A False Testimony?
I watched with interest this week to much of the questioning of the Goldman Sachs ‘GS’chief. These all were looking to understand why this firm was packaging up and selling these securities in risky residential mortgages while at the same time betting against them – was that a proper thing to be doing was the point of most of the questions – well, I think its safe to say GS isn’t a ‘not for profit’ organisation but the interesting answer given by the chief was that if they had actually known how bad the collapse in the housing market was going to be – then they wouldn’t have been only short in a “small” way (they made $500m profit in 2008 on the short positions) – they would have been massively short. I think this was a fair point, even though a lot of the chief’s statements were pretty suspect.
So we can’t know what’s round the corner in the market but we take a position on it nevertheless with a defined risk at the outset, that’s the nature of the job. The big winner in all that of course was the hedge fund manager John Paulson who made $3.7bn on his short positions in sub-prime.
Want to know what he’s up to these-days? Well he recently setup a fund to buy up gold mining stocks at a time when they are underperforming gold… really though this is a longer term play on the potential inflationary tsunami expected to hit anytime in the next few years, and a trade against the US Dollar wrapped up in one.
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A general comment on the USD – if the immediate situation with Greece is resolved over the bank holiday weekend expect the Euro to gain next week which could cap the upside in the USD which is acting as a safe haven, especially with recent weakness in equity markets. However, with most commodities trending higher despite facing the headwind of recent USD strength this year – especially gold – expect a significant rally on the upside in commodities and all assets traded against the USD in the event that it sells off in the coming weeks.
