Goldman Sachs doing God's Work?

Interesting, but for my taste, not revealing enough insight into the workings of Goldman Sachs today;

http://www.timesonline.co.uk/tol/news/world/us_and_americas/article6907681.ece

They sure are a money making machine! I have no issue with any bank making money by allocating capital to its trading and investment arms skilfully and deftly. My problem lies when those companies securing the lion's share of the finance transactions have an oligopolistic pricing structure coupled with access to the scarce resource of modern times, capital.

Now, I also have no issue with bankers being paid multi-million dollar bonuses if they add value of, say $100m to a client company bottom line. Simply sitting on assets that have gone up (and not even to pre crash levels) and making a margin on each trading deal simply because clients have few other options to go to execute their orders annoys me. For a bank to be rescued by the state (ie bust) and to be paying put $billions in bonuses 12 months later is frustrating to say the least.

The majority of Goldman's profits, it seems, comes from creaming off a profit margin from other companies activities (pension funds, insurance companies etc). The rest comes from betting on the financial markets and, I believe, influencing the level of those bets with the weight of its own capital.

Remember, making $10b profit on assets of $1trn (1%) doesn't sound that great and even on cash its a little more than 6%. I think that the majority of the earnings power of Goldman comes from its oligopolistic status and control over capital. With these advantages, making the sort of profits seen recently seems, well, a bit pathetic.

Trading Styles of CityOdds Traders

Now that we are seeing a good number of regular traders on CityOdds, it is becoming apparent there are distinct categories of trader.

1. The Long Risk Trader

The trader tends to seek high payout, less frequent transactions. These trades often lose money for the trader but the ones that win can multiply the stake by 200% to 500% in a day, often offsetting the losses previously suffered. These traders tend to trade in and out of positions to try and capture shorter term movements in the underlying market.

2. The Short Risk Trader

These traders tend to regularly place trades that are very likely to make a profit but this profit would be small. These traders tend to make money on a regular basis but occasionally lose a great deal if the underlying market suddenly moves in one direction or another.

3. The Reactionary trader

Traders may purchase low cost, speculative trades either side of the current market level and should the underlying suddenly jump in one direction or another, the trader sells the winning trade for a profit, and closes the losing trade (hopefully for less loss than the profit on the winning trade)

It hasn't taken long for CityOdds to see these trends emerging and it is still not clear if any of these three strategies is the better in the long run.

It is very clear, however, that the behaviour of CityOdds traders is no different from the traders that sit inside large investment banks (apart from the £10m bonuses that is!!)

..till next time.

Mike