Goldman Sachs Should Hit It Big in 2009 17 comments
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Although the financials sector plummeted over 57% during 2008, there are many opportunities to invest in good companies with solid balance sheets at discounted prices. I believe that Goldman Sachs (GS) will be one of the stocks to hit it big in 2009.
Goldman Sachs continued its “best of breed” stance on many of the league tables during the year. Unlike many of their competitors, Goldman’s management has survived and has been proactive with the volatility of the equity markets and taming investors' concerns.
In September, Goldman converted from an investment bank to a bank holding company which allows them to tap the Fed for funds. In October, Goldman also benefited from $10 billion of debt guarantees from the U.S. government. Goldman is now in a unique position to solidify their position in many divisions as the market leader. Although Goldman reported their first quarterly loss as a publicly traded company last quarter, they were still able to churn out a $2.3 billion profit for the year, while many of their competitors reported steep losses. The write-downs from the last quarter were driven primarily by asset declines in a variety of markets, but their core franchises (corporate advisory/investment banking, sales & trading, and high net worth wealth management) did surprisingly well.
Goldman’s tax rate dropped to 1% on the $2.3 billion profit for the year. According to a company statement, the tax rate decline comes from more tax credits as a percentage of earnings and because of “changes in geographic earnings mix.” During the year, Goldman and many other banks shifted income to countries with lower taxes.
Looking forward, Goldman will be able to take advantage of current market dislocations and also return to profitability quicker than their competitors. Although their asset management division did relatively well during the 4th quarter, Goldman is likely to shrink their hedge fund. Goldman’s management has done a terrific job in reducing the firm’s non-performing assets and leverage ratio. Their leverage ratio is now at 14x from 24x. They have also reduced their assets 18% last quarter to $885 billion. This rapid reduction in risk has strengthened Goldman’s balance sheet and calmed short-sellers.
For 2009, expect Goldman’s FICC business to explode this year as the volatility and asset devaluations ease. In 2007, the division earned record net revenues of $16.1 billion in 2007. Last year, the rough market environment brought their net revenues down to $3.7 billion.
Over the next year, expect the division to perform strongly with net revenues between $8-9 billion. The principal investments group, which caused about $3.6 billion of the firm’s losses, should yield a positive return as Goldman reduces their risk in poor-performing assets. With the backing of the U.S. government and the help from the Fed, Goldman has access to cheap capital which will propel their business when the market finally turns.
The rest of this article is included in Bullish Bankers’ newsletter “The Best Stocks of 2009″ that can be downloaded for free here.
-Steve Murray
Disclosure: The mutual fund the author is associated with is long GS.
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This article has 17 comments:
Here is some obscure asset gatherer makes a case for one if his "long" picks. We are in a time period when NO ONE really has any idea what is going to happen over the next 16 months.
<<In September, Goldman converted from an investment bank to a bank holding company which allows them to tap the Fed for funds>>
That is a sign of weakness, not strength.
<<Goldman’s tax rate dropped to 1% on the $2.3 billion profit for the year.>> Yes, here is a perfect example of why the average american is getting destroyed by taxes, when companies such as GS, only have to pay a mere fraction of what they should pay in taxes.
<<During the year, Goldman and many other banks shift ed income to countries with lower taxes.>> Lets call it what it is: Yes, legal tax evasion. Ordinary citizens would be put in jail.
<<For 2009, expect Goldman’s FICC business to explode this year as the volatility and asset devaluations ease.>> Can your crystal ball tell me who is going to win the Super Bowl in 2015? Or tell me what the winning power ball numbers are going to be next week?
<<With the backing of the U.S. government and the help from the Fed, Goldman has access to cheap capital which will propel their business when the market finally turns.>> Companies that are as strong as you make GS out to be, should not need the backing of the Fed or government. Simple as that.
Simply stated: You are long, you are a pump monkey, and you make no case for the stock other than the possibility that things might go your way in the future.
I have no position whatsoever in GS stock.
I just read the author's profile.
I think this kid is some cherry in college. I think he spent one summer interning at an investment bank.
Here I thought he was some young asset gatherer working at a firm already.
Well one thing is for certain:
He correctly has the pump monkey, asset gathering lingo down pat.
The lingo he is going to need to part average americans from their money in the future.
Way to go kid. Only one problem of course: Those days are over and you going to have to actually start working to make money in financial services.
But you never know, you might be right about GS in 2009. So far it seems like them and some other major banks have "kidnapped" our government and asking for ransom money from us, well not you, you're not working yet, and yes our ransom could be their profit/revenue. You could be right!!!!
Barclays owns how much stock in how many banks ?
GS included .
M&A? That business is dead for a LONG time.
Leverage? From 40/1 to 10/1. Rates are low. Nothing there.
Gather deposits? From whom? I don't see a Goldman Sachs branch anywhere.
Trading? Maybe. But we all know that's now a good long term way to generate income.
Loan Securitisation? Nope.
These models are dead and never coming back. Goldman will wurvive, because there is a revolving door between the Central Bank and GS, so they wil get sweetie deals from the Feds. That will make their principals money. Stockholders? We're already a double from the low. I was actually thinking about shorting it with a stop at 100.
So far this year, this kid has nailed perfectly. If an investor had put money in both of his picks when the kid first ran his article earlier in the year, you would have made a lot of money.
