Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Commentary

Goldman Sachs Proves Wall Street is Not Dead Yet

If Wall Street is dying, Goldman Sachs (NYSE: GS) has not received the memo. Revenues at the storied investment bank have turned around.

Goldman Sachs reported a $1.31 billion revenue increase during third quarter 2016. GS started the quarter with $28.40 billion in revenues in June that rose to $29.71 billion in September.

The investment bank is far from out of the woods though; its revenues are still $5.06 billion lower than they were at the end of third quarter 2015. Goldman Sachs reported revenues of $34.23 billion in September 2015. Yet they are growing again which bodes well for the future.

Net income is also on the rise at GS to the tune of $668 million over the past three months. Goldman Sachs reported a net income of $5.148 billion in June and $5.816 billion at the beginning of fourth quarter.

That’s a nice increase but it’s still a big drop from the $7.484 billion it reported for third quarter 2015. Goldman Sachs will need to add $1.668 billion to reclaim the net income territory it lost in the last year. Yet the revenue increase shows that’s doable.


Goldman Sachs Proves that Wall Street where the Money Is

A glance at Goldman Sachs’ financial numbers shows us that Wall Street and investment banking are still tremendous money making machines. The highlights of the third quarter balance sheet include:

  • $896.84 billion in revenues.


  • $103.29 billion in cash and short-term investments.


  • $23.05 billion in cash from financing.


  • $5.657 billion in cash from investing.


  • $13.74 billion in cash from operations.


  • $8.936 billion in free-cash flow.


These figures prove that Goldman Sachs has an incredible amount of float. They also show that Wall Street has turned around and American banking might be doing so as well.

Why is Goldman Sachs doing so well?

These numbers give rise to two interesting questions: why is Goldman Sachs doing so well, and is this turnaround sustainable?

I think GS is benefiting from two interesting trends: the growing affluence of America’s upper classes and economic turmoil in other parts of the world. One reason why Goldman Sachs is doing so well is that it has more potential customers because there are simply more rich people out there.

The percentage of Americans living in the highest income households rose from 8% in 2011 to 9% in 2015, the Pew Research Center reported. Those people also have a lot more money, between 1971 and 2015 the percentage of the nation’s wealth possessed by upper income households increased from 14% to 21%.

Not only are there more wealthy Americans, they have more money that needs to be managed. Since one of Goldman Sachs’ main businesses is wealth management that also bodes well for its future.


The other trend benefiting the Goldman Sachs Group is all the financial turmoil overseas and an exodus of capital from some country. Back in January 2016, Bloomberg reported on China’s $1 trillion capital exodus in 2015. Recent reports indicate that the rush to the financial exits is still continuing in the People’s Republic.

Guess where a lot of that money is heading, here to the United States. When it arrives somebody has to manage the wealth and that’s where Goldman Sachs and its competitors come in.

The World’s Wealth is coming to America and Goldman Sachs

Other trends that benefit Goldman Sachs are turmoil in Europe; including Brexit which is scaring investors out of London and onto the plane to New York, and talk of the collapse of the European Union. Terrible economic performance in Europe and continuing violence in the Middle East also make the US look like a very safe haven.


Another reason why capital is coming to America is that a lot of the best investments; including unicorns like Airbnb and Uber, are here. There are other new opportunities like Hyperloop One as well. Europe meanwhile is reporting negative economic growth, giving investors an even greater incentive to come to America.

My prediction is that both of these trends will continue for the foreseeable future. They might accelerate if reports of the EU’s demise or the breakup of the United Kingdom true. Advances technology will probably drive more income inequality in the United States.

Is Goldman Sachs a Good Investment?

Okay so prospects look good for Goldman Sachs Group as a company, but is GS a good investment?

At the moment, yes, holders of Goldman Sachs shares enjoyed a 6.78% return on equity on September 30, and a dividend yield of 1.47% on November 1, 2016 . They also took home a 65¢ a share dividend on August 30, 2016.

GS’s dividend yield has been growing in recent years; it rose from 60¢ to 65¢ a share in 2015, and 55¢ to 60¢ a share in 2014. The GS dividend has actually grown by 30¢ a share in the last four years, going from 35¢ in 2012 to 65¢ in 2016.

This means that Goldman Sachs is a pretty good dividend and income stock even though it is pricey: $177.04 a share on November 1, 2016. Despite the price, it is a good long-term growth and income play, especially for those who need a very secure investment.

So not only is Wall Street not dying, it seems to be growing again and making a lot of money. New York’s future as the world’s financial capital seems to be very secure.