Breakout

Goldman Sachs & JPMorgan: Buy Anger, Sell Forgiveness

Jeff Macke
Breakout

This week Goldman Sachs (GS) CEO Lloyd Blankfein took a break from whatever it is people with untold wealth and power do with their time to pen an opinion piece for Politico. Entitled "Investing in America Produces the Best Return," Blankfein makes a case for addressing the Fiscal Cliff, making it easier to legally immigrate, investing in infrastructure, and less political division. For the record, Blankfein is in favor of each.

Coming on the heels JPMorgan's (JPM) earnings call — during which CEO Jamie Dimon used a mind-fogging agent to convince analysts to ignore the CIO losses and focus on Dimon's personal charisma — Blankfein's editorial suggests the banking elite are trying to stage a PR comeback after four years in the doghouse.

Blankfein and Dimon are sharp, successful, well-dressed guys. Blankfein is by all accounts brilliant, and Dimon is a better-looking version of Darth Vader. Both men deserve at least grudging respect, if only for their roach-like resiliency which enabled them to keep their jobs through the entirety of the meltdown that their banks enabled. None of that changes the fact that most Americans consider Dimon and Blankfein of to be the yin and yang of rapacious evil.

As a rule of thumb, it takes between 10 and 20 years for a sector to be forgiven once a bubble bursts or a collapse occurs. Recovery is a process rather than a Eureka! bottom call. The 10-year chart of the Financial Sector ETF (XLF) is a what the mending of a broken heart might look like if you could trade it. We don't hate banks as much as we did in 2009, but we only have one-third the respect for them that we had in mid-2007.

All this makes "buy and hold" a lousy strategy, and trusting bankers personally is out of the question. The choice is either ignoring the space entirely or seeing it as an amazing group for trading. Widespread expressions of hatred are bullish for a trade. Everyone knows to buy fear and sell greed. Fewer traders embrace the notion of buying hatred and selling enthusiasm. The latter is often a better trading strategy.

You don't have to love Dimon or Blankfein and the banks they run, and you certainly don't have to waste a moment of your time investigating how the CEO of Goldman Sachs feels about sunny days and apple pie. What you can — and should — consider doing is using the fear and distrust surrounding the banks as a trading opportunity.

Don't bother condemning GS and JPM. Exploit them for your financial well-being. That's obviously what they'd do to you were the roles reversed.

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