Tuesday, 14 July 2009

Getting a piece of the Goldman action

Reuters has calculated that the average salary for nearly 30,000 employees of Goldman Sachs this year will be $1 million.
NEW YORK, July 14 (Reuters) - The average Goldman Sachs Group Inc (GS) employee is within striking distance of $1 million in compensation and benefits this year, just nine months after the bank received a $10 billion U.S. government bailout.

The figure will likely fuel criticism of the politically connected bank, especially amind the widening recession and rising unemployment. In addition to the bailout, Wall Street's biggest surviving securities firm also benefited from several other government schemes during the depths of last year's financial crisis.

Goldman on Tuesday said money set aside for pay surged 75 percent in the second quarter. Compensation and benefits costs were $6.65 billion, up 47 percent from the equivalent quarter in 2008.

Given a 16 percent reduction in staff from last year, to 29,400, the bank set aside an average $226,156 per employee in the second quarter, up from $129,200 in a year ago.

If the quarterly figure is annualized, it comes to $904,624 per employee.

Just a few other pertinent factors to consider:

1. The stock has tripled since late last year.
2. Bullish forecasters are calling for it to surpass its historic high above $250 per share within a year or so.
3. Goldman's access and influence within the US Administration is without equal.
4. Goldman envy is rife amongst finance professionals, no matter how much they protest about its privileged position.
5. Hatred of Government Sachs is rife in the blogosphere.
6. Goldman can make more in a nano-second than most people would earn in several lifetimes.
7. All asset classes are traded by the firm and they can flip from being long to short (or both) and back faster than it took the folks at Bear and Lehman to clean out their desks.
8. It is hard to imagine a scenario in which Goldman wouldn't survive a financial Armageddon but where its principal client, the US Treasury, would.
9. If you believe in buy and hold, and like to buy dips this seems like the right place to be looking when the baby's being thrown out with the bathwater.
10. Warren Buffet is extraordinarily enthusiastic about the company

It's hard to resist the conclusion that if you can't beat them then you simply have to join them. Not literally of course, you wouldn't be invited to unless you're exceedingly smart, because, as the alumni will attest, they only hire the very brightest people on the planet.
But one can of course get a piece of the action by hitching a ride with the stock.
So, even if the thought of making a million dollars this year seems like a remote fantasy a program of gradual and judicious accumulation seems like a no-brainer.

[These musings are neither a solicitation nor an offer to buy or sell securities. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital you cannot afford to lose. ]

It is reassuring that there still is some wisdom behind that old fashioned idea which encourages the public to participate in equity markets. Who knows, one day the smart folks at Goldman will probably figure out how to do a reverse takeover of the global financial system, and for those who bought the stock while it was still cheap, that could really add sizzle to their retirement plans.

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