Pay Close Attention to Goldman Sachs Group Inc (GS)’s Earnings

It went bankrupt less than five years ago. And it operates in a sector that’s still suffering from massive overcapacity. For investors to sacrifice their capital for five years and be rewarded with 3.75% is nothing short of ridiculous. That’s a sure sign of a top in the corporate bond market. And that’s why Goldman was more than thrilled to sell that debt to yield-starved investors. And General Motors Company (NYSE:GM) wasn’t doing it alone. Higher quality companies also took advantage of this opportunity.

In May, Berkshire Hathaway Inc. (NYSE:BRK.A) ), whose cash hoard reached a record $49.1 billion in its first quarter, sold $500 million of 1.3%, five-year debt with a 57 basis-point spread and an equal portion of 4.3%, 30-year bonds with a relative yield of 135 basis points. Remember, Berkshire Hathaway Inc. (NYSE:BRK.A) doesn’t need all that cash – it took it simply because it could. And when Buffett is selling bonds, instead of buying them, everyone should stop and listen.

Even Apple Inc. (NASDAQ:AAPL) a company with historically zero debt sold $17 billion worth of bonds late in April. All the bonds bore very low yields. But the extreme series was 30-year bonds that yielded 3.85%. That’s way too low for a 30-year bond. Obvious to anyone (but to Apple Inc. (NASDAQ:AAPL) bond holders..), anything can happen in 30 years, especially to a technology company like Apple Inc. (NASDAQ:AAPL), which has risen and fallen several times in the not-so-distant-past.  Bondholders are eventually going to regret this purchase.

My Foolish takeaway

Goldman has been making obscene amounts of money from selling debt for his corporate clients to a crowd of yield starved investors. This means that Goldman is in effect shorting the bond market. The question now remains, whose side of the trade do you prefer to be on? I would take Goldman’s side on any day. Invest accordingly.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool recommends Apple, Berkshire Hathaway, General Motors, and Goldman Sachs. The Motley Fool owns shares of Apple and Berkshire Hathaway. Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Pay Close Attention to Goldman Sachs’ Earnings originally appeared on Fool.com is written by Shmulik Karpf.

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