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Submitted by Michael Every of Rabobank

Yesterday US President Trump officially removed Hong Kong’s US special status, with few extra details that we didn’t already know other than that HK passports are no longer any more welcome than Chinese ones in the US, and that Fulbright scholarships are ended. Markets have kept shrugging that news off, as have HK bankers: “Mo wentai” has been the mantra (“No Problem”). They weren’t rattled by the imposition of the new national security law; they weren’t rattled yesterday by Beijing stating pro-democratic/localist forces in Hong Kong could be breaking that law in trying to win a majority in September’s election; yet, according to Bloomberg, now that Beijing has just imposed its own taxation on its overseas citizens, “Bankers Shocked by 45% China Tax Rate Mull Leaving Hong Kong”. This rather makes the point about how it’s hits to people’s pockets that really moves the Cold War dial nowadays, not grandiloquent statements like “Ich bin ein Berliner”.

On that front, Trump also signed the Hong Kong Autonomy Act. Simply, this law gives Treasury up to 90 days to compile a list of those who are responsible for undermining HK autonomy; then up to 60 days to verify; and then sanctions must be imposed on them – something the US is already doing over Xinjiang. Then, a year after that date, any non-US banks with “significant transactions” with those individuals or institutions must see five of 10 possible sanctions imposed, which includes banning executives from entering the US, for example; and a further year later this *must* be expanded to all 10 – including inability to access the USD. In short, as has been pointed out here several times of late, we now have a US Dollar Weapon countdown underway, just as we do with Hard Brexit. It might be some way off at best, but it’s clear where it ends up.

Talking of where things end up, if pro-democracy Hong Kongers leave for the UK and the US, and mainland talent goes back to cheaper China, who is going to be left to “run the shop? Meanwhile, the New York Times has decided it is going to move part of its operations from Hong Kong to Seoul.

That’s the second New York Times story today of interest – and I mean stories about the New York Times, not stories in it. The other is that Bari Weiss, their ‘opinion’ editor, has resigned with a devastating letter that includes allegations of feeble management and specific broadsides such as:

“…a new consensus has emerged in the press, but perhaps especially at this paper: that truth isn’t a process of collective discovery, but an orthodoxy already known to an enlightened few whose job is to inform everyone else,” which sounds like many conversations I have had with neoclassical economists about free trade over the years;

“My own forays into Wrongthink have made me the subject of constant bullying by colleagues who disagree with my views”;

“I was always taught that journalists were charged with writing the first rough draft of history. Now, history itself is one more ephemeral thing molded to fit the needs of a predetermined narrative.”; and

“The paper of record is, more and more, the record of those living in a distant galaxy, one whose concerns are profoundly removed from the lives of most people.”

Which sounds a bit like central bankers too, and indeed markets in general. Although to be fair, at least the former are now a bit more humble about what they do and don’t know. As Brainard of the Fed noted overnight “A thick fog of uncertainty still surrounds us, and downside risks predominate.” No dialectical materialism there: just a recognition of Marx’s “All that is solid melts into air.”

Yet back to Bari: is this just a NYT issue, or more widespread? Weiss says the latter. If it is the latter, consider the implications for markets and information gathering. Where are we to get our news if not from the press – Twitter?! And consider the impact on US electoral polarisation as we head into this potentially earth-moving November election (as noted in our US strategist Philip Marey’s report yesterday).

Talking of news one can and can’t trust, we are already warming up for the release of China’s Q2 GDP data tomorrow, which are expected to show a return to growth of 2.4% y/y. As usual, there won’t be any real breakdown allowing detailed analysis, but if one takes the presumed number at face value then it is almost certainly only due to extra supply and not due to any extra demand: and supply going where, exactly? Exactly. Indeed, just as we will soon hear ‘growth is back!’ we also see Bloomberg report “Rumor-Stoked Bank Runs Break Out in China Like Never Before”

Indeed, not far away the BOJ kept rates on hold as expected, but revised down its outlook for GDP over fiscal 2020 to -4.7% – and stressed it will do more if needed. Won’t we all?

Meanwhile, as Europe lumbers towards a decision on what fiscal recovery package it will agree on this month, we hear that German Chancellor Merkel might be prepared to compromise – in other words to make the proposed spending totals even lower than the figure critics (from one side) already allege is not enough. Dutch PM apparently continues to remain doubtful that the whole thing will happen at all.

For once we can end on a happy note, however, as Moderna states that its Covid-19 vaccine seems to be working well. Good news – although other reports are that natural immunity may only be a few months long anyway.

