The “new normal” is abnormal, and Goldman Sachs isn’t very happy about it. That was the message this past week from Goldman President Gary Cohn at a New York investor conference.
You might remember Cohn from 2010, when he was one of Goldman’s better performers in that painful hearing before the House’s Financial Crisis Inquiry Commission. Back then, volatility was high, investor confidence was low, and Goldman had a huge bull’s-eye on its back.
But memories fade, and now — four years and trillions of dollars in Fed money-printing later — stocks are at record highs, interest rates are in retreat, volatility in both the stock and bond markets is at historic lows, and Goldman is off the hot seat.
One would think that would make Goldman CEO Lloyd Blankfein, Cohn & Co. pleased as punch. But no. It appears that “God’s work,” as Blankfein infamously labeled his mission back in 2009, is not nearly as enjoyable or profitable when we can sleep at night.
“What drives activity in our business is volatility. If markets never move, our clients really don’t need to transact,” Cohn told a Sanford C. Bernstein conference last week in a flash of unexpected candor.
And such is the case all over Wall Street in the spring of 2014. With the Chicago Board Options Exchange’s volatility index down 40 percent from its historical average, Goldman is having a tough time making money on what it does best — slicing, dicing and clipping pennies off the trillions of dollars’ worth of Uncle Sam’s debt and corporate stocks that flow through the system.
No, what’s surprising is how, nearly six years after the financial crisis, Goldman is still so dependent on trading to fuel its operations.
In the first quarter, it accounted for 30 percent of all revenue. Given the Federal Reserve’s well-telegraphed plan to print money and keep interest rates at near zero as far as the eye can see, one would think the Goldman execs would have developed a better Plan B. Instead, they seem to pine for the whiplash markets of 2007 and 2008.