The market is starting to get what is up when it comes to what lurks in the depths of the ocean. Today the FT in an incisive piece of investigative journalism drew a link to Goldman Sachs and the coming Age of the Cephalopod:
Slurp – the great vampire squid strikes again! That now-infamous description of Goldman Sachs (in Rolling Stone magazine) is a tad hysterical. But it takes some sucking power to extract $3.4bn of quarterly net income within a year of a full-throated banking crisis. With Goldman’s shares close to levels before Lehman Brothers collapsed, you’d be forgiven for wondering if 2008 ever happened.
Do not be deceived. Beneath Goldman’s gleaming mantle is a cephalopod swimming with one powerful arm. Trading in fixed income, currency and commodities generated half the bank’s record net revenues, almost tripling from last year’s second quarter. This client-driven trading is part of Goldman’s DNA but cannot last. Trading margins remained at the historically wide levels of the first quarter (helped by competitors’ demise), while a broad-based recovery in markets induced clients to resume trading. Meanwhile, another stand-out area – underwriting equity and debt sales within the investment bank – owed much to capital raisings by beleaguered peers.
Other arms remain weak.
The government could yet opt to cut this sucker down to size. Calamari anyone?
GS (NYSE: GS) is up 4% due to this squid comp, so I think the market is poo-pooing any notion that the public will be dining on GS calamari. Or any other kind of calamari for that matter.
Recommendation: Goldman Sachs’ employees are genetically designed to make money from even the worst situations — the coming Fall of Man should be no exception. When everyone else’s books are well underwater, GS will be floating safe on piles of money. Long GS.
HT to SCRelated Reseach:
- Keys to Getting a Job in an Industry in The Toilet
- The Real Systemic Risk: Cephalopods
- Long Optimism
- Melissa Moody's Ratings Alternative Alert: OMG OMG OMG
- Are the Headwinds Really HeadSQUIDS?
- Bloomberg Headlines, 2007 vs the Future
- The Cephalopod Story Strengthened
- Intrigue Bankers, a report from the future
- Cephalopod Positions Rising from Underwater
- GOOG, No Means Yes Baby Part 1
- Updating Cephalopod Position: Shark vs Octopus
- Long Cephalopods