Following May’s impressive MoM rebound from the March/April collapse, analysts expected June to see more follow-through for US industrial production as the economy re-opened.

Industrial Production rose 5.4% MoM (smashing the 4.3% MoM expectation). This is the biggest monthly gain since Dec 1959… but YoY is still down 10.8% YoY…

Source: Bloomberg

Manufacturing output increased 7.2 percent in June, but it was still 11.1 percent below its pre-pandemic February level; factory output fell 47.0 percent at an annual rate in the second quarter. The index for durable manufacturing rose 11.6 percent in June. Despite substantial gains in the past two months, the output of motor vehicles and parts remained nearly 25 percent below its February level. The index for nondurables rose 3.4 percent, with sizable gains for apparel and leather and for plastics and rubber products. The output of other manufacturing (publishing and logging) increased 2.2 percent.

This was the biggest monthly rise for manufacturing since 1946…

Source: Bloomberg

However, putting that “rebound” in context changes things a little…

Source: Bloomberg

The crude market was slow to react to OPEC+ headlines this morning, but is sliding now (ahead of this morning’s inventory/production data) after Saudi Arabia’s Energy Minister reportedly said OPEC and its allies will restore some oil supplies as planned next month, but the impact will be “barely felt” as demand recovers from the coronavirus crisis.

Bloomberg reports that the 23-nation coalition led by Riyadh and Moscow will taper the curbs to 7.7 million barrels a day in August from 9.6 million currently, Saudi Energy Minister Prince Abdulaziz bin Salman and his Russian counterpart Alexander Novak said on Wednesday.

And that has sent prices notably lower, erasing the API-driven spike last night…

That supply increase will be offset somewhat as coalition members that didn’t fulfill their commitments to cut output in May and June – such as Iraq and Nigeria – make up for it with extra reductions in August and September, the Prince said at the start of an OPEC+ video conference.

This is terrible news for US shale.

Authored by Bill Blain via MorningPorridge.com,

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

I wonder what can possibly be wrong with the world when someone paid £325,000 for a beach hut on Mudeford Spit – which is half-way between Southampton and Bournemouth. Its sans-conveniences, and you can’t stay in it. It’s a garden shed with a nice view. 

Back in the real world….

One of my readers sent me a kind but rather brutal comment y’day – warning me I have become too optimistic; “seeing the world too much through the lens of the market.” He told me to get back on track and resume my questioning of every assumption the market makes, and focus on the detail to paint the big picture. He’s probably right – I’ve been relying a little too much on gut feel in recent weeks, and perhaps not enough on the grim reality unfolding around us. 

As the facts change, I will change my view accordingy. 

We’ve got the Fed’s Lael Brainard warning “downside risks predominate”, while the UK singularly failed to post a meaningful recovery in May – the expected 5.5% snapback came in as a deeply shocking 1.8% inchback… taking the economy back to where it was in 2004!

Despite the fears, for the moment I remain convinced the global economy is not heading for Armageddon, or the much anticipated “reset”. As the UK shows, the virus effects on economy are going to be long-lasting and deep, but let’s be pragmatic – we will eventually see recovery. It will be a messy and gory path, but it’s going to happen. It’s the collateral damage that’s going to matter – unemployment, banking weakness, global trade tensions, politics and geopolitics, plus whatever else rises out the coming storm. 

I’m going to ignore the economic surveys – which say less than 14% of market participants believe in V-shaped recovery. Let’s try and look for clues as to what’s likely to happen – and draw our own conclusions. 

Banks

Wherever there are banks – there is pain. 

There is much to be learnt from bank results and comments in recent days. Yesterday the three US banks, Citi, JPM and Wells put $28 bln in the provisions pot to cover looming losses as the Covid-Recession bites through the second half of the year. The US banks aren’t particularly bothered – what Citi and JPM lost on the swings on loan provisions, they made up on the roundabouts of bond trading – more on that below. 

European banks are going into the recession after seeing their capital levels already impacted by the immediate virus effects in H1. S&P recently warned lower capital levels will threaten their ability to lend, while “most also saw their liquidity capacity to meet financial obligations weakened.” Even though the ECB and BOE relaxed regulatory capital rules – like the countercyclical buffer – in order to boost lending, but it still raises the stigma of banks looking capital stressed. On the other hand, banks were able to raise nearly €9 bln of additional tier 1 capital (AT1) through Q2.

