Oh what fun today!
Last time Mr. Blankfein testified before Congress he was a little bit testy – letting Congress know in no uncertain terms that they were wasting his time and preventing him from doing "God's work." That work gave Goldman Sachs an Operating Profit of $7.37Bn on $9.62Bn in sales (77%) in Q4 but this quarter the Opertating Profit was "only" $5.2Bn on $14.4Bn in sales (36%) mainly because of a $5.9Bn jump in SG&A (ie. bonuses). Yes the Lord is certainly smiling down on Goldman and all of their alumni.
Lloyd is batting clean-up this afternoon and The Pragmatic Capitalist has a very nice copy of his prepared remarks along with layman's translation to help get us ready. Blankfein's prepared comments are short as his major job, the one he is getting the big bucks for, is damage control. By getting the last word, Lloyd will be able to "spin" the prior testimony and give his supporters some talking points, which is going to be critical because even our "friendbuddypal" Jim Cramer has seen which way the populist wind is blowing and, like a rat fleeing a sinking ship, is now saying the GS charges are "NOT frivolous" and the firm will have to settle or pay $2-3Bn in fines. I certainly hope the Daily Show does outtakes of this along with Cramer's vigorous defense of Goldman with his "inside" information that he shared with CNBC viewers the day the charges came out that prevented the sheeple from getting out before things got worse. Sadly, the video was pulled from CNBC's web site already but they do have this text:
The SEC this morning charged Goldman with securities fraud, Reuters reported, claiming the bank sold to unwitting investors a subprime mortgage CDO, called ABACUS, that was both put together and shorted by hedge fund Paulson & Co. Fabrice Tourre, the 31-year-old Goldman vice president primarily responsible for creating the CDO was charged with fraud as well.
But Cramer countered those charges, citing his own sources, by saying that Goldman was “not shooting against the client.” In fact, he said that Goldman had invested about $90 million in the ABACUS CDO.
“My information is that Goldman Sachs was an investor in this particular security,” Cramer said, “not a short seller.”
“I think that’s a very important fact,” he said, adding that while he couldn’t reveal his sources, he did say they “indicate that this is true.”
That “may explain the incredible confidence they had,” Cramer said of Goldman. He pointed out that neither Tourre nor his manager had yet been fired, which is what would have happened “if this were an open and shut case.”
I don't care if the charges are frivolous or not frivolous from the perspective of my outlook on GS stock. There IS a scandal, it WILL distract executives, it WILL disrupt business, it MIGHT damage their reputation, it MIGHT cost them deals, it MIGHT cause investors to lose confidence, the WILL be other lawsuits. This is not a reason to BUYBUYBUY Goldman Sachs. Possibly you may want to look at MS or JPM or one of the other IBanks that MIGHT not have also defrauded their own clients and structured defective investment vehicles in order to "take care of" their top customers while raking in incredible fees on both sides (yet GS claims they lost money on the side bets). I let Jim slide on his "inside sources" before but now that he's flip-flopped, I'd like to know who it was Jim was quoting when CNBC gave him an extended segment to mislead as many viewers as possible on Friday…
As I said in yesterday's morning post, I am a sick of hearing about this as the next guy but when I hear my Members talking about bottom-fishing on GS then, unlike Cramer, I do feel I have an obligation to point out that there are still serious issues ahead for the company. I also pointed out yesterday tha the pre-market run-up was total BS and "I’ll be looking for some shorts into the 10 am top." That gave us very cheap entries yesterday on the TZA (ultra-short Russell) calls and DIA shorts as well as a nice gain on our oil shorts for the day. You can see how everything fell apart at around 11:30 because, as I said: "Once the EU markets close, the excitement may fade for US equities as the S&P hits the 5% rule for the month (meaning we’re looking for a 1% pullback)." See how easy things are if you ignore the silly man on television!
By the way, I hear a lot of "concerned" politicians and media pundits (yes, Cramer again!) calling for the SEC to be investigated for their timing of the announcement of the fraud charges but imagine if they had waited to announce the charges until AFTER GS earnings and the stock had flown up into the $200s, after which the announcement would have screwed Billions of dollars worth of new investors rather than the existing investors who Goldman screwed by failing to disclose a Wells Notice they got LAST YEAR (now the subject of another lawsuit). So THANKS SEC for not letting the charade carry through to earnings when countless additional investors may have been sucked into that cesspool!
Speaking of flip-flopping positions – The Hang Seng's BS 1.6% gain that I thought was BS yesterday ran into a "Wall of Reality" this morning and that index fell 1.5% this morning, following the Shanghai, who lost 2%, dragging them both down to last week's lows. The BSE held flat and the Nikkei ADDED 0.4% so this is not yet a global melt-down. India is very worried about the inflation our Fed doesn't see, with India's Bank Governor Subbarao saying: "faster inflation is a “big worry” for the economy and the central bank plans to remove monetary stimulus in a gradual manner to ensure sustained growth." Brazil is also very worried about the inflation our Fed doesn't see and Brazilian policy makers are poised to raise borrowing costs at the fastest pace since President Luiz Inacio Lula da Silva took office in 2003 after central bank chief Henrique Meirelles pledged “vigorous action” on inflation.
Europe is also reversing all of yesterday's silly gains with the Dax down 1%, the FTSE off 1.3% and the CAC down 1.7% at 9am. Stocks fell and bond yields jumped as investors remained skeptical about Greece's long-term solvency. The cost of insuring Greek debt against default soared to a new record. Only Argentina and Venezuela command higher prices. Angela left the bailout money in her other purse so Greece is "off again" today – or this morning, at least. Chancellor Merkel said yesterday she won’t release funds for Greece until the nation has a “sustainable” plan to reduce its shortfall.
“The near future will not be marked by strong gains because there are a lot of concerns in the market,” said Christoph Riniker, a strategist at Bank Julius Baer Group Ltd. in Zurich, which manages about $226 billion. “There is fear that the Greek problem will flash over to Portugal for example and there is concern about what kind of an impact that could have.” Mortgage covered bonds of Greece’s three biggest lenders were cut or placed on negative review by Moody’s Investors Service, following “the downgrade and review for further downgrade of Greece’s sovereign ratings,” Moody’s said. Yields on Greek two-year notes surged above 15 percent, the highest since at least 1998, on concern bondholders will be forced to take losses as the country grapples with the highest debt ratios in the European Union.
Boy, I just can't wait for the Fed to tell us just how super everything is tomorrow, can you?
So lots of drama but Greece can be fixed in an instant and the post-Senate analysis could be a crushing victory for Goldman Sachs and the Fed can say nice things and we still have 900 earnings reports to chew the green shoots of this week so I guess it's time for another 566% play this morning. It's the perfect strategy for the "Wonderland" market – just do the opposite of what everyone else is doing…
