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Monday, September 22, 2008

Jim Cramer Talks About Goldman Sachs and Morgan Stanley

TheStreet.com's Jim Cramer says everyone is worried that Goldman and Morgan will be safer but valued less and make less money.

It's hilarious that suddenly everyone is worried that Goldman Sachs (NYSE: GS) (Cramer's Take) and Morgan Stanley (NYSE: MS) (Cramer's Take) will be safer but will be valued less and make less money. It's almost as if they were to be valued as banks!

Wait a second, who pumps this stuff out? I am sure the stocks will go down simply because stocks go down on good news or bad news right now. But the kind of stuff I see written immediately is so typical of the misdirection of this period: The banks have twice the multiple of Goldman Sachs, for heaven's sake!

Why can't people see what is going on? Is it because things are moving so fast? Don't people see what is happening here? The market is saying that no investment bank can be trusted as a place to keep money because Lehman didn't refund the prime brokerage money that hedge fund managers had there!

That meant if you had prime brokerage money at Goldman Sachs, you needed it out. Goldman doesn't keep that kind of money on hand. No way. And the other firms had no desire to lend to Goldman. Why should they?

Where does it say that a competitor should help another competitor when the competitor might be the next Lehman? Goldman has some inventory that may be marked to high and need more collateral. The agencies might downgrade it, etc.

Think about Morgan Stanley last week. When it was at $11, did anyone think, "Boy, I hope it doesn't lose that premium valuation that it has to U.S. Bank (NYSE: USB) (Cramer's Take)?" Did anyone even notice that Wells Fargo (NYSE: WFC) (Cramer's Take) trades at 17 times earnings?

People also have forgotten what these companies do besides prime brokerage: advise on deals (no capital); advise rich people (no capital); IPOs (no capital to speak of); fixed income trading (arguably capital, but nobody's going more than none to one anymore anyway); and stock trading (minimal capital vs. what it has). The business that was killing them is the one that they are the best at: prime brokerage.

So, now, today, you have a commercial bank that sells at about 1.25 times clean book. If the bears are right and it goes down 25%-30% it will be 1 times book, a price you simply can never get for a commercial bank even in bad times.

Yeah, this is real bad for Goldman and Morgan. They would have ceased to exist or never get a multiple again. Now they get to stay alive and have a multiple like banks with bad mortgages and credit card debt!

What a world.
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