As the Americans show… Q2 lending losses weren’t that bad, but they expect things to get much worse in H2. As JPM’s boss Jamie Dimon said: “This is not a normal recession. The recessionary part of this you’re going to see down the road.” More pain to come.

Just how bad will it get? It’s how much the European banks are still to set aside that will really interest me. Lots of them have been issuing reassuring statements about how well they’ve pre-provisioned, are adequately capitalised and have access to liquidity. Time will tell. I think the outlook looks bleak. S &P said: “Most banks saw a fall in capital in the first quarter as they took loan loss provisions in anticipation of coronavirus-related impairments. For banks already burdened with low capital levels, such provision had a significant effect.”

For instance, Commerzbank took a thumping in Q2 as it hiked provisions because of the virus. The ailing German bank then saw its Chairman and CEO ousted in a Cerberus coup over its lack of direction, and new CEO Bettina Orlop has warned: “the bulk of the problems will materialise in second half.” Crashing major chords sounding in the distance? 

Or how about Santander? It was already looking skinny in terms of its capital – 11.58% in March. It’s been lending to support Spain’s Covid recovery programme, but mounting losses could further dent its capital reerves. Bloomberg recently carried a story hinting at increased provisions on it lending will have to be announced. 

The Italian banks are at the top of most people’s danger lists. Tourism and hospitality are the sectors hardest hit by the virus – and are the largest exposures of the banks. The big banks set aside over €1.5 bln in Q1, and wrote down a further €2.5 bln. A raft of tier 2 banks could be wiped on mass defaults. I went looking for quotes from Italian bankers on hiking their loan loss provisions into H2, but as they already have massive NPL problems.. no one is saying much.

We could go round every European bank to try to estimate just how deep the coming recession will bite. It will, but it’s unlikely to break most banks. That’s why they have high capital levels! They have capital to absorb the pain, and the ECB is there to do whatever it takes, but it is also a political issue. 

The amount of money the Spanish and Italians are throwing at the banks through SME guarantee schemes is huge. These are designed to keep the economy functional, keep business intact, and support the banks. They skirt ECB/EU rules in terms of potential government support and liabilities- and that’s why the Frugal 5 northern nations are unwilling to write cheques to allow the mutualisation of European debt via an EU Recovery Fund – to bail out Italian and Spanish banks. 

Meanwhile… 

Even as JPM was announcing sadly loss provisions of $10.47 bln to cover loan loss, it still made a profit of over $4.6 bln!! Its trading revenues surged 80% to $9.7 bln! Over $7.3 bln of that came from the fixed income bond trading desks! (Citigroup also posted a profit and a massive gain in trading.)

These trading wins may prove to be short-lived windfalls. 

The last quarter was the biggest bond issuance orgy in bond market history. It was easy money. Investors were buying because they see rates going lower and negative. Moreover, the know the FED is there to backstop by purchasing corporate debt. The Wall Street sausage factory was pumping out new issues with healthy fees making the banks rick on the back of the perceived Fed bond put. If they are going to be paying their bond traders massive bonuses, should not Jerome Powell be in the bonus pool as well? 

If the public understood just how much Wall Street is taking out….. better stay shush about that one then…. But check out this morning’s quote…. 

Import and Export prices were expected to further slow the deflationary impulse caused by global pandemic lockdowns in June and on a MoM basis both Imports (+1.4% vs +1.0% exp) and Exports (+1.4% vs +0.8% exp) beat expectations. This is the biggest jump in Import prices MoM since March 2012…

However, the deflationary impulse remains strong YoY (even after May downward revisions)…

Source: Bloomberg

Ex-Petroleum, import prices rose 0.3% MoM (better than the +0.1% expected).

The big question is, will China’s massive credit impulse to “save” its economy lead to a huge spike in trade flow inflation?

Source: Bloomberg

Dallas Fed’s Kaplan was undecided yesterday claiming that massive US over-capacity will control inflation (but also said he expects food prices to rise on supply shortfalls).

Trade accordingly.

If the NHTSA is looking to finally grow a backbone and actually do what’s right for consumers in the U.S., they could look to Germany for their template.

That’s because a case brought by Germany’s Wettbewerbszentrale (the country’s auto industry body that polices anti-competitive practices) has now prevented Tesla from using what a court called “misleading advertising statements” to describe the capabilities of its driver assistance systems and its full-self driving feature (which we remind you, still doesn’t exist).

“The use of the term ‘Autopilot’ and other formulations suggest that the vehicle is technically capable of fully autonomous driving,” the court said, before clarifying that Autopilot is “a driver assistance system.”

