The Strategist

Goldman Sachs is alarmed; Should we be worried too?

09/08/2017 - 13:51

Goldman Sachs, the most powerful bank in the world, is concerned about too lengthy growth in markets. Should we listen to these warnings and why are bankers suddenly disliking bubbles?

On the eve of a business conference in Frankfurt, hosted by Handelsblatt, a manager of Goldman Sachs unambiguously told the audience that the world financial markets have been growing too long. It is difficult to argue with this statement. Many stock indices are near historical highs, there is a huge number of securities on the debt market that are traded with negative returns, and there is also a clear bubble in the real estate market.

There are ridiculous cases when, for example, Argentina, which has repeatedly declared a default, is successfully selling bonds with a maturity of 100 years and even with an extremely low rate.

It is worth noting that usually the "bull" cycle lasts about 5 years, but the current upward trend began more than eight years ago. Thus, the current "bullish" market is one of the longest in history. Is this really terrible?

The fact is that a whole generation of bankers has grown up during this time. All their career has been spent in the conditions of constant support from the central banks, that is, they simply do not have experience in the falling market.

There is a certain danger in this. By the way, not only top managers of Goldman Sachs have expressed their concern. Top managers of investment banks, unlike young people, have survived a couple of crises, and if they decided to warn their customers and the public that markets are overheated, most likely they are already actively getting rid of assets.

Bank Goldman Sachs is considered the most powerful for a reason: it took part in almost all major scandals, but got by each time. This also concerns accusations of manipulating LIBOR rates, stock prices, front-line trading of retail investors, and so on.

How come Goldman Sachs avoided serious consequences? The fact is that the bank’s former employees hold key posts in almost all financial departments, not only in the US.

For example, four of the last eight secretaries of the US Treasury, including the current one, had previously worked for Goldman Sachs. The example with the Federal Reserve System is even brighter: there are three people from the Committee for Open Market Operations are from Goldman Sachs. And, of course, everyone knows that the head of the ECB Mario Draghi is also a former employee of Goldman Sachs.

Former employees of the bank represent a kind of web, occupying key posts in all parts of the world, which, most likely, allows the bank to solve any issues in its favor.