Brief Note on Goldman Sachs

Goldman Sachs Tower in Jersey CityI wanted to comment briefly on the whole Goldman Sachs thing. The accusation, if you aren’t familiar, is that Goldman, with the help of or on behalf of John Paulson, created these mortgage CDOs that were basically setup to fail. That would allow John Paulson and Goldman to short the CDOs while at the same time Goldman sold them to their clients.

It’s all a lot more complicated than that of course. Goldman Sachs is a big company that does a lot of stuff. They have clients on different sides of the market all the time. Which is why they may be able to use some kind of “client duty” argument as written about on here.

There is a middle ground here, between two knee-jerk reactions… anti-Goldman voices saying “it’s so simple” and pro-Goldman voices saying “it’s so complicated”. Goldman can’t be held responsible for everything they do on behalf of clients. True. However, they can’t just use stand ins and subsidiaries to manufacture the illusion of a separation of interests. If there really is some person or hive-mind that knew the whole story as we know it now and let it happen, or worse engineered this to happen… then that person or those persons need to be dealt with.

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Check Out

Image representing YCharts as depicted in Crun... Got an email from the friendly folks at I’m sure you all have your favorite chart sites and tools. Most of these sites don’t offer much more than the basics or hide some stuff behind fees. So I almost didn’t look at YCharts. However, their charts are really nice, and they can chart some data not available on other sites like EPS/Revenue/ROE growth. Take a look if you haven’t already.

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Getting Rid of Smith-Barney is Good For Citi!

I am going to play the contrarian, getting rid of Smith-Barney is REALLY good for Citi. Many like on Fast Money say, "hey why on earth are you getting rid of the cash cow?" And with Citigroup getting a potential 10 billion, I am thinking WAY TO GO CITI!

Why do I think what I do? Because obviously I am the only one in the market thinking this.

“You’re selling out the future to get through the crisis of the present, and unfortunately they don’t have a lot of other choice,” David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in New York, said in a Jan. 9 interview.

I actually think Morgan Stanley is getting a dud. Let me explain.

I live in Switzerland, and I work for an investment bank. As such I know what what the future of brokerage business is going to be about. I know this because of what I hear from the grape vine.

The future is not in the business of Smith Barney. The reason is because those brokerage units are too expensive and offer too little value. The investment bank I work for has a retail brokerage and their fees and services are actually pretty crappy. I once asked about that, and informally the answer was, "we need about 500,000 CHF from you." Then we can offer Private Banking services.

Advice for lots of little people is expensive and does not bring in the returns that banks want. They simply cannot compete against the Morningstar’s, or CNBC, or MarketWatch’s of the world. These sites offer better advice, service and quality than a retail brokerage can. So that is strike 1 for Smith Barney.

The fees that Smith Barney charges for any sort of transactions are simply too high. The fees are from another era. Smith Barney, Morgan Stanley cannot compete with the E-Trades, Interactive Brokers, or Think or Swim brokerages. They offer better prices and better executions than what Smith Barney can ever offer. So that is strike 2 for Smith Barney.

So what could Smith Barney offer? Private Banking, and that is growing by leaps and bounds. But there is a rub. With Private Banking people want to save taxes, and with Smith Barney in the US that will not work. The US government is cracking down on offshore accounts putting Smith Barney at a massive disadvantage to the likes of Switzerland, Singapore and other countries.  So that is strike 3 for Smith Barney, and a strike out!

Smith Barney could be transformed, and that is the problem, because it costs money. Thus with Citigroup selling the unit they are actually doing a good thing, and focusing Citigroup, and not having to retool a dying business practice. Personally I wonder where Morgan Stanley will make money in the future. I am completely skeptical.