Tesla can appeal the case, according to Reuters.

The court agreed with the industry body and has ruled Tesla cannot say “full potential for autonomous driving” and “Autopilot inclusive” in its advertising materials in Germany. The court ruled those statements amounted to “misleading business practices” and that the average buyer could be led to believe the car could drive without human intervention which, of course, is not the truth. 

Meanwhile, in the U.S., highway safety regulators have allowed one accident after the next involving Tesla’s Autopilot to take place without taking any type of decisive action to correct the record and inform consumers that Tesla’s description of its autonomous driving features may differ vastly from reality. The examples pile up (literally) almost daily.

Recall, just yesterday, we posted  yet another story of a Tesla on Autopilot slamming into an inanimate object. This time it was a Tesla on a highway slamming into the back of a patrol car in the middle of a traffic stop. Luckily, the officer was not in the car and was not injured. 

“We can confirm the driver indicated to troopers the Tesla was on autopilot at the time of the collision. Additionally, the driver, a 23-year-old male from Irvine, CA, is being investigated for DUI. He remains in the hospital with serious but non-life-threatening injuries,” the Arizona Department of Safety commented on Twitter.

Additionally, it was just about a month ago that we reported about a Tesla traveling on a highway in Taiwan, at what appeared to be full speed, before slamming directly into an overturned truck that was laying across the highway. The Tesla appeared to make little or no change in direction before hitting the truck. At one point, smoke can be seen coming out of the back tires of the vehicle, indicating that the Tesla may have tried to brake – but to no avail.

 

Days before that incident, we reported on a Tesla that was found to have driven off a cliff under “mysterious” circumstances in Santa Clara County, California. 

Finally, two weeks ago, we reported that Tesla’s Autopilot was to blame for a similar near-fatal accident that took place last December. A Massachusetts State Police trooper had just pulled over a vehicle on the side of Route 24 in West Bridgewater when the trooper’s vehicle was slammed into by the Tesla.

Authored by Michael Lebowitz and Jack Scott via RealInvestmentAdvice.com,

Apple’s stock is up over 20% since the market peak in February. Without a doubt, Apple, the company, is worse off due to the crisis and global recession. Revenue and earnings will be inferior to what Wall Street had forecast at lower stock prices. Valuations, shown below, are now astronomical.

So who is paying a higher price for Apple with the promise of less?

Let us be more direct. Why do investors prefer stocks based on the size of the company versus its valuation?

The popularity of passive investment strategies has grown markedly over the last thirty years. Throughout the period, these strategies have increasingly become a more significant factor in asset pricing.

It now appears as though passive investors may be the marginal investor, also known as the price setter.

There is mounting evidence that passive investors are the driver of recent inane market behavior.

For more background on passive strategies, please read our articles Passive Negligence and Passive Negligence Part 2.

Market Cap Weighted vs. Equally Weighted

The rally from the March lows has been odd. Big tech companies have carried the water, but at times bankrupted companies and the hardest-hit sectors, such as airlines and cruise lines, have gapped higher without apparent reason. Sector rotation has been fast and furious.

One of the more consistent trends has been a preference for the largest companies by market cap.

The graph below compares the equal-weighted S&P 500 (blue) to the S&P 500 (orange -market-weighted).

Year to date, the S&P 500 is beating the equal-weighted S&P 500 by about 8.50%.

The next table provides more context as to what investors are buying and shunning.

As shown, year to date, through July, stock performance is well correlated with market cap. Also note, the companies with the best valuations are at the bottom and the worst are at the top. Whether passive investors know it or not, they are buying the most expensive companies.

The two graphs below provide historical context for the outperformance of the largest S&P 500 and NASDAQ stocks. In both graphs, the equal-weighted index, as a ratio to the weighted index, has been underperforming for the better part of four years.

Passive Fingerprints

The evidence above suggests that investors currently prefer large overpriced companies. While that is what many investors are buying, the decision, in most cases, is not a conscious one.

Passive investors tend to invest in indexes of markets or sectors. Most of the popular ones are weighted by market cap.

When someone buys a market-weighted index like the S&P or NASDAQ, by default, they buy more of the largest companies and less of the smaller companies. For example, for every $100 invested in the S&P 500, an investor buys $6.15 of Microsoft but only .01 cent of Xerox.

The purchases put upward pressure on Microsoft shares but do little for Xerox. In a circular fashion, as indexes rise, the weighting diverges further.

When passive investing is the primary driver of prices, markets become a story of the haves and have nots.

