Goldman repeats bullish call on commodities, cuts projections for growth in China’s economy

This morning Goldman Sachs repeated its bullish call on commodities. On April 12 the Wall Street investment bank told its clients to sell commodities. Goldman reversed that call on May 6 saying that the pullback in commodities has created “an opportunity for more upside potential, particularly in the second half of this year, when fundamentals are expected to tighten.”

Today’s call is stronger: “The risk/reward once again favors being long commodities,” Jeffrey Currie, head of commodities research at Goldman Sachs in London, told clients today, May 24. “Economic growth will likely be sufficient to tighten key supply-constrained markets in the second half, leading to higher prices.”

As of 11 a.m. New York time West Texas Intermediate Crude was up 1.9% and copper had climbed 1.3%.

Interestingly, this increased bullishness on commodities comes on a morning when a pack of big banks—including Goldman Sachs—have cut their forecasts for economic growth in China. Goldman analysts Yu Song and Helen Qiao today told clients that they expect China’s economy to grow by 9.4% in 2011 instead of a previously forecast 10%. Read more

I think you’re entitled to feel a little cynical this morning. And you quite probably feel some anger too if you sold some commodity stock positions last week.

Goldman Sachs, the Wall Street giant, that predicted a sell-off in commodities—and certainly thereby with that call contributed to creating the sell-off last week that it had predicted—is now predicting a recovery. Read more

Goldman decides to play nice and, intentionally, pays the price in revenue

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? Read more

Goldman will take the SEC’s fine out of petty cash

It’s not even a slap on the wrist. The $550 million fine agreed to by Goldman Sachs (GS) as part of its settlement with the Securities & Exchange Commission (SEC) amounts to roughly a week’s worth of trading revenue for Goldman.

Considering that the SEC put the damages to Goldman’s investors in the Abacus CDO (credit default obligation) deal, $550 million seems a bit light. Considering Goldman’s role in forcing American International Group into a government bailout, $550 million seems inadequate. Considering Goldman’s role as a key enabler of the derivative deals that almost took down the global financial system, $550 million seems laughable.

And, of course, as is usual in this kind of settlement, Goldman didn’t admit or deny the charges. Read more

What’s really at stake for banks in the Goldman SEC suit

It might be just coincidence that the SEC filed civil fraud charges against Goldman Sachs (GS) in the midst of a contentious debate in Washington over legislation to reform Wall Street.

But it’s sure as God made little green apple no coincidence that the SEC announced its charges on the same day that comments closed on what’s called Basel III.

You’re probably up to your eyeballs in speculation about what the charges against Goldman will mean for the Wall Street bank that everyone fears to hate. And you’re probably desperately trying to tune out the empty rhetoric that passes for debate over the financial reform bill in the Senate these days. (Let’s just say that when Connecticut Senator Chris Dodd (Dem.) said his Republican colleagues were acting like teenagers, I sprang to my feet at home to launch an impassioned defense of teenagers from such slander.)

And you’ve quite possibly never even heard of Basel III. But I think the other two much more public stories are simply sideshows to the action in the main ring that’s Basel III. And without going too far out on the fringe with Dr. Walter Bishop, I think Basel III is the behind the scenes story in the current political and regulatory drama.

Okay, so what’s Basel III and why is it so important?

This set of new regulations for the international banking industry will determine the profitability of banks for the next decade. Read more