Why has Goldman Sachs been telling clients to sell Apple?

Just came across a passage in Michael Lewis’ “The Big Short” that offers a clue.

Michael Eisman — the Steve Carell character in the movie — is explaining to an analyst from Bernstein why, in addition to betting against the doomed subprime mortgage market, he’d also shorted Merrill Lynch. Says Eisman:

We have a simple thesis. There is going to be a calamity, and whenever there is a calamity Merrill is there.

When it came time to bankrupt Orange County with bad advice, Merrill was there.

When the internet went bust, Merrill was there.

Way back in the 1980s when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit.

That was Eisman’s logic: The logic of Wall Street’s pecking order.

Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things.

The game, as Eisman saw it, was crack the whip. He assumed Merrill had taken its assigned place at the end of the chain.

My take: This was a few years ago, around 2007. The pecking order probably got shuffled after the 2008 financial crisis, but some things don’t change. And if the big kid who runs the games in the neighborhood has been telling everybody to sell a stock, I’m inclined to suspect — halfway through The Big Short — that he’s been snapping it up.

See Apple 3.0’s Goldman Sachs archives.

10 Comments

  1. David Emery said:
    ” telling everybody to sell a stock, I’m inclined to suspect — halfway through The Big Short — that he’s been snapping it up.”

    Can someone explain to me why this isn’t illegal?

    0
    January 18, 2021
    • Ken Cheng said:
      @david, it is illegal. That’s why the co-founder of BusinessInsider, Henry Blodget, was barred from the securities industry, while doing equity research at Merrill Lynch. Ha!
      He crossed the “Chinese wall”, by helping the ML Investment banking department, in selling their IPOs. Cost him $4M and barred from the securities industry. Strangely, he still does much of what he used to do, go on CNBC and opine about stocks.

      1
      January 18, 2021
      • Ken Cheng said:
        As I’ve mentioned before about Rod Hall, it should be reassuring that even though Goldman is one of the lead underwriters for Apple, when they do some investment banking business, ie bond issues, or M&A, since Goldman is involved in almost all M&A deals, not to mention doing block trades to repurchase shares or their commercial banking relationship thru Marcus; their equity analysts are independent and can come up with their own analysis, right or wrong. Goldman makes too much money working for Apple, for them to jeopardize that with some crazy trading scheme around Rod Hall’s price targets. I’m sure given all that’s happened over the years, some Controller inside Goldman is studying the trading of their own traders to sniff out any odd behavior.

        0
        January 18, 2021
        • Ken Cheng said:
          It’s illegal when the equity research department is working hand in hand with equity traders, like with Blodgett. It should be reassuring that the equity research department can come up with a completely opposite conclusions to their investment banking division. Further, Goldman, doesn’t publish their equity research for general public consumption. Those notes go to their rich clients. Those are “accredited investor”s. People and institutions rich enough that they can think for themselves and are supposedly not easily influenced. I highly doubt any Goldman equity traders are developing a trading strategy around Rod Hall’s research reports, since most of the public never sees Rod Hall’s actual reports, but only hear his price target.

          0
          January 18, 2021
  2. Paul Brindze said:
    Another possibility. I believe Goldman is managing the non-market stock buys for Apple. If My understanding is correct, they sell shares to the company at a negotiated price, and then go to the market to buy the shares to cover. If the price rises too high too fast, Goldman is stuck with the shortfall, instead of their expected profit on the transaction. So not in their interest for AAPL to rise too quickly.

    Not sure if I am correct on this. Anyone else know?

    4
    January 18, 2021
    • Bob Goldstein said:
      I don’t know but I have always assumed this is the reason

      2
      January 18, 2021
  3. Paul Brindze said:
    @david emery.

    To keep from being illegal, Goldman just needs to keep a firewall between Hall and the trading side. They can’t tell him what to do … but given history, they already know what he will do. It’s a possible explanation for why he hasn’t been fired for his crazy price targets.

    6
    January 18, 2021
  4. Michael Goldfeder said:
    The short % in Apple has come down to 94.721 shares as of December 15, 2020, to 91.091 as of December 31, 2020. Probably will even be lower when the next report comes out for the January 15, 2021 period. IMO, this is why the shares have been trading lower to allow some shorts to cover before the 1Q revenues and earnings are reported next week.

    1
    January 18, 2021
  5. Joe Murphy said:
    Who remembers reading “ Where Are the Customers Yachts?”

    If you haven’t read it, it’s an enjoyable, quick and relavent read.

    If you remember it, you know WS’s game.

    1
    January 18, 2021
  6. Fred Stein said:
    Rod Hall says he does NOT believe that we’re in an iPhone super cycle because of supply chain rumors.

    That is either deliberate misrepresentation or cognitive impairment.

    OBTW: It’s also ‘counting iPhones’. In 2021?

    1
    January 18, 2021

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