Such a bearish appearance must be the result of the rose-colored glasses affirmative action thing at GE Capital: we have yet to see what the Comcast policy vis-a-vis unbiased content is. Nothing substantially new from Meredith – same focus areas of concern including toxic mortgages on the Fed’s balance sheet, non cash flow generating "assets," and consumer, consumer, consumer (apparently she has not read the David Bianco piece either – after all the US consumer now accounts for 100% of Kindle revenues and 0% of US GDP, or so Merrill will soon want you to believe). Yet with Comrade Sam making sure all is good for ever (the alternative, just like falling housing prices in your average S&P model from 2005, simply did not compute at the most recent 5 year plenary session), is there any reason to worry about anything? After all the debt auction carnival begins afresh again today at 1PM with $40 billion in 3 years. So long as those keep getting gobbled up without a glitch, all shall be well.
Calculated Risk points to an interesting but short article at Bloomberg by Meredith Whitney in which she postulates that once the Fed withdraws its support for the mortgage backed securities market, mortgage rates will move up and the banks will be faced with more writedowns.
CR plots the historical spread of of the 30 year mortgage versus the ten year Treasury and comes to the conclusion that the Fed’s intervention has amounted to somewhere around a 50 BP subsidy so far. He then postulates that we could expect to see rates increase by this amount once the Fed exits the market.
Now let me say that I bow to no one in my admiration for CR. When stretched for time, it’s the only blog I read and it’s always the first blog I turn to. The author gets the data and then reaches well thought out conclusions and doesn’t seem to let personal bias intrude on his analysis. Having said that, I think he may be underestimating the potential effect on rates that may occur when there is no more Fed support.
If you read me often you will have seen this quote before. From George Will, “History tends to repeat itself until it doesn’t.” That is the problem that I have with CRs chart on this one. It presupposes that the world hasn’t changed and that the historical relationship between Treasuries and mortgage rates will persist.
Maybe it will and maybe it won’t. It might not because the world has changed. We’ve not seen before the unprecedented political interference in the market for mortgage securities that we have witnessed over the past 18 months. Contract law has been stretched to the point of breaking and what was normally considered standard procedure for resolving mortgage defaults has been turned on its head.
I have no idea as to whether or how much investors have been harmed by government actions and I suppose that no one at this point in time can generate any verifiable numbers. I’m not sure that, in fact, that makes much difference.
When the Fed does withdraw, the risk premium that investors demand is once again going to be subject to market discipline. Now it might not
David Rosenberg thinks the unemployment rate is headed much higher than anyone anticipates. If you recall, back in January when the stimulus package was crafted, the Obama Administration felt that passing the bill would mean an unemployment rate which would top out at 8.0%. As the situation deteriorated, the President recognized that 10.0% was more likely – a number we just got last week. But Rosenberg is the only one (except Meredith Whitney) who is talking about 12-13%.
As an aside, it was interesting to hear Whitney at about 3:15 into the third video in the link above from July. Right before she gives us the dreaded 13% number, she admits to lowballing her house price decline estimates in order not to be dismissed as wildly out of step with consensus. That pressure is something I discussed here.
Here’s what Rosenberg says:
There are serious structural issues undermining the U.S. labour market as companies continue to adjust their order books, production schedules and staffing requirements to a semi-permanently impaired credit backdrop. The bottom line is that the level of credit per unit of GDP is going to be much, much lower in the future than has been the case in the last two decades. While we may be getting close to a bottom in terms of employment, the jobless rate is very likely going to be climbing much further in the future due to the secular dynamics within the labour market.
But in a nutshell, to be calling for a 12.0-13.0% unemployment rate is meaningless except that it is very likely going to be a headline grabber. The most inclusive definition of them all, the U6 measure of the unemployment rate, which includes all forms of unemployed and underemployed, is already at 17.5%. The posted U3 jobless rate that everyone focuses on is at 10.2% (though if it weren’t for the drop in the labour force participation rate, to 65.1% from 66.0% a year ago, the unemployment rate would be testing the post-WWII high of 10.8% right now). The gap between the U6 and the official U3 rate is at a record 7.3 percentage points. Normally this spread is between 3-4 percentage points and ultimately we
In another interesting move, Meredith Whitney cuts her rating on Goldman Sachs (GS) just before earnings on Thursday. This is reminiscent of last quarter. If you remember, it was a Monday morning and markets were continuing to sell off more than 7% over the previous few weeks. Then, she announced on CNBC that Goldman was going to provide blowout numbers and raised her rating and price target.
