The Orphan Month

by Larry Levin


I knew deep down that the recently reported "earnings" of Goldman Sachs were complete BS; however, I didn't know how they pulled it off until now. In its regulatory filing GS admits to the obfuscation, lies, trickery, and mendacity surrounding how it conjured up a massive "profit" like a two-bit magic act in Vegas. In short, GS piled up staggering losses into one month then didn't count that month in its earnings period: the orphaned month! I guess when you have a seat at the table in either a Republican or Democratic White House; you can get away with blatant lies.

Barry Ritholtz describes it like this:

Leave it to the clever boys at Goldman Sachs to turn dross into gold: They have come up with a way to hide massive losses so clever, it requires special comment: The Orphan Month.

Yesterday, we noted that the bulk of their profits had come from AIG transfer payments - the theft from taxpayers AIG 100% payouts funded via bailout monies that saw Goldie as one of the largest recipients. Floyd Norris notes that most of the AIG effect was in December. "For the first quarter, the total A.I.G. effect on earnings was, in round numbers, zero."

How is it possible that this occurred? Isn't GS on a December to February calendar? Well, there is a small asterisk about that. It seems that GS is moving from a December to a quarterly calendar. Meaning their latest Q is January thru March.

But what of December, with all the AIG monies and the comparison to the strong December 2007 and all?

In a word: Orphaned.

Goldman's 2008 fiscal year ended Nov. 30. This year the company is switching to a calendar year. The leaves December as an orphan month, one that will be largely ignored. In Goldman's news release, and in most of the news reports, the quarter ended March 31 is compared to the quarter last year that ending in February.

The orphan month featured - surprise - lots of write-offs. The pre-tax loss was $1.3 billion, and the after-tax loss was $780 million.

Would the firm have had a profit if it stuck to its old calendar, and had to include December and exclude March?

Truly astounding . . . the word Chutzpah simply does not do it justice.

The Q1 earnings of $3.39 per share were well above the consensus expectation of $1.64, except as we know now, they weren't. These bastards were able to pull of this magic act with the help of Congress, the Treasury, and the Fed because this period magically falls outside the auspices of any reporting period in the transition from investment bank to bank holding company. In this SINGLE month the firm admits to losing $2.15 per share. When this loss is added to the reported $3.39 per share profit, one finds that GS still made a profit. However, it was woefully lower than the press coverage of $3.39, and with a net of $1.24/share it would be even lower than analyst expectations of $1.64.

The following should be read as if you were cheering up a baby, "And we can't have lil ole Goldman looking bad now can we? Oh no. Who's a good lil liar? Who's a good lil liar? You are! (Press the baby's nose gently and say 'boop.') Yes you are...yes you are. That's a good lil boy. That's a good lil Goldman."

If it is legal, it is also both morally and ethically corrupt.



Previous Day's Trading Room Results:

Trade Date: 4/15/09

E-Mini S&P Trades*
(before fees and commissions):


1) VA sell @ 9:00am at 838.75 = -.50 & -1.50 (2 lot)

2) OTF sell @ 10:30am at 837.50 = -1.00 (1 lot)

3) VA buy @ 1:10pm at 838.25 = -1.50 (1 lot)

4) OTF sell @ 2:00pm at 837.00 = b/e (1 lot)

5) Algorithm positions (1)...combined Secret's and Algo total...-5.75


Electronic (YM) Mini-Dow:

1) None today



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