Wednesday, October 31, 2007

Is Goldman Sach's Still Profiting from CDO Debacle?

If you read the Goldman Sachs (GS) filing last month there was an interesting line.

If we put aside the stunning 72% increase in earnings that just blew the door off all the estimates, we need to look at those earning. What did it for Goldman, unlike Citigroup (C), Merrill Lynch (MER), Lehman (LEH), Morgan Stanley (MS), and other was that in June of last year they began shorting these CDO markets that have decimated earnings at the other institutions.

Here is where it gets very interesting. Goldman in their recent filing that "increases were due to unrealized gains in certain positions". Hmmm. My take is that Goldman is still short the CDO markets and if they are, that means they are still profiting handsomely from it. Consider Merrill just wrote down $8 billion of CDO's and it looks like another $4 billion is coming next quarter. Fears are now being stoked that other institutions will follow to some extent also. That may be a blessing at other places. If Chuck Prince at Citigroup forces shareholders to swallow another bitter pill after promising "Q4 will be much better" , it will be his last

Goldman also wrote down their portfolio of CDO's last quarter but the short positions negated any negative effect to earnings. It increasingly is looking like this short position may actually produce a positive in Q4 and with all Goldman's other business performing well, the recent all-time high the stock hit on Monday may be a distant memory soon enough..

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