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Goldman Saks…Sachs, excuse me, reporting for duty

October 18, 2011

Everyone’s favorite face-sucking squid, Goldman Sachs, reports Q3 earnings this morning at 8AM EST. Barring some midnight magic from Lloyd “God‘s work” Blankfein, GS will report only their second quarterly loss since going public in 1999. Pretty damn impressive.

So why a quarterly loss now? We’ve been through much more precipitous market drops since 1999 than what we experienced as the summer came to a close. The answer is intertwined with John Paulson‘s fall from grace this year, as is the answer to any illicit hedge fund-related question. John Paulson’s two largest funds, both leveraged, were down 47% and 33% YTD. He stepped on essentially every possible financial landmine, including pimping BAC and being majority shareholder in Sino-Forest. Like Paulson, Goldman now operates much in the same way as a hedge fund. They manage several funds, are very involved in the funds of funds game, and draw an increasingly small portion of revenue from their investment banking arm. Like Paulson, Goldman has been unprepared to deal with the new financial era we live in, reigned over by King Volatility II. King Volatility I’s short reign lasted from September 2008-April or so 2009.

Factors leading to Goldman’s quarterly loss:

  • Broader market volatility and contrarian USD/Euro movements, which led to the collapse of Goldman’s Global Alpha Quant Fund a month ago.
  • Tighter (marginally) government restrictions are limiting Goldman’s ability to generate massive in-house trading profits.
  • No ATM’s, no commercial banking, no ability to charge monthly account fees, like JPM, Wells Fargo, or Citi
  • A high risk, high reward strategy that has worked well in the past when the market trends rather than whipsaws
Could this be Blankfein’s curtain call? Eagerly awaiting 7:45AM…

And down goes GS...don't rock my boat!

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