Think of the scenario like a rubber band stretching. As it stretches more and more stocks deviate from each other. Eventually, the rubber band will either snap back or break.

Where are the Active Police?

Typically active investors, those discriminating based on fundamental and technical factors, play a significant role in the pricing process. By favoring what is cheap and selling what is expensive, they reduce pricing anomalies. That does not mean markets are efficient, but active investors make them more efficient than they would be otherwise.

Active investors historically “police” markets and ensure order prevails among the valuations of companies. Today, the active police have little force. A mob of passive investors is overrunning them. Literally, the active police are being defunded.

Also, in a circular fashion, underperforming active strategies drive passive strategies. Poor returns from active managers versus better returns for passive managers, cause investors to chase passive alternatives. As money flows out of active and into passive, the pricing anomalies grow.

Value Versus Growth

Passive strategies have taken enormous market share from active managers over the last decade. The clues are seen in short term inefficiencies like the table shown above. One can also witness them in long term, once dependable rules of thumb.

For example, over extended periods, investors were rewarded for owning companies with the best fundamentals. The graph below shows the total return of the top 20% versus the bottom 20% as measured by earnings to price. As shown, for the last five years, investors buying stronger companies were punished versus those buying weak companies. The only other instance this occurred was briefly before the Tech crash of 2000.

In the past, value investors would take advantage of that tremendous opportunity. Today, it represents career risk as they lose their jobs to passive investors. Like the irrational behavior around the tech boom, this too will end, but no one knows where the tipping point will be.

Economists Take Note

This topic is not just of importance to investors. The underlying theme has serious consequences for the economy.

Passive investing is, by definition, a misallocation of capital. Stocks are bought based on market cap. Passive investors do not acquire them for their ability to create productive economic growth and generate healthy earnings streams. The more capital squandered chasing companies with low growth potential and/or are poorly run, the lower productivity growth will be.

As we have written, productivity growth is essential. Without it, the economy will continue to rely on more debt to grow. That is an unsustainable model for prosperity.

Summary

The current situation is concerning as an investor and citizen of the United States. As in bubbles, market anomalies may continue well beyond what makes sense. However, bubbles always pop, and the consequences are usually devastating; more so for the poor than for the wealthy.

Importantly, when the market declines and passive investors are net sellers, they must sell $6.15 of Microsoft for every penny of Xerox. This article is not a recommendation to buy Xerox. However, we hope it implores you to explore lesser followed companies with good fundamentals, especially those not included in index funds. As was the case in the aftermath of the bursting of the tech bubble, this is where you will find several gems.

If Wells Fargo plunged yesterday due to being one of the few US banks without a trading desk to offset its balance sheet woes, then Goldman was the opposite, and without much of a balance sheet to talk about (its attempts to attract subprime borrowers to its Marcus product have had mixed success), the company reaped all the benefits of the Q2 record refi and trading frenzy with almost none of the downside.

Indeed, as Goldman reported moments ago, the bank smashed both top and bottom line expectations, on the back of blockbuster FICC revenues while overall trading revenues almost doubled in Q2 from a year ago:

• Revenue of $13.30BN, Exp. $9.75BN and 41% higher than Q2 2019
• EPS $6.26, nearly double the consensus estimate of $3.78, and above last year’s $5.81 Y/Y
• FICC Sales & Trading Rev $4.24B, Est. $2.64B
• Assets under management $2.06 trillion, +24% y/y
• Compensation expenses $4.48 billion, +35% y/y, estimate $3.59 billion
• Net interest income $944 million, -12% y/y, estimate $1.44 billion

Some more of the quarter’s highlights:

Overall Q2 revenues of $13.30 billion, 41% higher than the second quarter of 2019 and 52% higher than the first quarter of  2020, were the firm’s second highest quarterly net revenues.  The  increase  compared with the second quarter of 2019 reflected significantly higher net revenues in  Global  Markets  and  Investment  Banking  and  higher  net  revenues  in  Consumer  &  Wealth Management, partially offset by lower net revenues in Asset Management.

Net  revenues  in  Global  Markets  were  $7.18  billion  for  the  second  quarter  of  2020,  93% higher than the second quarter of 2019 and 39% higher than the first quarter of 2020… just in case it is still unclear just how benefited from the covid crisis and economy shutdowns:

Fixed  Income,  Currency  and  Commodities  (FICC)  generated  quarterly  net  revenues soared a whopping 149% to $4.24  billion,  its  highest  quarterly  performance in nine years, “reflecting continued strong client activity in intermediation and financing.”  The surge in FICC revenues reflected significantly higher net revenues across all major businesses, particularly in interest  rate  products, credit products  and  commodities. In  addition, net revenues in  FICC financing were significantly higher, primarily driven by repurchase agreements.

