Goldman Sachs Group Inc. (NYSE: GS) Stock
Goldman shares fell 3.4% Wednesday, the third-biggest decline in the Standard & Poor's 500 Financials Index.
Smith pointed to Chief Executive Officer Lloyd Blankfein and company president Gary D. Cohn as responsible for letting the firm falter.
"I truly believe that this decline in the firm's moral fiber represents the single most serious threat to its long-run survival," wrote Smith.
Smith painted a picture of executives with zero respect for their clients, saying it makes him "ill how callously people talk about ripping their clients off," and that in the past year he's heard five different managing directors refer to their clients as "muppets."
Even though Smith's Goldman letter weighed on the bank's share price Wednesday, shares had almost made up the losses by midday trading today (Thursday).
So just how much will the Goldman letter actually weigh on GS stock and popularity?
Nothing like having Goldman Sachs (NYSE: GS) confirm what we've already been saying for a year.
But last week, Goldman Sachs reminded us that they are bullish on the oil and gas pipeline sector by upgrading a number of portfolio stocks that have been prominent features of our portfolios and discussion on the sector.
Goldman analysts made headlines last week by adding a number of pipeline firms to their "Conviction Buy" list. The company added Williams Companies (NYSE: WMB) while dropping Buckeye Partners L.P. Nonetheless, Goldman still rates Buckeye as a "Buy."
Goldman also raised a number of additional stocks to the buy list, including Plains All American Pipeline LP (NYSE: PAA), and maintained its "Buy" ratings on Enterprise Products Partners (NYSE: EPD), and Enduro Royalty Trust (NYSE: NDRO), and Magellan Midstream Partners (NYSE: MMP).
The reason for these moves shouldn't be a surprise to anyone who follows us at Oil and Energy Investor.
The Sweet Spot in Oil and Gas Pipeline CompaniesIt's not surprising that Goldman Sachs is so bullish on the pipeline industry. After all, my colleague Dr. Kent Moors has been touting the best known secret on the markets for more than a year.
If you want to make money in energy investing, you want to park yourself right in the middle of the supply chain. By doing so, you're far less susceptible to price fluctuations in the underlying commodity, and you are able to collect easy profits from the growing demand in fuels.
Midstream companies, those that connect the upstream exploration and production companies to the downstream retail, refining and marketing channels, provide vital services in transportation, storage, and processing.
Simply put, this is the "Sweet Spot" of energy investing.
Goldman Sachs earnings came in at $1.84 a share, 58% lower than the same quarter last year. Revenue fell 30% to $6.05 billion.
Though dismal, the earnings beat analysts' estimates, which were as low as 70 cents a share - an 82% drop from last year's fourth quarter and a far cry from the whopping $8.20 a share in 2009.
"It looks like nothing's working right now," Jack Kaplan, portfolio manager at Carret Asset Management, told Reuters. "They were below expectations on virtually everything on the revenue side."
This was the second-lowest quarterly revenue for Goldman Sachs since the financial crisis, as U.S. banks' earnings continue getting squeezed from a weak global economy and increased regulation.
Another Disappointing Quarter for Goldman Sachs EarningsThis was the fourth consecutive quarter of declining revenue for Goldman Sachs.
The third quarter of 2011 was especially painful, with Goldman's revenue down 47.9% from 2010's third quarter. Goldman reported a loss of $428 million, compared to a $1.74 billion profit from the year before.
Among other things, he said there's no way we can conclude that a slowdown in banking and trading businesses is "secular, rather than cyclical."
That alone was enough to make me laugh. But then he went on to address concerns about pending regulations that are coming as a result of the Dodd-Frank Financial Reform Act.
"In our conversations with clients, they have expressed several concerns on the impact to their businesses," Blankfein said, making it clear that his firm will make client interests a theme of its arguments against the regulations. "What Goldman Sachs does for our clients is even more relevant and important."
Now that should make you laugh - if, of course, you're not too afraid.
The truth is that Goldman Sachs and the rest of the big banks on Wall Street - in the inimitable words of author Michael Lewis from his seminal book Liar's Poker - invariably "blow up" customers to make money for themselves.
Not only do they run roughshod over their customers (trading partners) and clients (banking relationships), the big banks manipulate markets, industries, economies and countries to fatten their already gigantic bonus pools and personal fortunes.
Now, I'm not singling out Goldman Sachs because it's the biggest and baddest bully on the block, which it is. I'm not blasting Goldman because I once idolized the firm - its culture, its talent, its sheer money-making prowess - and have seen its vision blinded by greed since going public in 1999. I'm not saying Goldman is the only self-serving, greedy, and pretentious firm on Wall Street. And, I'm certainly not calling out Lloyd Blankfein, whose extraordinary accomplishments as a trader are legendary, but whose leadership of Goldman has been marred by what might generously be described as "PR gaffes."
What I am doing is using Goldman as proof positive that Wall Street banks are bad news.
