Do Goldman's Earnings Signal Top of Sucker's Rally?

When China made its $3 billion investment in Blackstone Group this just had to mark the top of the private equity bubble. It did.

Likewise Goldman Sachs (GS) raising money from shareholders 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 super 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 higher in this global economic crisis.

Humble logic

Goldman is 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 (HBC) 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 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?

Comments

[logicalthought:]

>>Goldman is a tremendous trading house and trying to second guess them is perhaps also an exercise for suckers...<<

LOL... Who's "second guessing"? When Goldman is SELLING, do you want to be BUYING?

Apr 14 06:48 AM

[wobatus:]

Gee, the headline question seems loaded.

Apr 14 08:07 AM

[raytayzmd:]

..."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."...well. uhhhh -- yeah...on the other hand, it could overnight go to twice what it was a year ago!...wouldn't that be a hoot?!...hey, I know what we need to do -- BUY GOLD!!!...LOTS AND LOTS OF GOLD!!!...ain't that right, Peter?!...oh, I almost forgot -- we also need to buy DUBAI REAL ESTATE!!...LOTS AND LOTS OF DUBAI REAL ESTATE!!!...ain't that right, Peter?!...you tell'em, son!...I'm on your side all the way!!!...LOL!

Apr 14 08:41 AM

[Rick Urban:]

It's clear it bothers you a lot that you miss out on 25% run-up. Your analysis of the economy is your wishful thinking so you can cover your short positions or maybe to get in the game. You believe and wish that this crisis last for years. Yes, there are issues that have to be workout and they will. In the meantime market will do what it always does. Will go up and down. It never goes up or down in a straight line. At the moment we are ready for a pull back. That would be actually good as some consolidation should take place at this level. You are totally underestimating the power of US economy. It will be the US that will lead the world out of the crisis as it always does in any crisis, not only economic one. By sitting somewhere in Arabia you are missing this point. The recovery in the USA is on its way. You can short the market now and hope Dow Industrial goes below 4500. But it could turn out just another sucker's "down-rally".

Apr 14 09:12 AM

[thotdoc:]

I'm tired of seeing this labeled as a "suckers raly." I've made very good money trading on a daily basis.

I assume most here are traders, rather than pure retail.

For us, this is not a suckers rally, it is a time to trade.

G

Apr 14 11:42 AM

[carey_jim:]

Did you make a mistake on your dates?

Was 1933 the year of a larger rally or was it 1930?

Anyway, the parallels should send chills up and down spines, if you'll pardon the outworn metaphor.

My guess is that most of the free traders on this board are closet socialists and are betting that the government can save the financial system by throwing massive amounts of tax payer money at the banking oligarchs.

Life is full of the strangest surprises. Remember when all those Soviet Communists became oligarchs after 1989?

Count on U.S. finance oligarchs becoming banking commissars if the United States financial system collapses under the weight of so much debt, and also count on these oligarchs, and the pilot fish investing community, finding a way to save their financial bacon.

A lot of people on this board are dumb, but they aren't stupid.

Apr 14 12:37 PM

[mario12:]

Are you anxiously short...?

Apr 14 12:41 PM

[blog.kerdos...:]

You may call it any name you want.
We have made beautiful money nevertheless.

Apr 14 12:46 PM

[billyboy54:]

Thanks for the article Peter, you're attracting a large number of Wail St's Bulls#it shills, that means your're right on target.........keep up the good work.

Apr 14 01:59 PM

[Peter Cooper:]

Thanks for the last comment billyboy54 - I try to make being sat in Arabia an advantage in that I can take a different view if nothing else. Not being a market trader also has advantages in terms of perspective!

Apr 15 01:01 AM

[L S:]

"Sucker's Rally".... I don't know how many times I've seen it in his headlines. If I wisely purchased some selected stocks at Dow 6,400, and selectively sold some later at Dow 8,100 for a 26+% profit... well heck, I guess I'm a sucker.

Review the author's series of articles. For months, he has been beating the same, tired old drum. Buy Gold! Buy Gold! Buy Gold! Back in December he was predicting Dow 4,000, and Gold at $5,000 an ounce (are you friggin' kidding me??). Read this articles, and think for yourselves people. This author, and many others, simply have an agenda to push.

Apr 17 08:58 AM

[fxgambler:]

Who cares about perspective?
people care about making money. Roubini has a dead wrong perspective as well.


On Apr 15 01:01 AM Peter Cooper wrote:

> Thanks for the last comment billyboy54 - I try to make being sat
> in Arabia an advantage in that I can take a different view if nothing
> else. Not being a market trader also has advantages in terms of perspective!

Apr 26 04:11 AM