Financial, Real Estate, Stock Markets Trends and Current Affairs

CNBC (the world's biggest Goldman cheerleader) reports "Goldman Sachs' Revenue Falls, but Profit Beats Views" even as Bloomberg reports "Goldman Sachs Profit Falls 82%, Misses Estimates on Trading-Revenue Drop". Whoah... It's hard to get a straight answer out of these news guys, ain't it? Well, one thing they both have in common is that Goldman's trading revenue fell over 40%! Hey, I told you so. Reference my overview of GS's last previous quarterly performance, A Realistic View of Goldman Sachs and Their Latest Quarterly Results

For those who have forgotten the implications of the highly leveraged and opaque financial holdings (the true value of which rests at the mercy of market sentiment) and can turn blind eye to the highly volatile nature of the trading revenues combined with a literal tsunami of regulatory pressure and potential litigious onslaught (all issues which we have repetitively brought up in the past as what appears to be the sole voice of contrarian reason), Goldman Sachs holds  a strong investment proposition. However, if fundamental considerations such  as the company’s solvency, true economic profit (not the accounting earnings you hear preached from your brokerage’s sell side marketing propaganda research reports) and the sustainability of income are to be considered, GS should NOT appear among the preferred lot.

GS swims and sinks with the financial markets and the performance at the trading desks determines not only the profitability, but the survival of the Company. The market’s unfounded exuberance (largely driven by liquidity rather than fundamentals), combined with the collapse or near collapse of 3 of its 4 largest competitors  is enabling GS to generate extraordinarily strong trading results. Trading revenues which account for more than 60% of the revenues not only dictate GS’s profitability but also serves as a cushion to absorb the write-downs on the investments. Thus, Goldman Sachs is amongst the most vulnerable to a major market disruption which can severely dent its earnings stream and expose it substantial equity erosion from investment write-downs. Apart from that,  the recent fraud charges filed against GS not only adds to the risk of incurring huge litigation costs but also add to the risk of tighter regulation and oversight of the sector which can hinder the business activity in the coming years.