In fact, rather than seeing them rebound we would all be better off seeing them unwound.
From Wall Street to K Street - And BackLet me start with the nexus of power and money in this country. That nexus resides exactly where Wall Street and Washington intersect. Each serves the other and the middle-class be damned.
You see, the "revolving door" metaphor that's so often used to describe the relationship between Wall Street and Washington isn't exactly accurate.
The reality is that there is no revolving door. There are no doors at all. It is more like one giant corridor where all the water cooler talk is about paying for campaigns, paying lobbyists, and paying bonuses.
There's a reason why Goldman Sachs is derisively referred to as "Government Sachs." The flow of executives and operatives between Goldman and Washington, and even other world governments and central banks for that matter, is legendary.
I can't point out all the connections - there are simply too many. But I will point out a few that you may not be aware of.
The Volker Rule is one of the elements required by the Dodd-Frank financial oversight law, which was written to rein in the sort of excessive Wall Street risk-taking that led to the financial crisis of 2008.
A draft version of the rule was released this week by the U.S. Federal Reserve, which was approved by both the Federal Deposit Insurance Corporation (FDIC) on Tuesday and the Securities and Exchange Commission (SEC) yesterday (Wednesday).
The rule aims to ban proprietary trading, in which the banks traded for their own benefit rather than for the benefit of their customers, but also will address other areas such as hedge fund investing.
Since a significant chunk of the big banks' profits - especially that of Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) - come from various forms of proprietary trading, the Volcker Rule stands to cost the industry billions in revenue.
To prevent cheating, complex compliance rules will require that banks prove that all their trading activities are for clients' benefit, and not proprietary. Compliance alone is expected to tack on another $2 billion in costs.
"[The Volcker Rule will] diminish the flexibility and profitability of banks' valuable market-making operations and place them at a competitive disadvantage to firms not constrained by the rule," noted a report by Moody's Corp. (NYSE: MCO).
The rule is named for former Fed Chairman Paul Volcker, who has made the case that such regulations are needed.
The new regulations will deal another blow to an already-struggling industry, which has watched earnings sag as a result of a falloff in equity trading volume, weak demand for loans, and costly legal headaches.
Although there's still time for the Volcker Rule to be tweaked before it takes effect on July 21, 2012, it will fundamentally change how the big banks operate.
The rule's impact on Goldman Sachs and Morgan Stanley will be particularly brutal, especially if the final version imposes broader restrictions.
At 25 times revenue and more than 100 times earnings, Goldman's Facebook deal smacks of the "dot-bomb" debacle. And the fact that this financing deal came to pass after a major Wall Street firm effectively drove a truck through two central features of securities regulation is more than a little reminiscent of the investment-banking shenanigans that fed into the global financial crisis.
The fact that history is repeating itself on Wall Street shouldn't surprise us. Nor should the fact that the Wall Street "rent-extraction machine" is once again operating in high gear.
One thing's for certain: One day the bubble will burst; and when that happens, the great bulk of the costs will be borne by ordinary Americans - as was the case back in 2008.
To understand the Facebook deal's full potential fallout, please read on...
Facebook has raised $500 million from Goldman Sachs Group Inc. (NYSE: GS) and Russian investment firm Digital Sky Technologies, which implies that the social media darling is valued at a staggering $50 billion.
This reminds me of the valuations being assigned to Internet companies leading up to the "dot.bomb" crash. There's no way a company that relies on nothing more than bits of information – the vast majority of which are summarily ignored by the community that supposedly finds it so compelling – should have a valuation approaching The Walt Disney Co. (NYSE: DIS), equal to The Boeing Co. (NYSE: BA), and greater than Time Warner Inc. (NYSE: TWX).
Still, for the sake of argument, let's play along and suppose that the $500 million capital infusion is for real and that the $50 billion valuation it implies is correct. Then the question becomes: What does the transaction say about Goldman Sachs, which arranged the deal, and the regulators supposedly overseeing it?
The deal, announced in a report in The New York Times Sunday night, makes Facebook worth more than Internet-related companies like eBay Inc. (Nasdaq: EBAY), Yahoo! Inc. (Nasdaq: YHOO) and Time Warner Inc. (NYSE: TWX). It'll give the company a competitive edge in the tech arena and allow it to pursue more acquisitions.
Digital Sky Technologies, a Russian investment firm that has already put about half a billion dollars into Facebook, also invested an additional $50 million in the deal. Goldman has the right to sell up to $75 million of its stake to Digital Sky. Digital Sky started its involvement in the social networker in 2009 with a $200 million investment and now has about a 10% stake through stock purchases from Facebook employees.
The deal highlights the booming popularity of social media sites like Facebook, Twitter and Groupon - all of which are gaining increased attention from investors. Facebook jumped ahead of Google Inc. (Nasdaq: GOOG) as the most-visited Web site in 2010, according to Internet research firm Experian Hitwise.