It was the third straight quarter of increases for Goldman’s FICC division.

Equities  generated  quarterly  net  revenues  of  $2.94  billion,  its  highest  quarterly  performance  in  eleven  years,  and 46%  higher  than  the  second  quarter  of  2019,  due  to  significantly  higher  net  revenues  in  Equities  intermediation, reflecting  significantly higher net revenues in both cash products and derivatives, partially offset by  lower  net  revenues  in  Equities  financing,  reflecting  lower  average  customer  balances, tighter spreads and a decrease in dividends.

Investment  Banking  generated  record  quarterly  net  revenues  of  $2.66  billion,  36% higher than the second quarter of 2019 and 22% higher than the first quarter of 2020, including  record  quarterly  net  revenues  in  both  Equity  and  Debt  underwriting. The increase compared with the second quarter of 2019 reflected significantly  higher net revenues in Underwriting, partially offset by a net loss in Corporate lending and lower net revenues in Financial advisory. Worth noting that in a quarter of record equity issuance…

… Goldman generated $1.06 billion in revenue from equity underwriting, smashing the $632MM expectation. And with debt underwriting also a record, Goldman generated some $990 million here, also smashing the $659 million forecast.

Firmwide assets under supervision, increased $239 billion during the quarter to a record $2.06 trillion; it consisted of net market appreciation of $100 billion, primarily in equity and fixed income assets; Liquidity products net inflows of $133 billion
Long-term net inflows of $6 billion.

Asset-management revenue also swung back to the positive, to the tune of $2.1 billion, after reporting a $96 million hit in the first quarter. Still, that’s down from a year ago on “significantly lower net revenues in equity investments,” partially offset by higher revenue in lending and debt investments.

The bank’s prop trading/investment portfolio also benefit from the Q2 rebound after taking a massive markdown in the first three months of the year. Equity and debt holdings swung to a $1.38 billion gain after producing a hit of almost $900 million in the first quarter. Goldman has said it’s moving away from taking stakes with its own money, and is trying to raise more client funds. The strategy could help limit exaggerated moves that add volatility to the firm’s quarterly results.

And while few will care, Goldman was not completely spared from the covid turbulence, with the company reporting that its provision for credit losses soared to $1.59 billion in Q2 2020, up 7x just $214 million for the second quarter of 2019 and up 50% from $937 million in Q1 2020.  Putting the increase in context, Wells Fargo’s provisions went up 19 times while JPMorgan’s was 9 times year-ago provisions.

The  increase  compared  with  the  second  quarter  of  2019  was  primarily  due  to  significantly  higher  provisions  related  to  wholesale  loans  and, consumer  loans,  reflecting  revisions  to  forecasts  of  expected  deterioration  in  the  broader  economic  environment .

Overall, however, the results were solid, and DJ-ing CEO David Solomon was happy:

“This  quarter  demonstrated  the  continued  dedication  of  the  people  of  Goldman  Sachs  to  helping  our  clients  navigate  a  very  challenging  environment,  while  working  remotely  or  returning  to  offices  that  are  quite  different  than the ones we left earlier in the year. We also continue to be grateful for those working hard to contain the pandemic and limit its human and economic costs.  

Our  strong  financial  performance  across  our  client  franchises  demonstrates  the  inherent  benefits  of  our  diversified  business  model.  The  turbulence  we  have  seen  in  recent  months  only  reinforces  our  commitment  to  the  strategy  we  outlined  earlier  this  year  to  investors.  While  the  economic  outlook  remains  uncertain,  I  am  confident that we will continue to be the firm of choice for clients around the world who are looking to reshape their businesses and rebuild a more resilient economy.”

And while the quarter was indeed stellar, Opimas CEO Octavio Marenzi amusingly warned that Goldman’s “almost indecent” earnings may trigger a political backlash,  “The Fed has been able to engineer a huge bounce back in the markets by injecting trillions of dollars, benefiting investment banks primarily. This will lead to calls for the government to do more to help Main Street rather than Wall Street.”

He added that Goldman isn’t unique, as JPMorgan’s and Citigroup’s investment banking arms “also did phenomenally well this quarter,” but he said that those banks “have large retail and commercial banking activities that dragged their results way down, masking the stellar performance of their investment businesses.”

Goldman stock surged in kneejerk reaction: