Goldman Sachs: A Viable Option in a Tough Banking Market?

Helen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Goldman Sachs (NYSE: GS) must be prime rib for the Occupy Wall Street crowd,  self-proclaimed representatives of the 99%, as Goldman and Morgan Stanley (NYSE: MS) are the most notable morsels yet Heard on the Street after The Thundering Herd was corralled by  the acquisition of Merrill Lynch by Bank of America (NYSE: BAC).  Indeed, according to some, it was Merrill’s wanting to be more like Goldman, so abandoning its mantra of bringing Main Street to Wall Street.  That was Merrill’s downfall!

For that new phase, Merrill’s new CEO was Stan the Man, O’Neal, not Musial.  In truth, this Stan was the instigator of the new phase. Both Stans were heavy hitters, one in junk bonds, the other baseball, hungered after home runs; the one maybe had Babe Ruth envy, the other definitely had Goldman envy!  So Merrill’s Stan the Man abandoned Merrill’s tradition and went the other way, hiring home run hitters and dumping those who consistently got on base—Money Ball contorted—and eventually got beaned big time.

Meanwhile, Goldman Sachs continued to do what it always did best. Its entire management participated in the usual discussion and team decision making, and got Goldman Sachs off subprime addiction at just the right time and back to basics.  Whereas, Stan the Man took an overdose, repeatedly, lobbing sinkers from lower Manhattan to an inside corner while his designated heavy hitter pointed, like the Babe, to center field bleachers, but never got on base.  Stan kept everything to himself except that wildly aggressive trading fellow bondsman, the Turk Sans Merci, in whose thrall Stan remained ‘til a time too late.

The Occupy Wall Street's goals are unclear, and thus going forward Goldman Sachs could either be carted away like Marie Antoinette in the French Revolution, or vindicated by the affirmation of its continued success critical to the health of the financial world.  Indeed, the verdict is out for the working public as Goldman, Morgan Stanley, JP Morgan Chase, Bank of America, Citigroup, Wells Fargo, and other banks might in fact provide the wherewithal for the 1% to create the wealth that it in turn provides for the 99%.

Thus, where will Goldman Sachs go from here?  Will it be devoured, as it has never been before, or devour, as is its envied usual routine?   To put it another way, paraphrasing, Alvy from Woody Allen’s Annie Hall, “Are we driving through ‘Plutonomy’?  Is America losing its grasp on democracy, becoming an aged Plutonomy, causing outcry of the Youth against the Keep of the nation's wealthiest 1% and powerful over America through politics, as the internal Citigroup Memorandum asserts, and the Occupy Wall Street Movement proclaims, albeit in a muddled moil mood?

Goldman Sachs, and that other last standing Goliath of Investment Bankers,  Morgan Stanley, opted to become bank holding companies like those other bank Behemoths with whom they already compete,  JP Morgan Chase, Bank of America and Citigroup.  Given the added crunching regulations, why did these last two submit?  The answer was stated by Goldman Sach’s CEO Lloyd Blankfein thus:

"While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding,"

Read, especially permanent liquidity and funding.  Forget the rest!  Unfortunately, that’s the same old story, not of fame and glory, but rather of acceding to the Federal Will to access the Federal Till.  It may lead to no good.  Witness the States and Colleges, which now have imposed upon them all manner of requirements determined by the Changing Whims of Politics.

Unlike States and Colleges, however, Goldman Sachs is a profit motivated financial powerhouse, a business run by people dedicated to acquiring wealth for themselves and their clientele in real world situations, instead of a Futuristic Eloian Utopia as determined by the next election or the next generation.  Therefore, I am confident that Goldman has gleaned whatever benefit of the federal till and avoided the federal regulatory detriment, and that Goldman will continue to do so, as needed or perceived to be needed.  After all, the Dye of Irony of Democracy has been cast and rule by the minions of the 1% about whom the Occupiers of Wall Street complain has been unavoidably determined and cast in stone.

Whether its own remain in political power, or its own are removed and replaced by its own in the upcoming elections, Goldman has had many graduate from it to government and to it from government, and Goldman will survive and prosper in whatever regulatory environment it finds itself, presumably, one most realistically favorable to it, whatever its form. 

I say this not with the sinister overtone of the Occupiers.  I say it because Goldman has had a tradition of acquiring and retaining the better, and the best.  That some of them start there and go into government service for a while is good.  That some of the exceptional government personnel acquire their training and experience in government and then go to Goldman is good.  I say this because it is a fact.  Goldman, for want of a better term is good.  This is the way of functional government and business; better than government by those who make the most improbable promises and appointment by them of their fawning cronies.

With this back and forth, this interrelationship, the mutual respect and understanding that come of it, I expect Goldman to continue to be a prime rib company and its stock to continue to be a prime rib investment.  It is comforting to me, and it should be to you, that the Oracle of Omaha (the Real Beef Capital of the World, not DC, which is the Beef Capitol of a different kind) agrees with that assessment, as he has put his money where never puts his mouth to trumpet in praise of a company, in this case Goldman with his $5 billion investment, albeit on terms that you and I could not get.  And it’s still there even though Warren Buffett could pull it at any time without detriment to him, at least not financially.

The analysts’ consensus is to hold Goldman.  I believe that is a fair assessment of the stock as well as the company.  There is no point in selling Goldman.  Its stock is slightly down as of now.  Normally, that would be a good time to buy such a strong, reputable 'stayer'.  However, there is so much regulatory, indeed, endemic uncertainty in banking and finance right now that this usual strategy for the circumstance may not yield the usual expected benefits, short or long term.  Therefore, albeit usually a contrarian, I am following the majority of the analysts on this one.  I say hold Goldman close!           


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