Goldman Sachs Buying up Energy Speculation Firm

Earlier this week I wrote a piece on how bailed out banks have been speculating in oil markets.

Today, more evidence that the banks haven't learned that in the end speculation is a zero-sum game has emerged. At the same time that Goldman Sachs has been taking TARP funds, the bank is purchasing foreign firms involved in energy speculation.

Constellation Energy Group Inc (CEG.N) said on Tuesday it had reached a definitive agreement to sell the majority of its London-based commodities business to Goldman Sachs (GS.N).

The sale was a part of the Baltimore-based utility and power company's previously announced plan to boost its liquidity and cut its collateral requirements.

Financial details of the transaction were not released.

Hmmm...... I wonder why.



Maybe because

the type of people banks hire to make these decisions don't realize that the UNIVERSE ITSELF is a zero-sum game?

Ok, sorry about that, but this article referenced that myth right after I had an argument on slashdot that all valuation systems other than E=MC^2 are mythical.

Maximum jobs, not maximum profits.

The Lex Luthors of Wall Street

Threee things come to my mind when I read this. For starters, Congress is being way to lackidasical about it's fiduciary responsibilies over TARP. The fact that they haven't had another round of hearings and grilled these folks like they did the UAW and automakers speaks volumes. That second $350 billion will be gone just as fast as the first. You may see some more accountability, but I highly doubt it will reach beyond anything but lip service. I've said it before, and I'll say it again, it will not stop at TARP, expect the government to hand out at least $2 trillion to save the banking industry (this includes nationalizing them, because cleaning up the derivatives mess is where it's going to eat up the money).

Secondly, this second era of cheap oil is going to end. It's down right now because of demand, but the longer term fundamentals still have not changed. Please take a look at this site on Futuresource, what do you see? Rising oil prices, especially starting in 2010 when our "recovery" is supposed to start. They aren't just pricing in for a return to good times, that's for sure. No, they are also pricing in facts that people are not discussing:

1) Lack of re-investment by countries that are prime producers of peteroleum.  In Mexico, the government has not alloted anything of size towards equipment to Pemex.  In Venezuala, that idiot Hugo Chavez has frittered away most of the gains made from that oil boom.  The same with Russia, though they have somewhat kept up in "nat gas,".  The middle eastern countries are the exception, but major wells are now reaching their peaks, like Ghawar. 

2) Non-state oil companies have curtailed their own plans because of the drop in oil.  With the specter of going after the oil companies for past profit gains, many are not assuming future risk.

3) Despite their recent downgrade in their activity in the petroleum market, the Chinese will soon be re-entering.  As many know, prior to the 2008 Olympics, they went and purchased a motherload of oil then walked away.  Well, those stockpiles will soon end.  Despite a weakening economy, China is still growing at least at 5% (ok, I know I'm off here, but I know it isn't north of 8%).  They are building a domestic market, with consumers more and more becoming like us.  Those factories will churn out product if not for us, then for their own people.

4) What if the US Dollar returns to its plunging against say other currencies or just against gold?  Even New Deal Democrat has pointed out about how much so much cash is out there.  The only caveat to all this, is that all that money is being tied up by the banks.  But what happens when the dam breaks?  The banks are eventually going to have to loan out that money.  One way, or another, that money is going to be circulating like a raging river torrent.  We may not see hyperinflation, but we will see something.  Indeed, to counteract what seems to be an ever growing pool of dollars, one would need a drop in demand that would not be pretty.

Goldman Sachs is probably the smartest financial company out there.  They are the Lex Luthors of Wall Street.  They minted money every which way with those derivatives.  Goldman was the only company, that was actively participating in the swaps, that had the wisdom to ask "what if we're wrong?"; and proceeded to also bet against their investments, you could say.  Goldman Sachs probably figured out early on that the derivatives market would blow up, and positioned themselves to profit from it.

So if Goldman is buying Constilation Energy, it's because they figure energy is going to make a comeback.  But more specifically, they are also betting on carbon trading. This is my third thought on this, as I think this is even a longer term bet by them.   20 years ago, OTC derivatives trading barely existed.  Today, carbon trading, and any derivatives from it are now in it's infant stage.  A piece of the article that should have been highlighted in the post.

The London-based business includes Constellation's coal and freight platforms, as well as its European-focused power, gas and carbon trading operations. The deal is expected to close by the end of the first quarter.The London-based business includes Constellation's coal and freight platforms, as well as its European-focused power, gas and carbon trading operations. The deal is expected to close by the end of the first quarter.

Europe so far is in the lead in carbon trading, but that really isn't saying much.  Mark my words, carbon trading will happen, if Goldman is in on it, then that means money is going to be made from carbon trading....which in turns means you will see it happening in a big way.  There is a potential, I dare say, that carbon trading will be even bigger than petroleum trading!  And we haven't even gone into the derivatives that could be made from carbon trading!  Already there are a new climate exchanges forming.  There is a race as to see which city will be the center of climate exchange trading, like New York is to stocks and Chicago is to commodities and London is to FX.


$1 trillion of losses, Goldman says could double


But on Goldman Sachs, I don't have a tally of all of their losses but it seems to me their numbers are right up their with Citigroup, BoA, etc.

On the purchase of Constellation Energy, I think the point really is that these companies are using TARP money for acquisitions and that's not what is supposed to be going on. They were supposed to be loosing up the credit markets, funneling off worthless assets.

I agree there is going to be no oversight or lip service.