GS: Risk Management Update . . . It’s Math

When it comes to GS, we aren’t trying to be anything other than right on this stock. Our role as The Risk Manager is to tell you where this stock has the highest probability of going in the immediate term; not to pander to the many friends we have who work at Goldman Sachs. This isn’t about them. This is about re-regulating the financial system.


Today you are seeing lower-lows in the stock (post the SEC charge) on another day of heavy volume (16M shares traded as of 1130AM EST). Below the $151 line of support we issued last week is no quantitative support to $142.89/share (green line in the chart below).


Interestingly, GS’s credit default swaps are widening by almost +13% today to 162 basis points. While this isn’t in the area code of Bear/Lehman days of 2008, on the margin it’s certainly not a bullish development.  The chart of Goldman CDS is outlined below.


As we have highlighted in the past, keeping abreast of the credit default swap market can be a great leading indicator for what will happen in the equity markets. Or currency markets, as the case may be.


On April 19th we highlighted a similar point in a note titled, “Keep Your Eyes on Greek CDS . . .”, which emphasized the Greek CDS had expanded to levels similar to February of this year.  Since that date, the Greek stock market has declined 7.7%.


The point is not to pile on with the Goldman bears, but rather just to highlight a risk factor when thinking about the equity of Goldman. 


Citadel’s Chief, Ken Griffin, just explained risk management in two words to an awestruck crowd at the Milken Institute today – “it's math.”


Well done, Ken. And thank you.




Keith R. McCullough
Chief Executive Officer


GS: Risk Management Update . . . It’s Math - GS1


GS: Risk Management Update . . . It’s Math - GSCDS2


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