We're essentially short the political economy, and the most politically connected firm is Goldman Sachs [GS]. It has two sides: a highly secretive and profitable trading operation, and a more pedestrian public business. Our suspicion is that their secret sauce is access to friends in high places, and that the model breaks when it either flies too close to the sun or a public backlash opens them up to scrutiny. Trading and principal investments account for 67% of net revenue this year, the highest level ever. Goldman, aggressively plying the risk trade, is vulnerable to the next leg down.I almost fell off my chair when I read the recommendation. Shorting a stock because of a "suspicion"? I understand not buying a stock because of a "suspicion" but going out and shorting a stock based on "suspicion" has to be one of the silliest things I have heard recently and another reason to believe Goldman is set to outperform other banks in the near term.
As readers know, I recently went long Goldman Sachs versus my Bank of America short. My thesis was that I would much rather own the hated Goldman Sachs which has actual earnings versus everyone's favorite stock, Bank of America, which has lots of "normalized earnings" a few years out. This weekend a money manager recommended shorting Goldman in Barron's.