Why David Viniar Didn't Cause Goldman's Shares to Fall

"We're cautious about the near-term outlook for our businesses as we see dislocation in some of the world's capital markets has continued."
–Goldman Sachs CFO David Viniar, in a conference call with reporters.

Now, I do appreciate that Viniar was talking to reporters, so what he had to say must have been very important. But really. Is there a single stock-market investor anywhere in the world who's unaware of continued dislocation in global capital markets? (Hint: the ECB just poured half a trillion dollars of liquidity into the European financial system. Does that sound normal to you?)

The fact is that Viniar, like any CFO worth his salt, is a naturally cautious chap. He's naturally cautious on every single earnings call he's ever on. If there are two things which are absolutely known to investors in GS, it's that (a) there's continued dislocation in global capital markets, and (b) David Viniar is a cautious chap.

Meanwhile, on the same conference call, Viniar announced that Goldman had made a record amount of money in its lastest quarter, and also announced that he was allocating $12.5 billion towards buying back Goldman Sachs stock, even at its present levels of more than $200 per share.

But here's the thing: Goldman shares actually fell more than $7 today, even as the broader market rose. Some reporters simply did their job, and reported this fact, sometimes using words like "despite" or "even though" to make it clear that Goldman's earnings really were very good. But it was inevitable that someone was going to write a lede like this:

Goldman Sachs Group Inc said on Tuesday fourth-quarter earnings rose 2 percent, beating expectations and capping a record year, but its shares fell after the investment bank cautioned that markets will remain challenging in the near future.

Was that really why Goldman shares fell? I very much doubt it. There are other reasons why Goldman stock might have fallen today, if you're a believer in stock-market causality – the Value-at-Risk numbers, especially, seemed to imply that Goldman's risk-adjusted profits might actually have fallen, and that any increase in profit was essentially paid for by taking on a lot of extra risk.

But the fact is that any given stock, on any given day, even if that day sees the release of an earnings report, moves in an essentially random direction. If you want to see what's happened to Goldman Sachs shares, don't look at where they closed today compared to where they closed yesterday: look at where they are now compared to a month, or a quarter, or a year ago.

After all, most of the news in the Goldman Sachs earnings report was largely expected, and therefore "priced in": it's not like the fact that Goldman made lots of money by selling its interest in a bunch of power plants, for instance, came as any surprise to the markets. So if you want to see how the market has reacted to the past quarter's news, look at how the share price has moved over the past three months; don't look at how the share price has moved over the past day.

Now, it would be great for my argument if Goldman shares had actually risen substantially over the past three months; in fact, they haven't. They rose to over $240 at the end of October, but they've been falling back since then, and now they're pretty much back to where they were in mid-September. Still, if you're looking for a decline, that's the decline you should be explaining. And if you want to associate that decline with continued dislocation in global capital markets, go right ahead. It's just silly to pretend that the dislocation came as any surprise to Goldman's shareholders.