A slew of corporate earnings announcements have recently marked the opening session of Q2 earnings. The positive note by many companies pushed the market to a new all-time high. One company that’s always worth paying attention to is Goldman Sachs Group Inc (NYSE:GS), the octopus of the financial world.
Why Goldman matters
Goldman Sachs Group Inc (NYSE:GS) has always been at the center of any major financial trend. It’s basically a financial octopus with arms stretched into any financial arena you could possibly imagine. Another interesting point is that Goldman is always on the right side of any trade, be it a complicated derivative, an equity investment, or a real-estate deal. And that’s why it’s very important to make sure you’re on Goldman Sachs Group Inc (NYSE:GS)’s side of the trade, or not at all. Many of its clients have learned that lesson the hard way. The main point to take from this is that by reading through Goldman’s report, you can often find clues on the next financial trend, and what’s Goldman’s position in relation to it.
Goldman Sachs Group Inc (NYSE:GS) posted impressive numbers in Q2. The investment bank’s earnings rose from $962 million in the second quarter of 2012 to $1.9 billion last quarter. The firm saw gains in debt investments, investment banking revenue, and fixed-income trading. This segment of investment banking is particularly interesting. Investment banking revenue increased 29% to $1.6 billion. That’s a world record in debt underwriting fees, as a result of companies trying to lock in long-term, fixed-rate debt before interest rates rise. The firm brought in $3.1 billion of revenue from investment banking in the first half, its highest number since 2007. And revenue rose 30% to $8.6 billion.
For over a year now Goldman Sachs Group Inc (NYSE:GS) has been advising all its corporate clients to borrow “as much as they’re going to need for as long as they think they could need it” because of the low interest rate environment. And that’s precisely what these corporate clients have done. So Goldman Sachs Group Inc (NYSE:GS) has been selling bonds like crazy. The firm hasn’t been buying any corporate bonds, it has only been selling them. In a sense, Goldman was short the bond market.
So who joined the ride?
The year 2012 and first half of 2013 have been a bond bonanza for companies that wanted to reach out for the bond plate. Below are a few examples. In May, General Motors Company (NYSE:GM) issued new debt paying a yield of only 3.75%. General Motors Company (NYSE:GM) is sitting on roughly $100 billion in pension obligations.