It's easy to insult someone and to be a genius when you have the benefit of hindsight on your side. It takes a lot of guts to share your research and then picks with the rest of the world. How about all you people that are insulting this kid share all of your winners for the rest of this year? We can look back in Jan 2010 and see who is better...you or the kid. I would put my money with this kid. How about you guys putting up or shutting up? What are going to be the winners for 2009?? Come on......put up or shut up.
The site is always used for people touting one point of view or another. No big deal.
Just look at GS's price action versus C an BAC or even JPM. That alone should tell you something.
And Archman, you "have" no position in GS? How about we change that to never ever had?
For the record:
I have never, ever, had any position whatsoever, in GS stock.
(hope that makes everyone feel better)
I am not interesting in the stock, long or short. The majority of my portfolio is held in individual securities of companies that are listed outside the US. I prefer to own securities of companies not listed in the corrupt and manipulated US stock market.
Unlike 25 years ago when the US stock market was a free market and there were fewer than 100 hedge funds, the US stock market is now nothing more than a playground where thousands of hedge funds drive the market in one direction for their own benefit, coupled with the Fed/Treasury and their partner trading desks driving it in another direction, for their own benefit as well.
There is no more long term buy and hold in the US anymore. The market can rally for a few years thanks to hedge funds, etc, as mom and pop America pours their money in, only to watch the market tank as the real players take it the opposite direction for the following years, thus wiping out mom and pop America. Rinse and repeat. For average americans who cannot trade, they will never make any headway. For those who can trade the markets, they will do just fine.
I am the worlds worst trader and would never claim to be otherwise. I still believe "investments" can be made in companies, however, not in companies that trade in the worlds most manipulated and corrupt market.
Seems to me your accusation of "pump monkey" indicates you are a "dump monkey."
On Feb 15 09:20 PM archman82011 wrote:
> <<And Archman, you "have" no position in GS? How about we change
> that to never ever had?>>
>
> For the record:
> I have never, ever, had any position whatsoever, in GS stock. <br/>(hope
> that makes everyone feel better)
> I am not interesting in the stock, long or short. The majority of
> my portfolio is held in individual securities of companies that are
> listed outside the US. I prefer to own securities of companies not
> listed in the corrupt and manipulated US stock market.
>
> Unlike 25 years ago when the US stock market was a free market and
> there were fewer than 100 hedge funds, the US stock market is now
> nothing more than a playground where thousands of hedge funds drive
> the market in one direction for their own benefit, coupled with the
> Fed/Treasury and their partner trading desks driving it in another
> direction, for their own benefit as well.
>
> There is no more long term buy and hold in the US anymore. The market
> can rally for a few years thanks to hedge funds, etc, as mom and
> pop America pours their money in, only to watch the market tank as
> the real players take it the opposite direction for the following
> years, thus wiping out mom and pop America. Rinse and repeat. For
> average americans who cannot trade, they will never make any headway.
> For those who can trade the markets, they will do just fine.
>
> I am the worlds worst trader and would never claim to be otherwise.
> I still believe "investments" can be made in companies, however,
> not in companies that trade in the worlds most manipulated and corrupt
> market.
Seems to me your accusation of "pump monkey" indicates you are a "dump monkey." >>
Yes, isn't that always the solution. When someone recites the truth about something, keep labeling them as "short" so it gives you some comfort. I just have to sit back and laugh watching those who are in complete denial about our market and system here in the US, as they label me because it helps them sleep at night.
For the record: i called the author a pump monkey for his analysis was based on hope and the kindness of strangers with regard to GS. Also, if you review the author's previous articles, save for one or two of them, all his articles are about trying to sell someone the story on the stock he is recommending. And yes, the author indicates either he or the mutual fund he works for is "long" the stock at the time of publication.
No matter how you slice it, it you are long a stock you are writing positively about, you are talking up your own book. Period.
There is nothing wrong with that, but lets call it what it is: pump monkeying. Same goes for someone who is short and bashing a stock in print at the same time.
I have not talked positively nor negatively about GS.
If it makes you feel better labeling me "short" the stock, hey, whatever helps you get thru the day pal.
On Feb 16 12:47 PM archman82011 wrote:
> <<You need to stick with Yahoo MBs. That's ideal for your personal
> attacks.
>
> Seems to me your accusation of "pump monkey" indicates you are a
> "dump monkey." >>
>
>
> Yes, isn't that always the solution. When someone recites the truth
> about something, keep labeling them as "short" so it gives you some
> comfort. I just have to sit back and laugh watching those who are
> in complete denial about our market and system here in the US, as
> they label me because it helps them sleep at night.
>
> For the record: i called the author a pump monkey for his analysis
> was based on hope and the kindness of strangers with regard to GS.
> Also, if you review the author's previous articles, save for one
> or two of them, all his articles are about trying to sell someone
> the story on the stock he is recommending. And yes, the author indicates
> either he or the mutual fund he works for is "long" the stock at
> the time of publication.
>
> No matter how you slice it, it you are long a stock you are writing
> positively about, you are talking up your own book. Period.
>
> There is nothing wrong with that, but lets call it what it is: pump
> monkeying. Same goes for someone who is short and bashing a stock
> in print at the same time.
>
> I have not talked positively nor negatively about GS.
>
> If it makes you feel better labeling me "short" the stock, hey, whatever
> helps you get thru the day pal.
It's fun to see all these heated arguments and name-callings. I'm sure you all have unbelievable insights and know more about GS than others. A simple test is - would you go long or short GS at today's close:84, if you need hold the position for a year? Your own money of course.
My experience is, the more emotionally I get involved in a name for reasons other than pure fundamental outlook, the worse decision I will make.