and other financial institutions. If you are looking to invest in that sector, that’s ok. Just be aware of it. The “too big to fail” banks are not just an American phenomena.
Ed,
I have cski too. May get some more at 10 if it stays down there…. Great buy. I like AMX too, but just made a major business acquisition so not a lot of extra cash sitting around…..
LFL has been a great play since I bought it last year. I still own some VALE and other metals but not expecting to get much out of these for awhile.
Still waiting for China to come around but it is definitely showing signs of life. I may do a bit of index buying instead of individual stocks to make sure I get the full currency appreciation
Fnmix is an em bond fund from fidelity jim mentioned a while back.
mdistasio,
No problem. Glad I could help. 🙂
Ed,
There are more than I was aware of. I have come across a couple of those but not all. Thanks for your help!
grindy2424,
I already have. 🙂
For China, I have CSKI and NIV. Today, I added America Movil (AMX) from Jim’s watch list. Even though it is primarily in Mexico, they do have an expanding presence in other Latin American and South American countries, including Brazil.
My 2 cents…emerging markets have seen their day for awhile. As net exporters, their U.S. and Europe markets are weakening. If they can’t promote domestic demand, they will continue to slide for awhile.
My advice if you have to play, use trailing stops.
I think we need to start shifting our focus to some of these emerging markets that are really strengthening. Chile has been going very strong. Lan (LFL) has been doing so well it is making me nervous. Update on this on Jim?
Ed you taking any nibbles at emerging markets?
I’m also curious/waiting for a post about investing in emerging market bonds.
Thanks for all you do Jim…love your insight
mdistasio,
There are 7 short treasury ETF’s that I got on my screener (http://etfdb.com/screener/). They are TBT, TBF, PST, TMV, TYO, TWOZ, and SBND. I’ll let you do the rest of the legwork. 😉
Jim,
I beleive a month or two ago you reported about buying bonds in emerging markets and the avenues with which an average investor could pursue them. You mentioned you would have an update I believe in the near future. Have you had any success?
Ed,
Do you know of a way to short treasuries? I have been trying to do some research but havent found much of anything in the way of ETF’s that I like. I feel like it might be a decent play sometime in the future here. Any thoughts or directions on where to look? Thanks!
I know it’s a rhetorical, but I have to put money on July 27, 2010. Yes, they are that ashamed.
I mean legally of course. I don’t want to do anything illegal, just wondering if this would be o.k. and satisfy existing regulations.
Good Post Jim! I think your assesment of that situation is right on.
Off topic to whoever might know the answer.
Can I get around the regulation T rule regarding pattern day trading by opening up a second trading account and do say 3 round trades in one account each week and 3 in the other?
I haven’t yet made more than 3 round trip trades a week so I am not yet required to have a margin account.
I don’t want to trade in a margin account because in a cash account I can make a buy using unsettled funds as long as I don’t re-sell it before the funds are settled. But, if I make a similar buy in a margin account, it doesn’t seem to consider unsettled funds before dipping into the margin portion and thus incurring margin interest fees.
This report makes Obama and the Dems happy, they are opposed to profit.
Off topic… Housing repos >$300k
http://www.realestatechannel.com/us-markets/residential-real-estate-1/real-estate-news-home-buyer-tax-credit-federal-housing-administration-loan-guarantees-fha-realtytrac-home-foreclosures-highend-home-repossessions-bank-reo-sales-2868.php
Jim,
You need to take a look at AMX on your watch list. I’d call that a “buy” now.
Jim, 10 yrs treasury yield has been dropping like stone last 3 mon..Any crystal ball when that will reverse???
thx!!
Wow, Jim! You bring a smile to my face. There may be some truth in your cynicism. On the other hand, Goldman’s chief economist, Jan Hatzius, has been quite gloomy in his outlook lately, and may have guided trading more conservatively while the market has been remarkably resilient, yielding lower trading revenue.