Is Goldman Sachs the Canary in the Coal Mine, Or Just No Longer Relevant?

For much of 2009, Goldman Sachs (GS) has been one of the market's number one 'tells', so much so that it's become a rule among traders that as goes Goldman, so goes the market. If the stock was strong on a weak market day, you could almost bank on an afternoon rally. Likewise, if Goldman traded heavy on a strong day, taking profits ahead of a potential sell-off was a prudent move.

The fact that the two have been so connected makes the recent action in GS that much more puzzling. Even as the major averages have broken out to new highs for the year, Goldman has substantially lagged the market. Not only has it not managed to break out to new highs, but it can't even muster up a push above its 50-day moving average.

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The underperformance of Goldman Sachs is even more visible in a chart of its relative strength versus the S&P 500 which peaked in early October. While bears will argue that Goldman's underperformance is a sign of things to come for the market, bulls would counter that like other relationships in the market, the "Goldman Rule" is just no longer relevant. Whatever the reason for the decline, the peak in Goldman's outperformance came right before the company's third quarter earnings report, when talk over the so-called obscene bonuses first surfaced. The fact that Goldman is now on the radar of every populist politician in the country at a time when Washington considers making money a sacrilege, adds an added risk that some investors likely think just isn't worth it.

Comments

[bobbybutte:]

as a person who has become financially independent SOLELY from allocating capital let me add some things here

GS is stil the cream however it has enormus gains and many have correctly held it oen year and are rolling into large cap multinationals which have underperformed while Gs has risen

company is still making amint trading in this enviornment and how many investment banks will be around when M&A fever hits?

Nov 16 01:19 PM

[VennData:]

The Vampire Squid's PR is at an all-time low.

Once the Socially-Consious investors drop them, it's only a few more board meetings before pension funds and endowments do to.

These guys should seriously work for charity only for a few years.

They're getting protested, for crying out loud.

www.politico.com/news/...

Nov 16 01:47 PM

[Snitzer:]

A lot of very smart people run GS so I wouldn't count them out, but maybe, just maybe, all the talk about "The Evil GS Empire" might be just that: Talk. Even the big guys have to take their lumps.

Nov 16 01:49 PM

[Tom Armistead:]

Goldman's handling of the public backlash against the profits they made coming out of the meltdown has been a disaster.

Under the circumstances, many of their political aims, such as the avoidance of regulation on the derivatives markets, are much less likely to be achieved than previously. Meanwhile, businesses in the real economy, such as industrials, are beginning to draw investor interest.

Goldman is underperforming because investors realize they will not be permitted to do business indefinitely along the lines that have been so insanely profitable during a time of national hardship.

Nov 16 03:17 PM

[chris coonan:]

Goldman Sachs is playing with America's money, and America's elected representatives. It needs to stop.

Nov 17 04:06 AM

[chris coonan:]

Ethical investment means not investing in Tobacco companies to make a quick buck, and not investing in theives like Goldman Sachs.

Nov 17 04:08 AM

[fotokemist:]

You will find a similar divergence with BAC. Might be interesting to see if the other banks with large, unrecognized losses are behaving in a similar manner. Is there a selling pressure present as large positions are quietly reduced into a rally?

Could it be one of the purposes of this rally is to give TPTB an opportunity to minimize their losses when the losses have to be taken?

Nov 17 08:24 AM

[LoveShorting:]

Chris C. - - I am short GS exactly for ethical reasons but I disagree wholeheartedly on tobacco companies. If you think them unethical, I have to assume you are taking the role of parent to "children" who smoke. Instead, I view adult smokers as adults and do not judge their choice to smoke. Haven't the poor tobacco companies suffered enough (lawsuits) ??? And "quick buck" ? Please ... I have been very patient waiting for MO to move upward and get priced closer to its true value. It hasn't moved quickly.

Nov 17 10:30 AM

[HBWOW:]

Consider the huge treasury stock purchases as of Nov, 2006 were $21B, Nov., 2007 were $30B, and increased the next fiscal year, Nov.2008, to $32B. Why this huge cash flow out of the Net Equity/cash resources of this company? Not surprising they wanted TARP funds but mainly to obtain bank status to get Fed backing and very low borrowing rate. This enabled them to pay back the TARP funds with cheaper money and expand their Fed borrowings versu higher private equity borrowings. What are their long term goals?

Nov 17 11:12 AM