Never Short Goldman Sachs

Yesterday, investors have spoke loud and clear. And they said “If it comes down to Goldman Sachs (NYSE:GS) vs, SEC, I’m betting on Goldman.”   


And why not? Goldman is all-powerful. It’s #2 on my “never short” list, after Apple and before Google.   


Goldman has proved its ability to stay ahead of the curve. It survived numerous lawsuits and a $110 million settlement with the New York Attorney General for IPO fraud during the Internet bubble.  


Most recently, the accusations that inflated price projections and a huge oil trading desk at Goldman were behind crude oil’s run to all-time highs didn’t have any effect on the company.   


Why should this little matter with the SEC over taking advantage of the housing bubble be any different?   


Besides, Goldman reported stellar earnings this morning. Yeah, I especially wouldn’t want to be short Goldman with these earnings baked in the cake. Talk about a sleepless night…   


Has anybody else noticed that this stock market is completely, absolutely and totally immune to bad news? Unemployment can rise, no problem. So will stocks. Housing prices can fall, but you can bet stock prices won’t.   


As I’ve said, this rally is bulletproof.  


One might think that the potential ramifications for banking reform would be taken very seriously by investors, what with the alleged wrong-doing at Goldman.   


After all, one of the main pillars of banking reform is an end to proprietary trading. Take a quick look at the headlines from recent bank earnings reports, and you’ll see they all read the same: “Such and Such Bank reported better than expected earnings based on higher trading revenue.”   


Bank of America (NYSE:BAC), Citigroup (NYSE:C), JP Morgan (NYSE:JPM), Goldman Sachs, it doesn’t matter. Trading activities are carrying the banks.   


The possibility that banks’ trading activities could be limited in any way would clearly not be good for their future prospects. But no problem, this market is bulletproof.  


It won’t be this way forever. Eventually, bad news will actually affect stock prices. And it will probably be higher interest rates that bring an end to the bulletproof rally.   


Once employment picks up steam, the Fed will have no choice but to raise rates. And ironically, it will be good news – rising employment – that brings stocks down.   


John R. called me out on a mistake in yesterday’s Daily Profit 


Egregious mistake in your first paragraph. G-S was not indicted. That’s a criminal charge. It was named in a civil suit by the SEC. Huge difference.   


Right you are, sir. And while my error may seem a small one, it has big implications. A civil suit from the SEC will most likely result in a cash settlement and no admission of guilt. Goldman can overcome that black eye.   


More important is what happens to the financial regulation initiative in Congress. Even if Goldman is “not guilty” (and I put that in quotes because we will have our suspicions regardless of the outcome), the pressure is on Congress to do something. And that could affect banks’ profitability in the future.   


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Thanks for a great calls. CPE (100%)   & MIPI (stopped out at $4.29—187%)  


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