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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Sunday, April 19, 2009

Is Goldman Sachs Akin to an Overpriced Hedge Fund?

Editor's Note: If you want to read some startline information, facts and analysis about Goldman Sachs, you've got to visit Reggie Middleton's website. Here is just a taste . . .

Nearly one year ago I made clear to all, for absolutely free, that Goldman Sachs was akin to an overpriced hedge fund. The bulk of their profits come from proprietary trading, as do the bulk of the their economic risk added. I first started going bearish on Goldman in July with a flurry of puts with the share price at about $180. Everybody and their mother told me how shorting Goldman would be disastrous. Well, I need a few more disasters like that for my account this year. Take a looksee:

(Editor’s Note: Great Chart on Reggie’s Website)

I have recent research on Goldman, marking assets to what I believe to be realistic marks to be expected from the PPIP program, for my subscribers:

(Editor’s Note: These reports are for his subscribers only. They will blow your socks off.)

Well, the story significantly predates PPIP, and at the end of this article I will release my stress test results for Goldman Sachs. Drum roll, please....

In June of last year I made it clear that Goldman was trading on name brand premium only, and a premium that was quite undeserved. This premium was paid by those who don't like to run numbers and observe correlations, two activities which happen to be my specialty. See "Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street", from which I have excerpted the justifications for my bearish moves:

We have looked at company’s recent quarterly filings and 10K to have a closer view of Goldman Sachs’ (GS) exposure. Following are some of our observations:

Value at Risk (VAR) and Risk Adjusted Return on Risk Adjusted Capital (RARORAC)

Goldman has the highest VAR among its peer group of $184 mn, followed by Lehman at distant $123 mn (we all know how well LEH is currently faring). Notably, GS also the highest range (difference of highest and lowest daily VAR during a quarter) of daily trading VAR of $92 million, reflecting significant (read risky) volatility in its trading portfolio. This is higher than $61 mn and $67 mn (for 1Q2008) for Lehman and JPM, respectively. This is also being reflected in the lowest risk adjusted return on risk adjusted capital (RARORAC - a much more grounded measure of risk adjusted return) of 14.8% for GS among its peer group. Just so this doesn't escape anybody, GS has the lowest risk adjusted return on the Street. Simply analyzing earnings (or looking at CNBC) would lead one to believe that Goldman has the highest return on investment, but unfortunately, the world is a bit more complex than an earnings statement or a cable news channel.

Editor’s Note: I only pulled a few paragraphs from pages of material, charts and graphs he has on his website. I recommend Reggie’s website for his work on truly digging into Goldman Sachs and exposing a lot of material the bigshot analyst on Wall Street are afraid to talk about.

Here’s the link to Reggie’s website – Click Here


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