It has been a horrible year for Goldman Sachs (NYSE:GS). Then again, it has been similarly horrible for other global financial powerhouses like the Blackstone Group (NYSE:BX), KKR (NYSE:KKR) and Morgan Stanley (NYSE:MS).
Yet these investors are some the world’s smartest, and they have been known to make money in virtually any environment. If anything, it is during turbulent times that the biggest opportunities emerge.
The problem is it can be nearly impossible to divine the strategies of these top-notch investors. But don’t despair. There are some occasions when things leak out. In fact, this is what happened with a recent strategy report from Goldman Sachs. It wound up in The Wall Street Journal!
The report, which is dated Aug. 16, is 54 pages and has many compelling charts. Keep in mind that the author of the report is Alan Brazil, who is a top strategist on the Goldman trading desk. Yes, he should have a good sense of the pulse of global financial markets.
His view? Unfortunately, Brazil is preparing for some bad stuff. He thinks that job growth will continue to stall in the U.S. because of problems with small businesses. He even believes China will start to trail off. Why? Brazil says the growth in fixed investment and loan creation is not sustainable.
Perhaps the most troubling factor he cites, however, is Europe essentially is broke. To this end, Brazil believes policymakers will need to fill a $1 trillion hole. But in light of the slow growth and ongoing political conflicts, this seems like a pipe dream. Instead, Europe is using more and more debt to “solve” the problem.
So how to make a winning trade on this? As should be no surprise, Brazil has a highly complicated set of positions based on derivatives. They essentially include short positions on the euro and bank stocks.
Of course, these types of investments are really for hedge funds and professional traders. But for individual investors, there still are ways to get some exposure. As I indicated in a recent piece for InvestorPlace.com, you can buy mutual funds and exchange-traded funds that go short. Some examples include the Federated Prudent Bear Fund (MUTF:BEARX) and Grizzly Short Fund (MUTF:GRZZX).
And even PIMCO co-founder Bill Gross has his own offering, the StocksPLUS TR Short Strategy Fund (MUTF:PSSAX). It shorts the S&P 500 but also uses excess cash for high-quality bonds. All in all, it’s a pretty smart way to hedge the market.
Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.
