Hot on the heels of news that Goldman Sachs did not have a single day of trading losses in the first quarter, is this gem of a story from Bloomberg on Wednesday:
May 19 (Bloomberg) — Goldman Sachs Group Inc. racked up trading profits for itself every day last quarter. Clients who followed the firm’s investment advice fared far worse.
Seven of the investment bank’s nine “recommended top trades for 2010” have been money losers for investors who followed the New York-based firm’s advice, according to data compiled by Bloomberg from a Goldman Sachs research note sent yesterday.
Trade advice that went rather pear-shaped for Goldman’s clients in the first quarter included recommendations to buy the Polish zloty versus the Japanese yen (down 14 per cent), buying Chinese stocks in Hong Kong (down 9.4 per cent) and the British pound versus the New Zealand kiwi dollar (which would have lost clients 9.8 per cent of their invested capital).
Bloomberg diplomatically explained the research stumble as follows:
The struggles for analysts at Goldman, 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.
We, on the other hand, would suggest it shows to what extent Goldman’s own proprietary book is not about position taking itself, but making money from market-making and flow volume.
We emphasise that would be market making — as in something that’s completely different to just taking the opposite side of client positions — as Goldman Sachs has helpfully explained to congressional hearings before.
Just to be clear.
Related links:
Anatomy of a Goldman trading huddle – FT Alphaville
Goldman’s client cuddle huddles – FT Alphaville
Goldman’s visionary WTI performance – FT Alphaville