The Goldman Sachs Strategy
For a while now, a few authors have been quipping at Zero Hedge that the best investment strategy is to do the opposite of what Goldman Sachs is telling is retail customers. The theory is that if Goldman tells the public to buy, it means that they are selling like crazy for their own account.
This seemed a bit cynical, but on Friday Zero Hedge observed that Goldman was telling its retail customers to buy European banks. This advice seemed so crazy -- the European agreement last weekly explicitly did not contain anything to help banks in the near term with over-leveraged bets on shaky sovereign debt -- that for the fun of it I played along. I shorted a couple hundred shares of EUFN, a US traded fund of European financial firms (took a bit of work to find the shares to borrow).
Made 6% in one day. Thanks Goldman.
Ironman:
Wow! Is that return after transaction costs?
December 12, 2011, 12:19 pmDon:
Ironman: Who cares! I doubt txcost is > 2%, and 4%/day is still pretty damned amazing :^).
December 12, 2011, 1:02 pmjtk:
You probably just broke French, Italian, Belgian, Spanish, and possibly German law. All of these countries have prohibited shorting the majority of the financial sector (including through indexes) and take the position that these laws are enforceable globally. The weird part is that they also claim existing cooperation agreements with the SEC would require the SEC to do their bidding and go after you in the US.
December 12, 2011, 1:10 pmblokeinfrance:
Shheeesh! How do you do it, Warren?
December 12, 2011, 2:22 pmIn 2007 I remarked to my local bank manager that I thought the spread between Bunds and Greeks (35 basis points at the time) was ridiculous.
He agreed, sorta. And said it should be zero, on account of they were both euros.
I said we'd agree to disagree (that makes a market) and how could I bet the spread would widen?
He said it wasn't allowed under French law for private customers.
What's the spread now? Only about 1500 basis points. I coulda retired on da winnings.
morganovich:
how you like em now lewie?
December 12, 2011, 3:26 pmSmithman:
Your result is not inconsistent with the Goldman theme you first introduce. Timing is everything. Now that you have gone public with your investment - keep us informed - it will be interesting to watch the ups and downs.
December 13, 2011, 5:15 amepobirs:
Michael Lewis in his book 'The Big Short' suggests that investment banks started betting against their own customer as a consequence of their shifting from private to public in the early 80s.
December 13, 2011, 5:14 pmIan Random:
Reminds me of my own theory, short in a year or so whatever the business media is promoting.
December 13, 2011, 11:03 pm