In a world filled with innuendo, false flags, and more one thing remains constant: What is Goldman Sachs (GS) up to and more importantly – why?
No matter what one “thinks” about this firm one thing is incontrovertible: they didn’t get where they are because they’re stupid. Far from it.
There’s probably no other company on the world stage that has had more influence in financial matters than GS. Love them or hate them, it doesn’t matter. Yet, to ignore them or to take your eyes off as to discount even their smallest moves as “irrelevant” is at one’s own peril. For GS doesn’t make any move (even taking out the trash) without first considering all the ramifications or exploitations that can come of it first. Period.
Over the last few years to say things in the financial markets have changed would be an understatement. People, technology, regulations, and more have morphed for even the people who once were considered brilliant.
Even those amongst the financial media are now appearing to be scratching their heads more as the markets morph into something unrecognizable to a veteran market maven just 5 short years ago. And the one who seems to be quietly morphing and making moves uncharacteristically associated with Wall Street as one previously imagined is none other than GS itself.
Just the mere mention of GS conjures up conspiracy theories of puppet masters, influence peddling and more. It’s almost as if one is venturing down the path of an old-time parlor game of charades when trying to discuss or comprehend their financial implications or moves. However, the best way around all this is to employ a prism brought forward years ago by the late Andrew Carnegie (I’m paraphrasing) : “The older I get the less I listen to what people say and the more I pay attention to what they do.” And GS is doing quite a few very interesting things that just leaves one thinking: Hmmmmmm.
When it comes to business, finance, or even politics one thing is certain: you need to look past the notion of impossible or improbable and contemplate that might be exactly why they’ll do. For no one thinks they will – giving them the edge. And to forget GS is always in search of an edge is to do so at one’s own peril. (e.g., Genghis Kahn ordered his tribes to scale seemingly impossible mountains to attack his enemies precisely for those reasons – and he won)
What might seem as improbable or impossible at first blush just might be the determining factor for producing a profiting reality: no matter how far-reaching it seems. So with that in mind let’s hypothesize regardless how far-fetched or conspiratorial it may seem. And again, the why.
Over the past weeks HFT and all its effects were brought front and center via Michael Lewis’ book, Flash Boys (2014 W. W. Norton & Company). What it also brought attention to if one stepped back taking in a broader view, was the possibly of seeing the missing puzzle piece that helps explain GS’ moves over the past few years, possibly clarifying what too many looked more like a Rorschach test, rather than an unfinished puzzle it just might be.
Remember back in 2012 Reuters™ wrote an article: “Special report: Goldman’s promised land: Salt Lake City” (original article here)
Many were left thinking, “Yeah, OK big deal a new office closer to the west coast. So what?” However, it just struck me a little strange, Utah? As opposed to California, or anywhere else? Why would a company that has always been in the absolute middle of where people, business, and more move there?
Unless that’s exactly what they now want: to be away from the very aspects they once coveted, for those very aspects have shown they may now have possibly become threatening liabilities to both infrastructure as well as staff. Let me explain…
Back in 2009 GS was wooed into choosing Salt Lake City with special tax breaks and incentives to open additional operations there. Probably these decisions were more in line with coming operations under the new regulations and more since it had now become a bank after the 2008 financial crisis, rather than just the investment firm it was known as. But then something interesting happened: The Occupy Wall Street (OWS) movement.
Suddenly the once heralded upper echelon of world financiers were thrown into a media stew of “destroyers of the universe” rather than the “masters” they once embraced.
Since then operations and hiring has picked up at a pace more resembling a growing thriving industry rather than the downsizing, melee currently taking place in New York. Another thing you have far fewer of in Salt Lake than in NY is the amount of people locally to protest your industry and commandeer valuable infrastructure and most of all – the people themselves.
Salt Lake City has a growing, thriving population, but it aint no NYC by any means. However, the make up of business culture, and the sheer fewer amount of people to organize into protesters can be quite enticing to an industry that watched thousands parade banners, effigies, and more outside one’s place of work. Let alone when it seemed there were a complicit press more preoccupied with covering the story of an occupy mob on a bankers lawn, rather than worrying about whether the occupants or children inside were safe or not.
Then in 2012 Hurricane Sandy hit the east coast sending the region into total disarray. One of the things we learned during this storm is just how intertwined HFT is to the markets and quite possibly now dictates whether or not the markets will open unless HFT approves – first. (If one remembers the markets were closed two days by what was reported as HFT influence over the exchanges.)
