The Worst Stocks for 2010: Goldman Sachshttp://www.fool.com/investing/general/2010/01/21/the-worst-stocks-for-2010-goldman-sachs.aspx Morgan Housel
January 21, 2010
Oscar Wilde once said, "We are all in the gutter, but some of us are looking at the stars." I've always liked the quote because it reminds us that when things look darkest, the odds of improvement are brightest.
When it comes to Goldman Sachs (NYSE: GS ) , I'd flip that quote around and say "When you're walking blindfolded on the edge of a roof, that gutter is just one step away."
Investing is a game of probabilities. You want to invest when the odds of winning outweigh the odds of losing. As Goldman sits on the very top pedestal of success, it's not hard to imagine that the odds of declining are being outweighed by the odds of uninterrupted euphoria. Here are two big reasons why.
1. Iceberg, dead ahead
Here's what's important: Short-term interest rates are as low as possible right now. They're at zero. They can only go up. When that happens, profit will start to get squeezed out of the fixed-income machine as short-term borrowing costs rise.
Some may counter that a rise in short-term rates will come only when the economy rebounds, and that rebound will be accompanied by gains in investment-banking revenue. This is true. I once believed that it was a bullish catalyst myself. But it's almost irrelevant when you consider that 48% of revenue last quarter came from the segment that houses fixed-income trading, versus just 7% from investment banking.
Bottom line: This is probably about as good as it gets for Goldman's main money machine. And just like with real estate in 2006, you should run for your life when it feels the best.
2. That faint scream you hear in the distance is Barney Frank getting angry