Moody’s Downgrades U.S. Banks After Goldman’s Scurrilous “Short The S&P 500″ Call:
Should a major investment bank make a “short” call?
Moody’s finally downgraded several large U.S. large banks. The move was largely anticipated and comes one day after the Fed Reserve Bank chose to extend Operation Twist. The financial sector has been rising for the last three weeks and held secondary support levels when the news was announced in the after hours trading session. Morgan Stanley jumped more then 3 percent after the bank’s downgrade was less than expected.
Goldman Says Short America
Goldman Sachs made a unique call today by telling traders to short the S&P 500. It’s extremely rare for an investment bank to send out a note telling investors to short U.S. equities. The caliber of a bank that has yielded several Fed Chairman making a trading floor type call to publicly short American companies was questioned on social media outlets. Goldman Sachs even went as far as stating what level to stop shorting which is 1,285 on the S&P 500 or roughly .5 percent from the most recent high. In some situations, such a call could have caused a panic in the stock market.
Bernanke wants asset prices to rise and the Fed Chairman implemented ‘Operation Twist’ to keep wealth effects from the stock market in the economy so officially – Goldman Sachs is fighting the Fed. Most investors don’t short stocks so the call was largely a signal to traders that Goldman was taking the opposite trade the Fed has set up by enticing more investors to take risks as the bond bubble begins to burst. Oil and gold fell today in sympathy with the overall market and we are still bullish on equities medium term. We believe central banks around the world won’t remain idle and allow the stock market to slide precipitously over the summer like last year. We would be buying equities on dips especially in the banking sector that is still largely oversold.