Goldman Sachs kicked in the nuts

I remember watching a movie once where a new kid starts a school after being bullied at the old school. Sure enough this geeky looking kid gets bullied on the first day and nobody wants to hang around with the local whipping boy. He goes home and asks his dad (or maybe it was his uncle?) what he should do because he can't go through another year of torment.

The advice he gets is very simple: "It doesn't matter whether it is a sneak attack, you walk up to the biggest bully on the playground and you kick him as hard as you can in the nuts in the most public place. If he drops, your year has been made and you will be the hero of the school".

Judging from the fun and games in the US on Friday, I reckon somebody over at the SEC has adopted a similar kind of strategy to "right-size" banking giant Goldman Sachs.

Much like it doesn't matter whether or not the bully has psychological issues or problems at home, I don't think that the SEC is all that concerned about the merits of their case. They've snuck up on an industry giant which believes it is untouchable and possibly fired the first salvo in a carpet bombing exercise aimed at the investment banking industry.

Will this even dent Goldman Sachs? Probably not - the guys that work there are too clever to even blink.

But for the rest of the industry, a very clear message has been sent.

The start of a genuine correction?
I'm undecided on whether or not markets are expensive and I think it is folly to try and play that game. Personally I probably wouldn't be buying too many shares right now if I was looking to make money in the next 6 to 12 months.

In fact if I had to hazard a guess this little assault on GS could be maybe the right kind of message to market participants that it is now time to step back and reassess the landscape.

How many compliance managers at the various investment banks and brokerages are scurrying around this weekend trying to double check that their systems are in place? How many are going to be advising their traders that the regulators are being a little nosier than expected and maybe they need to pull in any potential troublesome trades / activities?

Another interesting thing which was missed is that the VIX actually rose to its highest level in 12 months on Friday.

While I'm sure it certainly doesn't help (the traders) that regulators are being nosy and digging into the activities of some of the big guns on Wall Street, maybe it is just a sign that there is some downside risk in the near-term?