For those who remember Goldman Sachs's proclamation that oil would reach $200 a barrel by the end of 2008, it might seem a little odd that anyone would still care to sit in on the inside of the analyst meetings.
Still, Goldman Sachs's "trading huddles" as the meetings between analysts, traders, and major clients are known, smack of a scheme as near to legitimate outright market manipulation as you can get. If you assume that Goldman, which has an $84 billion market capitalization, can command as clients some of the wealthiest speculators in the world (many of which are hedge funds), consorting together on pre-released research combines both the potential for market-moving statements and sufficient volume to do so.
Naturally, others are not so concerned. "You're not dealing with the same kind of information where this is a backdoor form of insider trading," Donald Langevoort, a securities-law professor at Georgetown University told The Wall Street Journal.
And it's true that the information Goldman Sachs is passing on to its traders is not the same sort of stuff you see in the filing cabinets of the big Manhattan corporate law firms. But a statement by Goldman Sachs about any particular security is very much a market-moving event, and in itself can sometimes lead to short-term price increases of double-digit percentage points.
So the fact that the firm is handing out priority research information to clients with specifically short-term investment horizons is an extremely dubious definition of client service.
As if to illustrate the point, today Goldman Sachs's research division announced that it estimates that banks in the United Arab Emirates may rise 30% in value this year as earnings remain attractive. The banks mentioned in the report, such as Union National Bank PJSC, Emirates NBD PJSC, and Abu Dhabi Commercial Bank PJSC, all trade on a variety of relatively illiquid (by U.S. standards, at least) Middle Eastern exchanges.
The Abu Dhabi Securities Exchange, for example, has a total average volume for the entire exchange of just $54 million a day. Goldman Sachs's NYSE-listed shares alone, by contrast, have a daily volume of around $3 billion.
A statement by Goldman Sachs can easily bring in a small pool of foreign investment which pushes prices above the 30% benchmark the bank has set. If certain short-term global investors knew about Goldman's preference for the Arab banks prior to the announcement via one of the trading huddles, it's a relatively simple way to make double-digit percentage point gains in an otherwise sideways market environment.