Wednesday, March 14, 2007

. Mark Kiesel. "U.S. Credit Perspectives: A New Era", PIMCO Bonds

In a recent note on the so-called "new sources of liquidity", PIMCO's Mark Kiesel highlights the role of financial innovation in what he calls the "global liquidity boom". Remarkably, Kiesel tells investors to focus on Goldman Sachs' share price [NYSE: GS] as a key liquidity "tell":

New pools of capital are also seeking out alternative investments. This trend has fueled significant growth in the financial advisory services industry for mergers and acquisitions, as well as investment management. Not surprisingly, Goldman Sachs has benefited tremendously from these secular changes in the financial markets. Goldman Sachs is not only one of the largest global advisory firms in the world, but it is also the largest manager of hedge fund assets. It is a primary beneficiary of the growth in collateralized debt obligations (CDOs) and credit derivatives, which have acted to expand liquidity in the credit markets through disintermediation and innovation. Goldman Sachs has aggressively moved into private equity capital fund raising, and reportedly just raised $19 billion through a new fund. The firm's stock is a reflection of today's global liquidity boom.

During yesterday's session, not long after midday, trader Todd Harrison actually acted on this insight:

I have, so you know, nibbled a bit on some puts with a stop level through GS $210. Either GS is gonna pull the tape higher or the weight of the world will pull it lower. Not advice, natch, just sharing my process with hopes that it helps yours.

He had been quoted by the Wall Street Journal on this very issue:

One might think that I'm smarting after being quoted in the WSJ saying "what happens in Goldman's shares on any given day is a good indicator of what's happening in the market," just in time for this chasm (GS up, tape down). But au contraire, Mon Frere, I think that is that very reason the market is still afloat. No other stock in the universe would have this much "pull" and it's a testament to the mojo therein.

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