What a $200/Barrel World Looks Like

1) If they continually have been betting that the price of oil was going to come down since they started predicting outrageous price targets, they have lost a great deal of money. What has been going on since late 2005? They predicted that the price would triple. They reached that price target ahead of schedule. What you are suggesting has already been proven false. They'd have already racked up massive losses, so "getting out before the herd" isn't even a possible. I'd think they'd be in a "stop the carnage" mode if what you are suggesting (and it is obviously not) is true.

2) They might try to "get out before the herd," but I suggest you try timing derivative trades--which is how you play the oil market. There isn't a person -- or a computer -- on earth smart enough to do it. The people who make money trading futures are not the gamblers making big bets. The smart, disciplined investors who don't flame out in debt risk only 1 or 2 percent of their capital on any given trade, limit the amount they trade on margin, and are willing to impassionately weather a zillion small, but managable losses to hang on long enough to make the one killer trade that makes a fortune. The people who think they can do anything but ride trends and limit losses long enough to have the money for the one winning trade, are the idiots who lose large sums of money very quickly. It is impossible to time. So unless you believe Goldman is doing something illegal to manipulate the world oil market--and what you are suggesting is an illegal pump-and-dump scheme, and trust me, a firm like Goldman Sachs is NOT doing that, because they'd get nailed--I am still not following where they are making money that you or I can't be making. And if they have somehow kept the price of oil inflated beyond what it should be for the last several years--and again, I am not sure how they gain by that--and are still doing it, where are all the short-sellers ready to end their manipulation of the market?

4) Goldman didn't sucker anyone into anything. The CMO market isn't populated by neophytes. When I make a trade (I have never traded CMOs, but any type of trade is the same...), I'm making it because I think the total amount of money I am paying for whatever the security is, is a fair amount. Goldman might offer me the best deal. If a different broker has the same security for a lower price, I can just as easily go there instead. I'm certainly not expecting the broker to assure me that my security will go up, rather than down, in value. And... If I was buying something and I know my broker is shorting it and thinks it will go down in value, I am going to HAPPY. It means that I get to buy it at a cheaper level and if there is a short-covering rally, I am going to make that much more money for my conviction that the price is going to rise. not fall.

If an investor buys a financial security, he or she is buying a risk product. You get all the upside if it goes up in value. You also get all the downside if the security goes down in value. Goldman isn't suckering people if they choose to take on that risk. The same way that Goldman doesn't get to claim part of your profits if your security goes up in value. Anyone buying CMOs from Goldman was buying it because they thought it was a good investment. That wasn't Goldman's responsibility.

Someone at Goldman was really prescient, though. And they started shorting some of the most toxic junk -- some of which Goldman created and sold itself -- while everyone was still in a greed-induced frenzy. That isn't "suckering" anyone, either. They simply shorted the market. You or I could have done that, if we had balls. Goldman hedged, when no one else was. The risk was that they were making a wrong bet -- a bet few others, were making. The fact that Bear Stearns got wiped out, Citigroup is hemmoraging blood, Merrill Lynch lost almost $6 billion. Deusche Bank lost $3 billion and dozens of banks showed hundreds of millions of dollar losses each, suggests that there were few people good enough to "get out before the herd," as you suggest. Wall Street is populated by idiots, not a bunch of Lex Luthers. JP Morgan limited its losses and Goldman may have been the only significant hedge fund (Goldman is pretty much considered the world's biggest hedge fund) to come out of the mess in decent shape. But that wasn't from suckering anyone. It was by betting heavily on the underdog when everyone had the favorite. They took on the risk and reaped the reward.

Goldman did OK. Bear Stearns (and just about everyone else) didn't.

There is no conspiracy. They made big bets. One made the right bet, the other made the wrong one.

 

It was a mafia hitman who lobbed 10 grenades at me (which I swallowed like jujubes). Get the story right, man!

Sorry for skipping 3... It was the part where I told everyone how to program trade gold bullion contracts using my proven Goldman Sachs system that guarantees profits!