Thursday, April 16, 2009

Why are Goldman Sachs recommendations wrong so often?

Last year,

In the midst of possibly the biggest commodities bubble in history, Goldman Sachs forecast $200 crude in the not too distant future.{4B702F7F-41F8-45F0-A133-630F12F2C764}

Then before the end of the year, they went the other way stating it's headed to $25

Well, oil did not end up hitting either level but what it did do was crash not long after Goldman's $200 call and bottomed not long after Goldman's $25 call.

So if you had taken Goldman's advice, you would have been headed towards the poor house if not outright insolvency.

Just ask the now Bankrupt Semgroup who might have been victim to a short squeeze against their short oil position by Goldman Sachs' traders.

"Goldman’s commodities oil-trading desk has been linked to the failure of Semgroup Holdings, an oil-trading company in Tulsa, Okla., that declared bankruptcy in July 2008. Semgroup investors say Goldman had access to the company’s trading books and could have used that information against the company, according to Forbes."

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A Goldman subsidiary who held physical oil for Semgroup refused to release the oil in order for Semgroup to use it to cover a margin call prior to their collapse.

When Katrina hit in 2005 and oil spike to around $80, Goldman forecast $150 oil. What did oil do? it promptly almost sold in half.

There is a mounting pile of evidence that Goldman takes the other side of many of their recommendations.

That politically correct wording for this dishonest is "counter party" to hedge funds, other banks, mutual funds and small investors alike.

After Bear Stearns collapsed last year, it was revealed last year that Goldman side stepped the collapse by being short many of the destined to be toxic securities that they created and sold to every institution that wanted to buy them.

This means in effect that they created a product they knew was going to be worthless and sold it twice.

Here are some charred remains of some of Goldman's top recommendation, what they term as their conviction buy list:

Apple at $181 on its way down to $80.
Electronic Arts at $49 on its way down to $14
Royal Caribbean cruises at $35 on its way down to $6
Amazon at $82 on its way down to $35.
State Street at $68 on its way down to $14.
United States Steel at $191 on its way down to $17

Most of these stocks have rebounded from their lows and Amazon is almost back at its Goldman recommendation but that did not help the people that were pushed out of the stock at much lower prices due to fear of losing everything or margin calls.

Yesterday, Goldman Sachs added a Simon Properties group(SPG) to their conviction buy list, prompting a short squeeze in the stock that accelerated and made shorts cover by the millions between 3 and 4 pm.

Today we find out that SPG's industry peer General Growth Properties has filed for chapter 11 bankruptcy protection, which may cause selling pressure on the sector today.

"General Growth Properties Inc., the nation's second-largest mall operator, filed for Chapter 11 bankruptcy protection early Thursday after it failed to persuade a majority of its debt holders to give it more time to refinance billions of dollars in debt racked up during the housing boom."

It does not take much to connect the dots and surmise that Goldman Sachs knew that General Growth was about to file for bankruptcy since they are intimately connected to the inner circle of General Growth's debt holders if not one of them.

How's that for arrogance on Goldman's part?

Caveat emptor is the kindest thing to say of Goldman's recommendations.

Running the other way might be more prudent and for the bold traders out there, selling short what Goldman is selling usually leads to more profits than losing 50-80% buying their recommendations.

I had the sneaky suspicion that Goldman was up to something and looking to dump and the news today proved my suspicion to be true.

It is surprising that the media and the rest of the players on Wall Street continue to turn a blind eye to the constant dishonest manipulation committed by the supposed best traders on Wall Street.

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