That provided a quick turn for markets as it turned a 1% early loss for the S&P 500 into a 2%+ gain by day’s end. Financial stocks exploded and the world cheered. She did clarify that it was not a commentary on the broader economy or on other financial stocks. But that did not matter as it was taken as a buy-the-dip signal.
Goldman has seen profits rise through debt and equity offering business and their magnanimous prop trading group. The low cost of funds has also helped as they are now able to borrow as a bank since their conversion in 2008.
Analysts are looing for quarterly EPS approaching $4.25. Whispers are approaching $5.00 and that may be a high hurdle this quarter. Depending on which revenues drove EPS will determine the direction of the shares. Look for stable trading profits and a good percentage of deal revenue from the fixed income division. Also, note the amount that has been set aside to continue to build the balance sheet.
Questions that now come to mind:
Will she appear on CNBC with the bad news? Hmmmmmm…..
Will this cause the rally to stall?
What does this mean for Goldman shares?
What does this mean for her career?
What does this say about other financial stocks?
If Goldman’s earnings may be slowing, what does that say for Wells, JP and Bank of America?
From Bloomberg.com
Oct. 13 (Bloomberg) — Goldman Sachs Group Inc., the biggest U.S. securities firm before converting to a bank last year, was cut to “neutral” by Meredith Whitney, as the analyst dropped her only “buy” recommendation.
Whitney, who correctly predicted in 2007 that Citigroup Inc. would cut its dividend, didn’t update her price estimate on the shares in a summary note distributed to investors today. Further details on the downgrade weren’t immediately available.
Will today be funner? Is funner a word? As you know, I have been determined to get more bullish and our Watch List is growing every day as I add more and more undervalued companies that still have room to fly if we are truly going to run the S&P back over 1,100 this year. We remain skeptical but you can be skeptical and still make money, as you can see from Corey’s (Afraid to Trade) very nice S&P Chart, you can do very well in this market buying the dips OR selling the tops – we kind of like to do both…
Despite the low volumes, buyers are clearly in control of this market and, in Member Chat yesterday, I compared the situation to having a bet on the Raiders, who lost 44 to 7 on Sunday. You can start out with a bet on the Raiders (in this case, the Bears) but there’s a certain point, perhaps when the 3rd consecutive possession by the Giants (Bulls) ends in a TD, that you have tgo admit you aren’t going to win.
You have a few choices at that point: You can be a perma-Raider and keep betting more and more on your team (not smart); You can swallow your losses and leave the stadium; You can swallow your losses and stay on the sidelines and watch the game; Or you can switch sides and start betting on the Giants, maybe even recovering some of what you lost. You can keep some of your useless-looking Raiders bets, just in case a miracle occurs but what’s the sense of not betting on a clear winner when it’s right in front of you? Even if you are skeptical, that can be useful as it keeps you out of trouble as you should be wise enough to take your profits off the table.
I never understand the "fan" behavior of market players. If you see the market going up and up and up and up – perhaps it’s time to make a few up bets. Bears don’t earn loyalty rewards or get frequent-complainer points from the market so, if your "team" is getting trampled, it’s OK to switch sides – at least for a while – no one will think any less of you. In the case of our bull-market bets, we have a great opportunity to switch sides at a very significant…
In case you missed it, Meredith Whitney made an appearnce on Squawk Box yesterday. And she was once again playing the role of harbinger of doom.
She told Squawk that home prices could fall by another 25 percent because of high unemployment and another leg down will come for stocks. What’s more, she said the financial sector will be in trouble as many more loans go bust.
"No bank underwrote a loan with 10 percent unemployment on the horizon," Whitney said. "I think there is no doubt that home prices will go down dramatically from here, it’s just a question of when."
Unemployment is likely to rise to 13 percent or higher and will weigh on the economy for several years, countering government efforts to stabilize the banking industry, analyst Meredith Whitney told CNBC.
While Whitney raised her short-term outlook for banks, causing stocks to open in positive territory after pointing lower earlier, she said the long-term outlook for the economy remains murky.
Right, so now you’re right which ever way the market goes!
If the market rockets higher, you called it. If it tanks, you called it.
