“When you owe the bank $100 that is your downside. When you owe the bank $100 million, that is the bank’s downside.” – J. Paul Getty It is exhausting to consider that it was over a decade in the past that Matt Taibbi printed his well-known Nice Monetary Disaster autopsy for Rolling Stone centered across the position performed by Goldman Sachs (NYSE:GS). It opened, “The very first thing you could learn about Goldman Sachs is that it is all over the place. The world’s strongest funding bank is a superb vampire squid wrapped across the face of humanity, relentlessly jamming its blood funnel into something that smells like cash.” I’d say that there’s loads of proof that this nonetheless holds true right now. Over the previous couple of months, I’ve tried to chronicle right here the speculative feeding frenzy within the choices market that has seen volatility indexes surge together with stock costs and helped to energy markets greater within the face of the worst financial decline in fashionable occasions. And, within the strategy of searching for clues, Goldman’s identify has come up at each flip. Tesla (NASDAQ:TSLA), a Goldman consumer, has been the main target of a lot of the decision shopping for that has pushed these traits. At its current excessive, the stock had risen 800% from its March low at the same time as income fell 5% in its most up-to-date quarter, so it is clearly not fundamentals driving the share price. No, as many have now demonstrated (most notably Luke Kawa again in February), large name shopping for acts as a kind of manifest future that creates the upper stock costs name patrons envision. This occurs by the use of the choices sellers who’re pressured to purchase the underlying shares as a hedge towards the calls they offered.
Anyhow, it seems that Goldman lately profited $100 million from its personal shopping for of name choices on Tesla shares. Clearly, they perceive how this sport is performed and could not resist getting in on the motion. Nonetheless, it additionally seems that Goldman (together with Morgan Stanley (NYSE:MS)) was the lead underwriter on Tesla’s February stock providing. As such, it was entitled to purchase a whole lot of 1000’s of shares again then earlier than the most recent surge in price. Shortly thereafter the agency noticed match to place a purchase score on the shares that kicked off its superb rally over the previous a number of months. It additionally seems that Goldman (and Morgan) some time again additionally lent Elon Musk a number of hundred million {dollars} towards his holdings of Tesla stock. As well as, they’ve additionally lent SolarCity, a troubled Tesla subsidiary, practically $2 billion instantly. So Goldman has a eager curiosity in seeing Tesla shares rise for a number of causes. First, in order that they’ll revenue instantly from their very own fairness and derivates stakes. Second, in order that the corporate is impressed to challenge extra fairness, producing funding banking income (and providing extra alternatives for fairness purchases). And third, as a result of rising fairness costs make Elon a greater credit score danger and, extra importantly, fairness raises at inflated valuations make Tesla (and SolarCity) a greater credit score danger. Now come again to Goldman’s lately revealed choices earnings in Tesla’s stock. Might the corporate have any better incentive to attempt to manipulate Tesla shares greater by the use of the choices market? Now take into account that Goldman additionally has a really cozy relationship with SoftBank (OTCPK:SFTBF) (OTCPK:SFTBY), one other funding banking consumer for which it additionally acts as creditor. SoftBank, after operating into bother created by its disastrous funding in WeWork (to which Goldman lent $1.75 billion), lately revealed that it miraculously profited to the tune of a whole lot of tens of millions, if not billions, of {dollars} on fairness investments and name choices on common tech shares together with Tesla.
In fact, I’ve no proof to truly show something but it surely definitely appears to me like Goldman has discovered a strategy to forestall what might have turn out to be very actual “issues” for the bank, within the J. Paul Getty sense, by the use of the marketplace for fairness derivatives. Both that or it was only a very lucky flip of occasions marked by quite a lot of unusual coincidences. Personally, I do not consider in coincidences. Unique submit Editor’s Be aware: The abstract bullets for this text have been chosen by Looking for Alpha editors.
