Put Cumberland Advisors’ David Kotok in the camp that feels it’s right to sell on the Goldman Sachs news.
Here’s part of a note just sent out.
In Cumberland’s view, the GS news is big and is not a one-off event. Since the announcement of the SEC suit, we have been polling everyone we talk to about GS. They are universally despised. The alleged wrongdoings have intensified an already large anger. GS arrogance has created a perception problem, and now GS has a reality problem. It could quickly become a criminal action. One lawyer said “just wait until we hear from Andrew Cuomo.”
Welcome to the modern post-crisis era. In the case of GS, we have an actual allegation of fraud. This is different than the Lehman repo 105 disclosures, although we expect fraud allegations to come there, too. In Lehman we have a failed firm. In GS we have an existing stock and a company that is the largest capital-market player on the US scene.
We expect that there are a lot more charges coming and they will impact GS and many other firms. And we will soon see state attorneys general piling on. The plaintiff law firms are already preparing class-action suits. Germany and the U.K. are launching their own investigations. These types of allegations are not going to be confined to SEC vs. GOLDMAN SACHS & CO. and FABRICE TOURRE. The allegations will not be limited to a single security series known as Abacus 2007.
At Cumberland we have raised some cash. We exited the capital-market ETF quickly. We expect this news will be the catalyst for some market correction. It is long overdue.
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