Cohn on whether he feels like the Vampire Squid is a distant memory and whether Goldman is back and better than ever'They may feel like distant memories to you. I can guarantee we have not forgotten them. I can say that we are in a better part of the cycle right now and our business is very much aligned with the cycle. It's very much aligned with our customers and our customers' need to transact and our customers' need for advice. That has clearly picked up over 2012. We all hope it will continue in 2013. We know in our business there are no guarantees, but I would say our results in 2012 are a direct reflection of what our customers have needed to do and wanted to do and we have been able to facilitate it'.
On whether costs have been brought down far enough
'I never know the answer to that. We are in a unique industry. I have said this before and I will say it again: I have never had a day at Goldman Sachs where I've felt like the firm was perfectly sized. At the bottom of the market you feel like you are way too big. At the top, you're way too small. In the middle, you are trying to gauge not only what is happening today, but what will happen tomorrow. Based on our view of where we are today, we feel like we're in pretty good position. But I could change my opinion on that tomorrow'.
On whether compensation is low enough
'That is for others to decide. We are a fiduciary for our shareholders. We have an obligation to run the firm for our shareholders. We had our second lowest comp ratio ever. We bought back stock continually throughout the year. We increased the dividend two times. I think the price action in our stock reflects that our shareholders are relatively happy with what we're doing'.
On the word on the Street being that Goldman employees were paid well while those at other firms did not
'I do not know. I know what we did for our people. I think we got it right with our people. You'll never get it perfect, but I think we got it right'.
On what getting it right means
'I will redefine that a little bit. We are in a very competitive industry. The asset that we have, like all our competitors have, is human capital. There is a very clear market for human capital. We hire people during the year. People hire people away from us. We know where people transact. We know what the market is. We think relative to the competitive landscape that we operate in, our people got paid relatively fair relative to the contribution they made to the firm and to our share price'.
On letting 900 employees go at the end of last year and what will happen in 2013 in terms of headcount
'As I look out there right now at 2013 I feel like we're in a relatively good position from a head count standpoint. We will naturally have some turnover, like we do every year. And the big decision we will need to make on a real-time basis is do we replace that headcount. Depending on where the head count comes from, in many places it will be an easy decision. We will replace them because they are vital to the operations of the firm. In other places, we may take some chances and see what the environment looks like going forward through the year'.
On what type of environment it would take for Goldman to start hiring on a net basis
'Overall you would look at global GDP. If we start to see trends upwards in global GDP and more positive economic data in the world, that will stimulate our corporate clients, our investment clients to be more involved in markets. We will need more people to service them'.
On where the best opportunities are in Europe right now
'I think there are opportunities in Europe. I am bullish on our opportunities in Europe. I am bullish on our opportunities around the world, to be honest with you'.
On what looks best right now
'There are a lot of things that excite me. Zero interest-rate policy will come to an end someday…That is an interesting opportunity for our business. When people migrate out of fixed income into equities and more money comes into the market and we see zero interest rate policy ending because of economic growth and economic activity, we will see corporate confidence go up, we will see consumption and consumer confidence go up. all those things are very positive for our business. Not necessarily interest rates themselves going up, although that will provide some increased volatility and we are a firm that needs some type of volatility and we are a firm that needs some type of volatility to get activity in the market. But the cause of interest rates going up which is greater economic activity and greater economic growth will be very positive for our business'.
On his view of the markets right now
'I hate to disappoint you, but I have not traded about 12 to 15 years…look, at this point, I'm fairly bullish about global stock markets…I look at the dividend yields that you can receive in relatively blue-chip companies around the world. I look at that versus risk-free yields and I think that is an interesting opportunity. You can probably own blue chip stocks at a positive yield to risk-free yields. With that, you are long on some global growth, long some inflation, and you get paid a decent return to own those. In that characteristic, I happen to be very interested in global equities. Fixed income on the other hand, interesting.
'At some point, interest rates will go higher again and all of the money that has piled into fixed income over the past three years, some of it will come out. Some of it will come out and get on the sidelines and some of it will go into equities. That will be an interesting phenomenon. It's really interesting. As inflows come into the fixed income world, we as an underwriter are able to place a lot of debt. We've had $30 billion, $40 billion debt issuance weeks in the industry. That seems to be relatively easy when money is flowing into fixed-income funds. I am concerned when money starts flowing out of fixed-income funds with firms trying to reduce their risk weighted assets and balance sheets. Who will be the ultimate buyer of those fixed income products ?...
'We will have to see. We will clearly be there to facilitate. We will clearly be there to provide balance sheet and liquidity to our clients, but ultimately, we cannot be the buyer of last resort. Maybe it will take a fairly substantial repricing of fixed income to find the next round of buyers'.
On whether currency wars are a good thing for traders like Goldman
'I do not know if there is a currency war going on or not. But we've been in this phenomenon in the last few years, where governments, central bankers around the world have been trying to grow their economy…The easiest way to do that is having a lower currency…It's the most tempting way…Zero interest rate policy clearly drives down value of currency. But you have this fundamental issue. For your currency to go down, someone else has to go up. The question is, for me to devalue my currency, who is going to revalue their currency? For the last few years, we have had countries trying to devalue their currency and the one that has rallied is the yen. We have seen a pretty dramatic reversal of that trend in the past 10 weeks. I think that trend continues for some time. I do not know it is an indefinite change. I know it's not an indefinite change, but i do not know when that cycle comes to an end'.
On what the number one risk is to the markets, individual economies or the global economy that is not being given enough attention at the WEF
'I would say, it is a big risk but a low probability, and that is what bubbles tend to be. They tend to be things that people think are not going to happen. I go back to fixed-income. I think a sudden or dramatic backup in rates would be shocking to the markets'.
On whether there is liquidity in the financial system to absorb that
'I'm not sure…a lot of the banks, as you know, have a new plan of de-risking their balance sheet. Getting their risk assets down to try and improve their equity ratios. I'm not the capital can come back into the market quickly enough…I'm not sure what can be done. What needs to be done is education to people who are buying these fixed income products. They need to understand that just because it is a bond doesn't mean that it trades at par. Prices go down as interest rates go up'.