posted on 31 May 2016
from the Shah Gilani, Money Morning
The inimitable Matt Taibbi gets well-deserved credit for the exquisite description above of Goldman Sachs Group Inc. (NYSE: GS) from his April 5, 2010, Rolling Stone expose titled "The Great American Bubble Machine."
If you never read the piece, you owe it to yourself. The subtitle is an appropriate lead-in for this post:
Well, the Vampire Squid's at it again...
Not that it hasn't been at it all along - that was the point of Taibbi's warning, that Goldman is everywhere, always looking for the next opportunity.
This is just the latest...
Goldman Gives Tesla Stock an Unlikely Upgrade
Back on May 18, 2016, right before the market opened, Goldman Sachs analyst Patrick Archambault upgraded Tesla Motors Inc. (Nasdaq: TSLA) from "Neutral" to "Buy" because "there are admittedly fewer visible catalysts than before."
Huh!!! That's a reason for an upgrade?
No, of course not. There was possibly another reason for the upgrade. I'm not accusing the Squid here, just pointing out the obvious, that after the close that day, after the "Buy" recommendation had lifted the stock 3.2%, Goldman was named co-lead, along with Morgan Stanley, in a $2 billion secondary underwriting of Tesla stock.
Pure coincidence, no doubt.
The stock fell 3% in afterhours trading, erasing the fat gain Goldman engineered during regular trading hours.
So, what's the difference? The stock goes up, the stock goes down - it's all in a day's work.
There is no difference. Goldman Sachs, was, as CEO Lloyd Blankfein famously said, just "doing God's work" when it recommended the stock and later announced it was going to earn some fat fees selling more Tesla stock into the market.
This occurred at the exact same time that other analysts, myself included, were scratching their heads over Tesla's prior earnings announcement that they were moving up from 2020 to 2018 their promise to build 500,000 new Model 3 cars per year. That's a stretch, since they're only capable of making, at most, 100,000 cars a year right now.
But I digress.
The timing of the "Buy" recommendation in the morning and the timing of the secondary offering announcement after the close may appear like the jamming of a blood funnel into something that smells like money.
But I can assure you it wasn't.
How do I know there was no money-sucking nonsense, nothing unethical or utterly illegal going on there?
Goldman said so. A spokesperson for Goldman Sachs told MarketWatch,
Don't you feel better?
Surprise: This Isn't the First Time
Incidentally, Archambault didn't change his price target, which he kept at $250. But how he got there again was interesting.
By my own calculations, not only will it be highly unlikely that Tesla will be able to produce 500,000 cars two years from now, but the net 373,000 online "deposits" they wrangled from potential customers can be cancelled at any time. As far as the cost of the new factories, including the big battery factory being built, they had to raise more money because they keep spending it and don't have the revenue to replace what they're burning through. They will be back for more.
I'm not the only person questioning Tesla's numbers and how Goldman's Archambault had to juggle his own version of Tesla's numbers to come up with his $250 per share price target.
Chuck Jones at Forbes wrote that Archambault's
This isn't the first time that Archambault has coincidentally raised his price target just as Goldman was about to underwrite a sale in Tesla stock.
Back on May 9, 2013, TSLA reported its first-ever (and still only) quarterly profit, and the stock jumped. That same day, Archambault raised his price target from $41 to $65. And a little more than a week later, Tesla sold $360 million in stock with, you guessed it, Goldman underwriting the sale.
Now, that $65 price target was much easier to swallow, especially since TSLA had just reported a quarterly profit and the stock would tack on 38% in the next two days.
I'm sure it's just another coincidence.
Partners in "Crime"
Goldman isn't alone in this sea of coincidences, of course. Not only do all of the big investment banks dabble in this kind of manipulation, Goldman's co-lead in the latest TSLA offering, Morgan Stanley (NYSE: MS), might be the worst of the bunch.
Adam Jonas, Morgan's TSLA analyst, has a history of being overly optimistic when it comes to TSLA's stock price - especially when his employer is directly involved.
In fact, he's doubled his price target for TSLA exactly twice:
And here's something that might come as a shock - according to data compiled by Bloomberg (which has done a terrific job following this story), Archambault and Jonas are not among the five most accurate predictors of TSLA's stock price. Jonas' optimism, in particular, has proven to be consistently misplaced, as TSLA's stock price has never reached his lofty standards.
Of the analysts that cover Tesla, the most accurate have been Colin Langan of UBS and Ryan Brinkman of JPMorgan, who have slapped targets of $160 and $185, respectively, on TSLA.
Those are much more reasonable targets for a company that has only ever reported a single profitable quarter in six years, for a company that lost $889 million in 2015 (after losing only $294 million in 2014), for a company that just missed earnings estimates again and promised instead to push up their date for 500,000 cars produced to 2018 (from 2020).
But it's not funny that Goldman seems to have tripped over itself again.
I mean, that's what must have happened, because they are just too smart to get caught breaking some code of conduct some regulators somewhere put in place to prevent something like this happening and making companies like Goldman and Morgan look like a stain on the fabric of American capitalism.
Or maybe I'm just being naive.
Notes from Money Morning:
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These Stocks Just Went "On Sale": Shah Gilani says we're in the formative stages of a "generational bull market" that will make the savviest investors rich. And that means the market is actually "marking down" stocks and creating some of the biggest profit opportunities he's ever seen. Shah identifies his most promising recommendations in a brand-new report. To access this free report and get all of Shah's research, click here.
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