Goldman's Latest Boiler-Room Stock: America

By Matt Taibbi, Rolling Stone

02 December 12

appy New Year, everyone. Hope you all had a great holiday...

Have a column on Iowa coming soon, but first, a quick but absurd note from the world of high finance.

It seems Jim O'Neill, the head of Goldman's Asset Management department, is predicting that the United States stock market may go up "15 to 20 percent." O'Neill apparently believes Ben Bernanke and the Federal Reserve will resort to another round of money-printing, and finally green-light the long-awaited "Qe3," or third round of "Quantitative Easing."

Printing hundreds of billions of dollars and pumping them into the marketplace, where they ostensibly stimulate the economy (although recent experience tells us that the money mostly ends up being swallowed by the financial services industry - but that's another subject for another time). Anyway, Bernanke declined to go ahead with a third QE program in late 2011, but O'Neill apparently thinks we'll get it in 2012. From Bloomberg:

"If QE2 doesn’t work, then we’ll get QE3," said O’Neill, who was named chairman of the money manager in September after working as the co-head of global economics research and chief currency economist at New York-based Goldman Sachs Group Inc. since 1995. There’s a "good chance" the S&P 500 will rise 15 percent to 20 percent in the next 12 months, he said.

O'Neill added that he thought a 20 percent bump would be "relatively straightforward" for the U.S. S&P.

Goldman is building an impressive resume of sweepingly bullish predictions that later on, in retrospect, look more like signals to investors that they should run screaming in the opposite direction. A good example might be May of 2008, when Goldman boldly predicted that oil would go to $200 a barrel; oil would go on to peak at $147 less than two months later and crash to the floor soon after.

O'Neill himself famously coined the infamous "BRIC" term (Brazil, Russia, India and China), urging investors to throw their money at those emerging markets, arguing that those markets would eclipse the U.S. and Japan as the world's biggest economies by 2050. Mutual fund investors responded by pouring $70 billion into BRIC over the last decade, but that run looks over now, as $15 billion flowed out of BRIC funds in this past year alone, and some analysts are predicting a $20 percent drop this year.

Even Goldman wrote in a Dec. 7 report that that BRIC has already seen its crest. "We have likely seen the peak in potential growth for the BRICs as a group," Goldman analyst Dominic Wilson wrote in the Dec. 7 report.

I laughed when I read Wilson's quote, wondering exactly how long ago the bank privately came to that conclusion and started shorting BRIC countries. Goldman's Dec. 7 report, incidentally, arrived just before O'Neill released his new book, a Tom Friedmanesque volume of cheerleading nonsense called The Growth Map: Economic Opportunity in the BRICs and Beyond. That book was published on December 8, meaning O'Neill was seen spending 256 pages predicting "rosy prospects" for the BRIC bloc exactly one day after Goldman itself had officially bailed on its own cheesy marketing gimmick.

Anyway, every time I read one of these rah-rah predictions, I get this feeling that I've seen this movie before. When it comes time to do Goldman, Sachs: The Movie!, I'll be bummed beyond belief if Vin Diesel doesn't get to play Jim O'Neill.

The folks at Zero Hedge long ago caught on to Goldman's JT-Marlin pump-and-dump vibe. Here's what they said when Goldman upgraded European bank stocks a few weeks ago:

Goldman has just started selling European bank stocks to its clients, whom it is telling to buy European bank stocks. Said otherwise, the Stolpering of clients gullible enough to do what Goldman says and not does, has recommenced. Our advice, as always, do what Goldman's flow desk is doing as it begins to unload inventory of bank stocks. Translation: run from European bank exposure.

Sure enough, Euro bank stocks plummeted a few days after that ZH post.

I don't know much about the stock market, but when the O'Neills of the world start telling me what a great investment opportunity the American stock market is, I start getting the urge to buy canned food ...