First thing this morning [3]we warned our readers that we smelt a rat. The reason: at roughly 12:30 am Eastern this morning, or just before the European open, Goldman's Francesco Garzarelli sent out a note trying to spin the Spanish bailout as favorable. More importantly, they told their few remaining clients to go long Spanish 3 Year bonds. We said:
"Confirming that one should get the hell out of Dodge, is the fact that Goldman now is telling its clients to, wait for it, buy Spanish bonds:
"Short-dated Spanish Government Bonds Offer Value.... Even though the statistics for public debt will increase by about 10% of GDP, the funding program of the Spanish government will not be affected and the loan will come at much more advantageous terms for the public sector than current market rates. The combination of these two factors should reduce pressure on the Spanish sovereign. All else equal, yields should decline, particularly at the front-end of the curve. On Friday, the 3-year benchmark bonds closed at around 480bp over Germany. We could see a rally towards a 400bp spread during the volatile period while more news on the transaction becomes available."
Yes, we have seen this one so many, many times before: if Goldman is telling its clients to buy, it means Goldman is.... fill in the blank.
That's right, selling. Long story short, as the chart below shows, we probably have a new world-record in the short amount of time it took Goldman clients to get totally Facebooked by following the firm's advice to buy 3 Year Spanish Bonds. Note the yield on the short-paper below.
[4]
Luckily for its shareholders, at least Goldman's "flow" desk was busily selling and satisfying client demand for this paper, even if it only lasted for a an hour or so before the pukefest started.