Friday, May 1, 2009

Our 129.95 target caught the spike top in Goldman yesterday within two cents, but it remains to be seen whether that will be it for the stock's sensational bear-market run. That's a crucial concern for investors, since, if Goldman shares have completed their death rattle, then so has the mania that has driven the broad averages higher since early March. Some readers may recall that the stock market's bear squeeze began with an announcement of bogus earnings by Citigroup at that time.  All of the big banks have followed suit with their own dubious boasts of profits, including a $4.6 billion gain booked subsequently by Citi's trading desk in the most recent quarter. Our friend Dan Denning explained how those profits came  mostly from bets the bank had made against itself in the default insurance market. Goldman's trading desk racked up even bigger profits during the same period, but the question no one seems to be asking is, so what?  Trading profits, even when they amount to billions of dollars per quarter, will hardly sustain banking giants that in their heyday were making many billions more through a wide variety of operations that no longer exist. Leverage was the name of the game, but leverage may be dead for the next fifty years. Under the circumstances, Goldman and every other multinational bank can pursue just one strategy in the years ahead: shrink to survive. That's why we're sticking with our forecast that Goldman shares eventually will trade below $30.  Why $144 Matters But what about now?  Is the stock about to enter a death dive after nearly tripling in price since November, when it bottomed at 47.41?  Bearish as we are on GS shares for the long-term, we think the final blowoff lies ahead. That is notwithstanding the sharp sell-off that