Yesterday's News: Time To Short Goldman?

The Goldman Sachs Group, Inc. (GS) reported net revenues of $37.67 billion and net earnings of $9.54 billion for the year ended November 24, 2006. The results are big, huge, stellar and stupendous. The bonuses will be big, huge stellar and stupendous. Following the release, the stock gapped down on the opening, rallied a little and then drifted down on higher than 90 day average trading volume.

The insider-trading story tells an interesting tale. No insider purchases in the past six months. No one was loading up as the train was leaving the station. Insider sales were a minuscule 215,000 shares. No one was really getting off the train either. Institutional holdings in the past quarter were trimmed by approximately 5.4 million shares or less than 2% of institutional holdings. This amounts to a pittance.

Goldman Sachs has been like a really great party, no one wants to go home. We all think we want another round of drinks. But the stock is trading close to its 52-week high. The results are really good but how do they continue at this torrid pace? The short interest spiked from just under 2.25% to just under 3.00% in mid Oct, before settling down to just over 2.25% in mid Nov. Momentum might be weakening.

But do you really bet against Goldman Sachs? Of course you do! If investors were slightly disappointed with this round of earnings, they will soon become jaded and will not be pleased with another very good quarter or two. Who, then, is left to buy the stock?

However it will be difficult to replace - truly is a pity.

GS 1-yr chart:

Comments

[Christopher...:]

Hi George - While I agree with you that it will be very difficult for the financial geniuses at GS to repeat this year's performance, unless you have a specific catalyst that will take the stock down, this should prove to be a very difficult short. Goldman has become the Google of financial stocks. To smash the cult of Goldman you need more than insider trading and overvaluation.

2006 Dec 13 11:41 AM