This story is guaranteed to generate some buzz today. I suspect its going to be much ado about nothing:

“At the meetings, Goldman analysts identify stocks they think are likely to rise or fall due to earnings announcements, the direction of the overall market or other short-term developments. Some of their recommendations differ from ratings printed in Goldman’s widely circulated research reports. Some Goldman traders who make bets with the firm’s own money attend the meetings.

Critics complain that Goldman’s distribution of the trading ideas only to its own traders and key clients hurts other customers who aren’t given the opportunity to trade on the information.

Securities laws require firms like Goldman to engage in “fair dealing with customers,” and prohibit analysts from issuing opinions that are at odds with their true beliefs about a stock. Steven Strongin, Goldman’s stock research chief, says no one gains an unfair advantage from its trading huddles, and that the short-term-trading ideas are not contrary to the longer-term stock forecasts in its written research.”

I am no GS fanboy, but unless its inside information, how they distribute their calls is their business.

For those that don’t like it, I suggest you take your business elsewhere . . .

>

Source:
Goldman’s Trading Tips Reward Its Biggest Clients
SUSANNE CRAIG
WSJ, AUGUST 24, 2009

http://online.wsj.com/article/SB125107135585052521.html

Category: Legal, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

17 Responses to “Its Not Called “First Call” For Nothing . . .”

  1. That is not sarcasm!

    If you think Goldman Sachs is giving misleading advice or ripping you off — and the evidence is that many clients were either not informed of the firms trades against them and perhaps even affirmatively misled — then you should give your business to someone else.

    Quite bluntly, I am amazed at how many hedgies do bidness with GS and then bitch about. In a perverse way, getting robbed by Goldie is almost a badge of honor for them . . .

  2. dead hobo says:

    It looks like their periodic pump memos for this or that are just a part of the scheme. First, the meeting where private advice is given to favored customers. Then comes the pump memo a week later. Then the favored few sell to the rubes who think ‘conviction buy’ is a good deal for them.

    Of course, the favored few probably also get taken to the cleaners on order collars, but still come back for more.

    Yup, the stock market is sure a place for me to put MY stash. Not.

  3. dead hobo says:

    BR noted:

    This story is guaranteed to generate some buzz today. I suspect its going to be much ado about nothing:

    reply:
    ————–
    Put that statement on my conviction buy list. If flash orders and HFT collaring have only risen to ‘something we are looking into’ with nothing else that even hints of the promise action then GS is safe and laughing about their coming huge commissions. Oil prices that bubble with impunity show that crooks have nothing to fear from Uncle Stupid.

    Thank Bubble Ben for the high octane fuel that makes the powerplant go. GS and the rest of the top predators well fight for his reappointment. He’s looking out for their best interests. And Obama can speechify about how 401k accounts look a little better, although he will likely forget to mention the bump is due to scientifically applied bubble economics and that the bubble will burst as soon as Bubble Ben is no longer permitted to print money at will.

  4. cewing says:

    Wait a minute. You mean to tell me that a huge institutional investment house tells its insiders and corporate buddies one thing, then tells the public something else?

    Give me a minute to choke back my Cheerios in horror. I’m shocked, SHOCKED to hear such a thing!

  5. danm says:

    If you think Goldman Sachs is giving misleading advice or ripping you off — and the evidence is that many clients were either not informed of the firms trades against them and perhaps even affirmatively misled — then you should give your business to someone else.
    ————

    Once in a while you surprise me. Considering the book you wrote, I would see you as the first one to point fingers and try to force companies into ethical behavior. And using the same logic, we could tell you if you’re not happy with the way the financial industry is doing business, get out of it.

    Sometimes walking away does not solve anything.

    ~~~

    BR: I have little hope of mandated ethical behavior on Wall Street, hence my belief in 1) regulations that proscribe criminal behavior; 2) A disbelief you can mandate ethics.

    Again, this is over GS’ opinion — perhaps it has value, but it is theirs to do with as they please. And it is built in large part by their knowing what they do about their clients’ businesses, positions, etc.

    Take that away and you hurt them.

  6. KidDynamite says:

    i agree with BR – this is a total non-story. We live in a capitalist system. People are under the illusion that in order for our markets to be “fair,” GS should distribute their calls to everyone in the world at once. that’s nonsense.

    I am, however, very surprised that they let the prop traders come to these “huddles.” There is usually a very strict Chinese wall between equity research and prop trading.

  7. KidDynamite says:

    the one thing i do find intriguing about this topic is that GS”s OPINION alone has become protected information… in other words, with Reg FD, companies can’t selectively disclose market moving information. It’s a pretty interesting dilemma when one firm’s OPINION falls under Reg FD, which it could conceivably, because it moves markets.

    i guess this just shows how much of a farce our equity markets are – we follow along like sheep doing whatever the big boys tell us.

    clarifying: it’s illegal for PG to tell only GS that they will be selling their drug business. But it’s NOT illegal for GS to tell its (Select) clients that they think PG will beat numbers – nor should it be, even though GS’s insights will move the stock.

  8. Groty says:

    Have you forgotten about the Holly Becker and Michael Zimmerman case?

  9. leftback says:

    The timing of these GS meetings is interesting. Many GS alums attend, and they have sometimes coincided closely with major changes of direction in equity markets.

  10. CarltonBanks says:

    I don’t have the time to look this up, but I think what Goldman is doing here is illegal. I hate to admit this, but I was duped by the CFA into joining their racket. I remember in the Ethics section of the CFA exam, what Goldman is doing here was a common test question, and it is very wrong. So while considered unethical by the CFAI, I’m not sure it is illegal. Seems like the new Series xx NASD exam that was instituted after the dot com bust would cover this.

  11. Robespierre says:

    “I am no GS fanboy, but unless its inside information, how they distribute their calls is their business.”

    Except that I think that what they are doing is illegal… Now you add this with HFT and other of their stuff and you get > $100M/day trading profit more than %75 of the time

  12. inessence says:

    Question: Is Goldman Sachs a registered investment adviser under the Investment Adviser Act of 1940?
    If they are then it is illegal and unethical for them to provide preferential treatment to one client versus another.

  13. [...] Ritholtz responds again - Its Not Called “First Call” For Nothing – Big [...]

  14. franklin420d says:

    But in the end isn’t GS too big to fail? We NEED them……..Don’t we???????

  15. Andy T says:

    They probably need to be aware of anti-trust issues here. In certain stocks, I’d be willing to bet that GS, citadel, SAC, etc…are huge % of the “traded” stock on a daily basis. If this was a commodity market, and GS were telling a big group of huge traders…”Hey, we love gasoline, especially the September contract, …” and then everyone of them went out and started owning September Gasoline….it would be, um, let me see here, what’s the word I’m looking for……o yeah….ILLEGAL.

  16. danm says:

    i agree with BR – this is a total non-story.
    ————–
    I see it differently. I see these GS attacks like when you decide to end a relationship. You rationalize your decision by finding faults in everything the person does, even minor stuff that didn’t even bother you until you decided to call it quits. It’s rarely the big stuff that breaks the camel back, it’s the last straw.

    The more GS is defended, the longer the bad behavior will last.

  17. alfred e says:

    @danm: Agree. No one is going to touch GS BananAmerica’s bank.

    @BR: Interesting perspective. Without condoning it, you say it’s their business.

    Kind of like “everybody does it so let it go”.

    Is that how FusionIQ operates? giving preferential information and recommendations to certain customers?