Will Goldman be able to pull of its Houdini act.

Our View:
Goldman Sachs, one of the troubled Wall Street security trader turned banker, did a quick Houdini act early this week, that smells funny. Its double whammy of announcing high Q1 profits after the markets closed on Monday and announcement of sale of $ 5 billion stocks at a price of $ 123 per share , 5.5 % lower then the closing price was to say the least puzzling. Since Oct 6 the price of Goldman Sachs never rose above $ 123 at the NYSE. Last week the share price, on rumours of strong first quarter report started climbing and shot up to touch $ 130 on Monday. The momentum, clearly set up by interested parties, was unsustainable prompting Goldman Sachs to enact its magic double act quickly after the closing of trading hours. The share predictably reacted sharply on Tuesday dropping by almost 12 % as analysts at Bloomberg and WSJ called the performance unsustainable. Goldman battled for the moral high ground announcing repayment of half the TARP funds it had got from the Treasury from the sale of stocks.

However the main issue was not the alacrity with which the Wall Street biggie dealt out the triple sundae. The issue is who were the buyers, and how was the deal funded. A Bloomberg analyst Jonathan Weil had warned only a week ago that the Treasury Department’s Public – Private investment program will ensure adequate. liquidity and encourage the struggling financial institutions to swap their assets including the most- toxic mortgage related derivatives with one another at inflated prices. . The purchases will be financed by big government loans, or TARP funds so that taxpayers are at risk for the bulk of any losses.

Despite Goldman Sachs impressive Q1 Profits, Standard & Poor’s kept its “negative” outlook on the firm, citing the fact that profit was concentrated in fixed-income trading. There is a feeling among some analysts that the big boys of the Wall Street are using dealers, brokers and smaller intermediaries as frontmen, in a you pat my back, I pat your back purchases or swaps that Bloomberg had warned off, using the taxpayer’s money to keep their profits and stock prices up. If true, it remains to be seen if such manipulations are sustainable in the long run.

In this blog from “ecology to economy” we deal with discussing sustainable practices which includes sustainable profits and stock prices. We feel that this Houdini act is an astute piece of financial engineering that will come under scrutiny in the days to come.
We could be wrong. Tell us if we are & why? We encourage diverse opinion even if it is from commercially interested groups opposed to our thinking