In a brief excerpt from his most recent investor letter, sent April 22, Kent Holden of Holden Asset Management, argued that the Securities and Exchange Commission case against Goldman Sachs could have a long-term effect on market enthusiasm and financial reform:
We have been asked a number of times, “What will change this market enthusiasm?” We’ve often said it will probably not be a problem well-anticipated by the market (i.e. Greece blowing up) but something completely unexpected, something “out of left field.”
We may have had such an event … as Goldman Sachs was charged with fraud by the SEC. It is too early to tell if indeed this will be a turning point in the overall markets, or be contained to Goldman, but it certainly qualifies as unexpected. The Goldman news caused a dramatic loss in Goldman shares … and we are concerned of long-term repercussions to their brand.
It is yet to be known if this Goldman news will have any lasting effect on the overall markets, or even on Goldman, but I believe the timing couldn’t be better to put pressure on the passage of the pending Financial Reform bill. If this bill does pass, we believe we are pretty well positioned, both long and short.
We have significant long positions in exchanges which could generate tremendous amounts of business if derivatives are forced to become exchange traded, which looks much more likely after these Goldman charges. In addition we have short exposure in firms that tend to prey on loans to the poor, charge usurious rates, and avoid various state laws by domiciling in less restrictive states. A new Federal law could finally cause a halt to a broad swath of their businesses.