<\/a>Background: On September 11, 2008, I lent Joel Novak $14,000. The loan was for three months. That was his idea. As of today, 20 months later, he still owes $3,745.<\/p>\nJoel was one of my closest friends. For years we had lunch regularly. We visited Israel together. He was the investment banker who sold my company, did a brilliant job and made over $3 million for his firm in fees. Muriel, my wonderful assistant, sent Joel this letter suggesting that it was time he close the loan, since collecting it had become such a burden on her and me — what with letters, emails and phone calls.<\/p>\n
Joel and his son have fallen on hard times. His son speculated with borrowed money in the stockmarket. Joel bailed him out. Joel’s remaining money is tied up in private equity funds, also called leverage buyout funds, which he can’t sell. He is a talented \u00a0investment banker, who has seriously mismanaged his own finances.<\/p>\n
What gauls me is not the $3,745 he still owes, but his disappearing act. What does it take to pick up the phone, call your old friend (me) and explain the truth?<\/p>\n
Joel, are you listening? I still love you, even though you’re acting stupidly.<\/p>\n
From Shakespeare’s Hamlet, 1602:<\/p>\n
LORD POLONIUS:
\nNeither a borrower nor a lender be;
\nFor loan oft loses both itself and friend,
\nAnd borrowing dulls the edge of husbandry.<\/p>\n
The cockroaches keep coming for \u00a0Goldman Sachs.<\/span><\/strong> From today’s Bloomberg.<\/span><\/span><\/strong><\/p>\nGoldman Sachs Hands Clients Losses in \u2018Top Trades\u2019 (Update1)<\/strong><\/p>\nMay 19 (Bloomberg) — Goldman Sachs Group Inc. racked up trading profits for itself every day last quarter. Clients who followed the firm\u2019s investment advice fared far worse.<\/p>\n
Seven of the investment bank\u2019s nine \u201crecommended top trades for 2010\u201d have been money losers for investors who adopted the New York-based firm\u2019s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent yesterday. Clients who used the tips lost 14 percent buying the Polish zloty versus the Japanese yen, 9.4 percent buying Chinese stocks in Hong Kong and 9.8 percent trading the British pound against the New Zealand dollar.<\/p>\n
The struggles for analysts at Goldman Sachs, which is fighting a fraud lawsuit from U.S. regulators who accuse the company of misleading investors in a mortgage-linked security, show the difficulty of predicting market movements as widening budget deficits, a fragile global economic recovery and tighter financial regulations increase volatility. Stock and currency fluctuations rose to the highest in a year this month as Europe pledged about $1 trillion to stop a debt crisis in the region.<\/p>\n
\u201cThis says that Goldman\u2019s guys are only human,\u201d said Axel Merk, who oversees $500 million as president and chief investment officer of Merk Investments LLC in Palo Alto, California. \u201cNo one is always right. There are a lot of cross currents in this market.\u201d<\/p>\n
Gia Moron, a spokeswoman for Goldman Sachs, declined to comment.<\/p>\n
China\u2019s Bear Market<\/strong><\/p>\nGoldman Sachs\u2019s trading profits come from capturing bid- offer spreads when its traders act as intermediaries for clients, Gary Cohn, the firm\u2019s president and chief operating officer, said last week in New York. Proprietary trading isn\u2019t a main driver of earnings, he said.<\/p>\n
The trade advice for customers is distributed by Goldman Sachs\u2019s global markets economic research group. It tracks the performance of the trades in a daily research note. The time period of the recommendations is 12 months.<\/p>\n
The performance this year is a reversal from 2009, when nine of Goldman Sachs\u2019s 11 trading recommendations made money. Investors saw a 22 percent return owning Chinese stocks and a 12 percent gain buying the British pound versus the dollar, according to a Goldman Sachs note on Dec. 1.<\/p>\n
Goldman Sachs analysts made eight trade recommendations for this year in December, including telling clients to buy the British pound against the New Zealand dollar. On April 1, Goldman Sachs added a ninth \u201ctop\u201d trade, telling clients to buy Chinese stocks listed in Hong Kong and predicting the Hang Seng China Enterprises Index would rise 19 percent to 15,000.<\/p>\n
Tough Analysis<\/strong><\/p>\nSince then, the gauge has slid 9.4 percent to 11,426.18. The Shanghai Composite index has entered a bear market, losing about 21 percent this year. That\u2019s the third biggest decline in the world after Greece and Cyprus. The decline accelerated this month on concern Greece, Spain and Portugal will struggle to finance their budget deficits and dismantle the euro.<\/p>\n
The Chinese stock recommendation was made by a group led by Dominic Wilson, a senior Goldman Sachs economist in New York. Wilson cited inexpensive valuations and \u201crobust\u201d economic growth. He also said investors have already factored in the risk of higher interest rates in China.<\/p>\n
