If you're a paranoid pessimist, or maybe a harsh realist, Raoul Paul, editor of Global Macro Investor, has something to confirm your world view.
Paul is a former Goldman Sachs co-head of hedge fund sales in equities and equity derivatives in Europe. He is also a former co-manager of the GLG Macro Fund. Paul says he retired aged 36 and now lives on the Spanish coast, writing Global Macro Investor and sometimes spooking everyone into thinking the financial system is heading for complete collapse - in which case, losing a job in the City of London may be the least of one's worries.
Paul has put out a presentation, the entirety of which is accessible here. Titled, 'The End Game,' it makes the point that sovereign defaults tend to be a chain reaction, with one sparking another, that we are potentially on the cusp of a series of sovereign defaults and that EU defaults could easily spread to the UK and ultimately to the US, and that in the event of this happening the $70 trillion of G10 debt that's collateral for $700 trillion of derivatives will become the real issue.
Ultimately, Paul pronounces:
However, while former Goldman salesman Paul has been producing eschatological materials, current Goldman COO Gary Cohn has been sounding much more measured.
In a note out today, Bernstein analysts point out that Cohn was really quite optimistic in his investor presentation yesterday. Specifically, Cohn stuck to Goldman's line that: " the softness in Wall Street revenues is part of the normal cyclicality of the industry and does not represent a secular shift in the business."
Moreover, Cohn said he saw opportunities for Goldman in the coming $2 trillion firesale sale of European banking assets and in European banking recapitalizations, which will be good for European equity capital markets bankers.
"Both Mr. Cohn and Mr. Viniar were confident that profitable opportunities will eventually arise in Europe due to the current debt crisis," point out Bernstein's analysts, "but they were unsure when this would occur."
On one hand, the global financial system is going into meltdown, with all the banking redundancies and massive collateral damage you might expect. On the other, this is just a cyclical dip and US banks are readying to clean up. Who's right?
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