Positions in Goldman: Don't Try This at Home
Buying into this kind of selling is hard to resist. But try.
Greetings from New York, where I'm cutting to the chase. Here's what I'm doing:
- I stuck a toe in Goldman Sachs (GS) in the $140s. If it closes in the 130's (where I expect it to trade at some point today) I'm gonzo. I'd rather avoid anything financial entirely. This position is not an investment but strictly a trade. I came into today very cash-heavy and Goldman, while clearly "involved" in this financial horror show, didn't do anything insane over the weekend (like, say, buy Merrill Lynch (MER)).
- Because I don't want anyone, anywhere to take my Goldman Sachs long as justification for them to take on too much risk, I remind you that:
a) My position size isn't enough to keep me up nights (and, like Todd-O, I'm not one of nature's "good sleepers);
b) I don't think it's the end of the financial mess; but it is the end of the beginning;
c) Goldman's estimates have been reduced for the last 2 weeks; for the first time in its history, you can make the case that expectations are low; and
d) I'm simply sharing - not only don't I think others should follow me, I'm horrified by the idea.
- (Now that I think about the above bullet, that's a pretty lousy risk/ reward.)
- I bought some Take Two (TTWO), down about 30%. After Electronic Arts (ERTS) finally pulled its bid, the stock's getting treated like pretty much every character in every game the company makes (horribly pummeled, then killed). EA's bid has remain unchanged since February.
I'm not sure Take-Two will rally immediately, but the pre-deal price was roughly what I just paid for the stock. I think the stock will settle somewhere between here and $22 in the intermediate term. Either way, Take-Two is multiples larger than Goldman as a position.
- I'm simply gob-smacked by the premium Bank of America (BAC) paid for Merrill Lynch (MER). All I can think is that Ken Lewis saw Dick Fuld's forced folding of Lehman's (LEH) as an opening for the title of most hubristic, over-reaching man in finance. The king is dead; long live the king.
- On a related point, John Thain seems like a guy who doesn't yet realize he sold his job last night. I'd put the over/ under on Thain's "Exit with (or without) Dignity" from the merged Bank of America/Merrill at 3 months.
- Plenty of blame for this crisis can be placed squarely on the avarice of the organizations who created the assorted absurd loans that are now blowing up, one after the other, in a sickening sequence.
Without the credit ratings agencies that "set the price" for these instruments at levels which created an illusion of safety where none existed -- and who were paid for doing so -- it would have been impossible for this specific crisis to get started.
- I opined that Moody's (MCO) motto: "AAA for Everyone, at the right price", made it the most loathsome company on earth a few months ago. Suffice it to say, I stand behind that opinion, even if I do feel like I may have been a bit harsh in my wording.
In a just world, the politicos would be putting a halt to a system where Standard & Poors is able to effectively kill a Dow component with the simple threat of reviewing AIG's (AIG) rating.
- The credit ratings agencies are like 3-year olds with handguns. They have no idea what they're doing. You can know that, and complain about it, but no one's taking the gun away, and you're going to be just as dead if you get shot by toddlers as you would if you got gunned down by Wyatt Earp. Way too much power in exactly the wrong hands.
- "Doing absolutely nothing" is almost certainly the best option for most people. Me included, probably. I understand the temptation to buying into this kind of selling. I conceded up top that I couldn't resist. But I kept it very, very small. Above all else, avoid playing at a size that could keep you up tonight. This is unlikely to be a one-day event.
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