"Wisdom is knowing what to do next; virtue is doing it"
David Star Jordan

The stubbornness with which Goldman Sachs and Co has been defending its oil is going to "$150 a barrel by Labor Day" forecast is now starting to look awfully suspicious? What if the leaders of the "Wonder Land" finally have gotten something wrong? With investment banking revenues severely hampered by virtual shutdown of the M&A world and fixed income world's behavior becoming so erratic and unpredictable, commodities became the only "bullet proof" and reliable source of profits for GS last few quarters. But if Goldman's actual net trading positions still reflect the "long all commodities" bias, I think it is time for any GS investors to realize- they could be in for one nasty surprise when the earnings time comes...

This would also suggest that most recent underperformance of GS compared to other IB houses like Morgan Stanley and Co might have not been a pure accident, but rather represent a beginning of a new trend. Remember the "Ken Heebner - best investment manager alive" and "CGMFX will keep going up by 25% a year forever" stories ...

source: www.stockcharts.com

I think instead it was more of a right sector at the right time story... It's probably time to acknowledge that the commodities (momentum) outperformance super cycle is now likely over and not coming back any time soon... I know, many still think that GS and Co is always right, and thus POT, MOS and IPI "will surely" retest their previous highs, but I respectfully disagree. I also think that when July/August results for most of the formerly best performing hedge funds start rolling in (inclusing GS)- people will be shocked...

My take on the whole discussion has been very simple for a while- we have already seen the multi year highs in most O&G and agriculture related shares and the new long term trend is now down...The only exception could be solar energy (JASO, STP, CY, LDK?) But one could argue it's really Tech and not Energy anyway :)

Every several years or so, new leaders emerge in the market and this time it won't be commodities or emerging markets... Which sector exactly will it be? Too early to say, but healthcare is a viable candidate, so is tech and small cap value stocks... What's more- value is now likely to outperform growth consistently for several years; so the long S&P (SPY or SSO)/short emerging markets (EEV) pair could keep delivering its magic for quite a while...

P.S. Be careful out there, in my opinion markets are now dangerously close to topping out and could easily flip over to the downside some time in the next 10 days or so...

"Current Directional Moodster"-EEV, SMN, DUG, SPY, JASO, STP, CY, LDK- long; MOS, POT, IPI- short

Finding good shorts outside of energy sector has been tough but we are getting much closer...
Stay safe, skepticalcapitalist@gmail.com