Seeking Alpha
Portfolio strategy, ETF investing, long-term horizon
Profile| Send Message|
( followers)

Wall Street, bent but not broken, rumbles on in search of new profits. Vulture investing is back in vogue again. Risk is being reintroduced into the systems. Wall Street firms generate enormous profits by continue taking risks when the government and taxpayers provide an implicit, if not explicit, guarantee of their business, according to Andrew Ross Sorkin, author of Too Big to Fail.

Goldman Sachs' (NYSE:GS) SEC Filing Form 13F filed on 2/16/2010 disclosed its details holdings with total 10,405 line items. The top 15 stock holdings, compiled by TickerSpy, are as follows:

Name (Symbol)

Shares (M)

Current Value

P/E

Forward P/E

Apple Inc. (NASDAQ:AAPL)

6.3

$1.7B

26

18

Baxter International (NYSE:BAX)

20.9

$1.0B

14

10

Cisco Systems (NASDAQ:CSCO)

63.7

$1.7B

26

16

Dollar General (NYSE:DG)

65.0

$1.9B

28

15

Education Management (NASDAQ:EDMC)

54.3

$1.2B

28

14

iShares MSCI Emerging (NYSEARCA:EEM)

27.5

$1.2B

22

-

iShares Russell 2000 (NYSEARCA:IWM)

23.1

$1.7B

28

-

Johnson & Johnson (NYSE:JNJ)

26.5

$1.7B

15

12

JP Morgan Chase (NYSE:JPM)

36.8

$1.7B

17

9

Microsoft Corp (NASDAQ:MSFT)

67.0

$2.1B

17

14

Oracle Corp (NYSE:ORCL)

59.6

$1.6B

24

14

Pepsico, Inc (NYSE:PEP)

20.0

$1.3B

17

14

Procter & Gamble (NYSE:PG)

21.0

$1.3B

15

16

SPDR S&P 500 (NYSEARCA:SPY)

48.5

$5.9B

-

-

Exxon Mobil (NYSE:XOM)

19.5

$1.4B

17

10

The biggest one in its portfolio is SPDR S&P 500 (SPY). At the filing, Goldman holds 48.5 million shares of SPY, or 7.5% of SPY outstanding shares. Should we follow the smart money?

Four Reasons Markets Could Still Go Higher

1. Stocks Are More Attractive Than the 10-Year-Bond:

The average forward P/E for GS’s top 15 holdings is 14, which is below historical average. Signs of recovery are mounting and new technologies suddenly make the future look bright again. For example, iPad will create an intimacy bond between content and users (see here).

2. The Government's Willingness to Keep Liquidity in the Market:

The Fed might keep the near zero interest rate for an extended period of time. The temptation for governments to use inflation to reduce the real value of public debts may become overwhelming. Even though inflation might affect companies’ earnings, it makes equity more attractive than bonds.

3. Lots of Cash on the Sideline:

The market might be forced higher as more people come off the sidelines—most likely at the worst possible moment. Over the last few weeks, even one day of selling sees investors pile back into the market to 'buy the dip.'

4. A Very Friendly Trend:

The indicator with a good long-term record has flashed a buy signal (see here).

Also, following S&P 500 chart from Yahoo Finance shows that we are indeed in a V-shaped recovery:

Conclusion

Goldman was making savvy market bets while staying nimble and ready to change directions, as it often did at a moment’s notice. Traders didn’t receive $10 million bonuses because they were completely hedged against endless losses; they made money by weighing the odds and then making decisive and massive bets, according to Charles Gasparino, author of The Sellout.

If you are a trader or like to buy high and sell higher, you might as well follow the trend. However, even though the market could still go tepidly higher, the risk / reward might not be on equity side. Despite the continually positive signs, scaled back consumer spending, jobless recovery and “contained” sovereign debt issues should make investors think twice before jumping into equity market at this level. Portugal credit default swaps hit a record high today. In 2007, former Treasury Secretary Henry Paulson believed that subprime mortgage market troubles “is going to be largely contained" and everyone knows what happened later.

Like hedge fund manager John Paulson said, "Watch the downside, the upside will take care of itself."

Disclosure: Author holds long positions in EEM and SPY. Data are from Yahoo Finance and iShares and is valid as of April 26, 2010.

Source: Follow the Leader: Goldman's Top 15 Stock Holdings