One thing GS doesn’t like being is #2 in anything, and HFT seemed to be making that more of a reality. In a game where the arms race is merely speed: All that money, time, and effort put into people or the obtaining of people in positions of power as to benefit from such cultivation, becomes nearly null and void when your competitor only needs a faster computer to front run your own organic “front running” infrastructure.
There is no other choice than to either – you yourself re-arm and redeploy, or – decide you no longer will fight or play on that battlefield. Hence, the implications of that decision with the following ZH article: Triple Whammy Shocker: Goldman Shutting Down Sigma X? (Link here)
Put this into the context of where it’s now widely reported that GS has become a client of the HFT debilitating exchange IEX Group Inc. headed by CEO Brad Katsuyama featured in Mr. Lewis’ book where GS now seems to be back on (at the least) a level playing field for order execution. And the advantage pendulum once again swings back to GS’.
Not only is their human capital once again returned to Mt. Olympus status, but they get to tear up that page of the ledger dedicated to infrastructure spending on HFT ancillary items. What’s that worth? Millions? Billions? I’ll bet its enough to effect an earnings report that would make a non-GAAP social darling blush.
Throw in the newest mayoral election that installed what many deem as an anti-Wall Street, tax everything that moves or stands still legislature, and you not only get people looking for greener pastures, you bring back to the front of mind that just maybe they no longer need to “look”: they can grow their own even in the desert next to a lake of salt.
Maybe proximity isn’t worth as much as it once was. And quite possibly getting away from that once coveted proximity could be the new edge for the new “Wall Street.”
Imagine you are renowned for hiring the best and brightest for they flock to your doors because they can earn money in amounts unfathomable to middle America. But the “price” for those people trying to earn is also unfathomable once they fully understand a million dollars really doesn’t get you much in NYC after taxes and expenses. And both of those are on the rise seemingly faster there than anywhere else in the country.
But half of that gets you a whole lot more in middle America does it not? I’ll bet it goes more than double that in NYC. And the best and brightest might want to beat an even greater path to GS’ new front door if they don’t have to live in NY or NJ. It’s not like they are moving there in droves, quite the opposite, the exodus has already begun.
Move to Florida, California, Texas, or somewhere else you say? At least you have scenery, cityscape, and all the other attributes at least similar (although not exactly) as NY. But you would be forgetting that first item I stated earlier: A large population base where an OWS inspired group could easily (easily is the operative word) form and wreak havoc.
In Utah? Sure, but I’ll bet dollars to doughnuts far fewer in numbers. Plus, the culture doesn’t seem to lend itself easily for that styled or formed outrage. I could be wrong, but it’s something I would fit into my decision process if safety in another financial calamity happened again. Especially if I thought it could be even worse next time.
A few years back I wrote an article: A “Flick of the Switch”…could this be the next Nightmare on Main St.? In it I posited:
“A flick of the switch means if I have a business in location X, I can just flick a switch and operate in location Y. In years past most companies needed some sort of brick and mortar facility to conduct meaningful trade. That is no longer the norm. As a matter of fact, most of the newer successful businesses of the last decade have been ones that can operate anywhere.” Followed with:
“…all of Wall St, all Insurance Companies, all Banks, all Online Retailers, all Accounting Firms, all _________ ( you fill in the blank). All of these fall into the “flick of the switch” type of businesses. They can relocate anywhere in the world in the equivalent of a New York minute. I’m just scratching the surface.”
If we sat down over coffee and I asked your opinion on what you would make of quite possibly the worlds most influential wheelhouse of both political and financial headquarters opening a secondary office in a place many see as the antithesis of NYC and its financial centers. Along with the near sudden shift not only to disengage from former revenue streams but rather jettison them for pennies on the dollar, just at the time when Wall Street is once again being cast in a light of “rigged.”
Adding to that the demonstrated proof that the Federal Reserve as of now is still holding tight to the roll down of QE, and the markets are seemingly showing signs of stress. While at the same time the very firm that quite possibly has an insider edge and view unrivaled amongst its peers is calling or signaling the need for great caution. What would you think?
I know what I’d be thinking…
Who’s in charge of booking executive travel for GS? And has the term Sigma X changed to “Golden ticket?” For just like in the movie 2012 (Centropolis Entertainment 2009) the protagonist was only saved when he knew the type and color of the top 1% tickets.
And Goldman’s I would presume, just like their parachutes – are golden.
© 2014 Mark St.Cyr