pelican

Goldman Releases Earnings Early; Has World Gone Crazy?

prudentinvestor,
You wrote: Not surprising that all major banks report better than expected results this quarter.

Sounds like a Yogi Berra-ism. How can something be not surprising and better than expected (i.e. surprising)?

Mother of All Short Squeezes?

Great article, Matt. Lots of interesting responses from people too.

How Much Are Goldman's Level 3 Assets Worth?

You forgot to disclose that your are short GS, which I'm sure you are.

The increase in Level 3 assets is mostly due to the freeze in the leveraged buyout market. Goldman wrote down the value of those commitments when the debt was moved to Level 3. As the buyout market recovers, the loans may be upgraded to Level 2. A substantial percentage of Goldman's Level 3 holdings are private equity and real estate investments. While those typically fall into the Level 3 category, assets such as leveraged loan commitments shift from one level to another depending on market conditions. Quote from Goldman: ``We take issue with the notion that all assets in Level 3 are hard to value,'' said van Praag. ``Given the disclosure rules, it is inevitable that any firm with a large private equity and real estate portfolio would have significant Level 3 assets.'' All the investment firms have adopted FAS 157 which requires public companies to disclose a breakdown of their asset valuations. Under the rule, Level 1 assets are those for which market prices are readily available. Level 2 holdings are valued based on ``observable inputs,'' or prices of similar assets traded in the market. Assets fall into the Level 3 category when there aren't even any observable inputs, and the firm has to rely on in-house models to calculate potential gains or losses.

While I would be the first to admit that the risks associated with the investment banks are clearly elevated, I found your article to be alarmist, full of hyperbole, and written in a juvenile style that no doubt is reflective of your own investment objectives.