Wilson wasn\u2019t available to comment because he was out of the office traveling, according to an e-mail.<\/p>\n
Exit Calls<\/strong><\/p>\n\u201cEmerging markets appear superior to the developed world, but the market isn\u2019t trading that relationship,\u201d said Eric Fine, who manages Van Eck Associates Corp.\u2019s G-175 Strategies emerging-market hedge fund. \u201cIt may be that some assets are mispriced, but if the market starts to discount the end point of the game, such as the collapse of the euro, it\u2019s not that mispriced.\u201d<\/p>\n
Analysts at Goldman Sachs recommended investors exit two trades in February, one involving interest-rate swap rates in the U.K. and another advising clients to buy credit-default swaps in Spain and sell similar contracts in Ireland. The first trade had a potential loss of 24 basis points and the other had a return of 2.9 percent, according to figures issued in the appendix of the research note in February.<\/p>\n
Owning currencies that are tied to growth is the only remaining trade that has increased in value this year, according to Goldman Sachs. The Goldman Sachs FX Growth Index has climbed 3.4 percent since the firm made the recommendation in December.<\/p>\n
Betting on Markets<\/strong><\/p>\nGoldman Sachs makes more money from trading than any other Wall Street firm. In the first quarter, the bank\u2019s $7.39 billion in revenue from trading fixed-income, currencies and commodities dwarfed the $5.52 billion made by its closest rival, Charlotte, North Carolina-based Bank of America Corp. In equities, Goldman Sachs\u2019s $2.35 billion in revenue was about 50 percent higher than its nearest competitor.<\/p>\n
Cohn told investors at a May 11 conference in New York that the firm lost money on only 11 days in the last 12 months. He said that uncanny streak of success refutes suspicions that the bank depends on proprietary bets with its own money.<\/p>\n
\u201cIt is implausible that a proprietary-driven business model could be right 96 percent of the time,\u201d Cohn said. Instead, he said the \u201csimple answer\u201d is that the firm makes money by capturing bid-offer spreads when acting as an intermediary for client trades.<\/p>\n
Goldman Sachs executives have grappled before with questions about whether they\u2019re better at making money for the firm than for their clients, according to an internal e-mail dated Sept. 26, 2007, that was released by a U.S. Senate subcommittee last month.<\/p>\n
U.S. Lawsuit<\/strong><\/p>\nThe e-mail to Chief Executive Officer Lloyd Blankfein from Peter Kraus, who was then co-head of the company\u2019s investment- management division, explains that individual investors, unlike institutional clients, occasionally make \u201ccomments like ur good at making money for urself but not us.\u201d<\/p>\n
The U.S. Securities and Exchange Commission filed a lawsuit against Goldman on April 16 accusing the company of misleading investors in a mortgage-linked asset. Goldman denies those allegations and said it will fight the charges.<\/p>\n
Where would you be?<\/span><\/strong><\/p>\nIF – YOU HAD ALL THE MONEY YOUR HEART DESIRES?<\/p>\n
IF – YOU HAD NO WORRIES?<\/p>\n
IF – YOU CAME HOME AND THE FINEST MEAL IS AWAITING YOU?<\/p>\n
IF – YOUR BATHWATER HAD BEEN RUN?<\/p>\n
IF – YOU HAD THE PERFECT KIDS?<\/p>\n
IF – YOUR PARTNER WAS AWAITING YOU, WITH OPEN ARMS AND KISSES?<\/p>\n
SO, WHERE WOULD YOU BE?<\/p>\n
HELLOOoooOOO!!!!!!!!!
\nYOU’D BE IN THE WRONG HOUSE!<\/p>\n
![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2009\/12\/HarryNewton.gif\" "\\"HarryNewton\\"")
<\/a><\/strong><\/div>\nHarry Newton remains engrossed in the second edition of Nassim Taleb’s The Black Swan<\/em>. So far, there’s one overriding lesson (I’m not kidding): Don’t borrow. <\/strong>When the Black Swan event comes (see yesterday’s column), borrowers suffer the worst, often losing their entire net worth.<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"Exhibit one: Background: On September 11, 2008, I lent Joel Novak $14,000. The loan was for three months. That was his idea. As of today, 20 months later, he still owes $3,745. Joel was one of my closest friends. For years we had lunch regularly. We visited Israel together. He was the investment banker who […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2175","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/2175","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2175"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/2175\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2175"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2175"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2175"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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<\/a><\/p>\n