Here is my detailed opinion on Goldman Sachs. Be sure to review my precursor to this report: Goldman Sachs Snapshot: Risk vs. Reward vs. Reputations on the Street. Anybody who is interested in how I think should read this report carefully. I believed GS to be significantly overvalued to begin with, and sporting a high share price wards off the small time bears and short sellers, not to mention the SEC put option assignment through the prejudicial short seller rule protection, combined with the recent and totally non-fundamental financial industry rally has created a shopping opportunity for me in which I stocked up on puts. Needless to say, I am quite bearish and heavily short. Below is sneak peak of from the guts of the opinion.

About half of the reduction in the level 3 assets resulted from transfer to level 2 assets:  In 2Q2008, Goldman Sach's reported level 3 assets declined 19% to $78 bn from $96 bn in 1Q2008 primarily due to $12.6 bn of transfers and $2.2 bn of assets sale.  In spite of this, Goldman Sachs continues to have the highest level 3 assets among its peer group, 13% higher than its closest competitor Morgan Stanley whom I had granted the title, the Street's Riskiest Bank. The highest level 3 asset level had belonged to Bear Stearn's, and I had sternly warned of this company's potential failure in January of '07, see Is this the Breaking of the Bear?. My short position was established in November of '07 and by the time of their collapse, it was my portfolio's largest position. There are similarities between some of the weaknesses in Bear Stearns and Goldman Sachs. See some of the background reading available from my blog (keep in mind that these articles pre-date the collapse of the share price of these companies by months at the very least):

·        Banks, Brokers, & Bullsh1+ part 1

·        Banks, Brokers, & Bullsh1+ part 2

·        Money Panic

·        Bear Fight

·        The Breaking of the Bear

·        The Riskiest Bank on the Street

·        The Next Shoe to Drop: Credit Default Swaps (CDS) and Counterparty Risk - Beware what lies beneath! .

·        I know who's holding the $119 billion dollar bag!  (Goldman has the third highest exposure to these insolvent guarantors, look at the 1 yr charts for numbers 1 and 2!)

·        Here comes the CRE Bust (Quip on Lehman Brothers)

·        Is Lehman a Lemming in Disguise (from a conributing individual investor)

·        Liquidity vs Insolvency

·        Bear Stearns Bear Market, Revisited

  Now, on to the opinion report. The HTML version here does not include the assumptions and pro formas (an additional 10-12 pages of supporting data), and the graphics are admittedely distorted. No need to fret, registered users of the blog can download the full fidelity, high resolution printable copy here:  GS Report_072108-2 (361.18 kB 2008-07-24 15:20:25). As an added bonus, I'll throw in the Goldman Sachs Ambac/MBIA insured ABS, MBS and CDO inventory just for good measure. This will come in handy when reading the portion of the report that details the declining asset value and high Level 3 concentrations of the Street's Golden Boys. See  GS ABS Inventory (1.22 MB 2008-02-25 06:48:56).

III.         INVESTMENT SUMMARY

Until now Goldman Sachs (GS) has withstood the ripples effect of plummeting financial and capital markets, and widespread losses and