The truth is that this sort of "pumpage" is exactly the sort of thing I and others have talked about now for more than two years – Dick Bove’s infamous "generational buy" call being one of them – yet they’re always hedged so you can never say they were wrong.
13% unemployment means we should buy stocks right? That’s not only more than 30% above where it is now, how much consumer spending will another 30% added to unemployment count for? That is, how much will it subtract from GDP, and since profits are generated by sales in excess of costs, gee, what happens to that thing called "profits"?
Never mind what this will do to U-6, which includes people who have given up!
"We underestimate how much the whole economy is dependent on the mortgage industry, and that has to change," Whitney said. "This is what happens when you delay the inevitable. We’re buying time here, but we’re not restructuring the economy."
Right, which is why this sort of reflexive "buy everything!" reaction to Merideth saying that Goldman probably had a great quarter (does anyone doubt it when you have your fingers in the taxpayer’s wallet via AIG payoffs and sales of record amounts of Treasury debt?) is beyond stupid.
The economy does not run on going into debt on any sort of sustainable basis, even though certain people make a lot of money
Rarely will an analyst take action ahead of earnings (Goldman Sachs reports Tuesday) but noted bank bear Meredith Whitney is out this morning with an upgrade of the 5th arm of government. This has futures improving. You might recall in my earnings preview Friday I (not a noted banking analyst) wrote
Goldman Sachs – what more can be said, Goldman has basically cleared the path to prosperity for another generation or two. All major competitors have been destroyed or weakened measurably… transplants live throughout national government… the world is their oyster. All they need to worry about is insiders apparently taking some of their HAL9000 code and trying to get rich off it.
This could be an epic quarter for Goldman – record breaking issuance of stocks – especially financials, in Q2; massive issuance of bonds as credit markets re-opened; massive dominance of weekly program trading. They are everywhere and as less competitors remains their spreads (fancy word for profit margins) widened. I expect a monster beat; it is just a matter of "if it’s in the stock.
Meredith Whitney gave Goldman Sachs Group Inc. her only “buy” recommendation among the eight banks she covers, saying the shares may climb 30 percent. Whitney, the founder of Meredith Whitney Advisory Group LLC, hasn’t recommended buying shares of New York-based Goldman Sachs since January 2008, when she was an analyst at Oppenheimer & Co. The stock may reach $186 from $141.87 on July 10, the analyst said in a note to clients today.
Goldman Sachs, which plans to release second-quarter results tomorrow, is going to post “enormous” revenue from its fixed-income, currencies and commodities business, Whitney said in an interview on CNBC. “Goldman is going to surprise big on the upside,” she said.
Goldman Sachs may post the largest profit since it set an earnings record in 2007.
Check out these numbers
Goldman Sachs managed $27.9 billion of global equity and equity-linked offerings in
Jobless claims improve while leading indicators decline in today’s economic report card
by Wall Street Sector Selector Staff
Weekly jobless claims declined to 424,000 from last week’s 432, 000 but stubbornly stayed above the all important 400,000 level for another week.
August Leading Indicators came in at +0.3% compared to 0.5% for July, as the economy continues registering weakness.
Good news came from July Home Prices which rose to +0.8% from the previously reported +0.7%.
But the biggest economic news of the week came yesterday when the Federal Reserve said it saw “significant downside risks to the economic outlook, including strains in global financial markets.”
Global stock markets responded negatively yesterday an...
Shares of Priceline.com Incorporated (NASDAQ: PCLN) are trading higher in the after-hours following the release of its Q1 earnings results. Currently, shares are up 2.74%, trading at $548.60; they closed the regular session down 0.67 %, at $533.97.
The company said that its Q1 EPS came in at $2.66 on revenues of $809.3 million; this compares to the Street's estimate of $2.46 per share on revenues of $779.5 million. Revenues rose 38.6% year over year.
"In the 1st quarter, the Group benefited from strong growth in our global hotel business, particularly at Booking.com and Agoda," said Jeffery H. Boyd, Priceline President and Chief Executive Officer.
He added, "Room nights booked grew by 55.8% and our international gross bookings grew by 79% compared to prior year...
The damage control to the Fukushima explosion reported earlier is coming fast and furious. According to CNN, "the explosion at an earthquake-damaged nuclear plant was not caused by damage to the nuclear reactor but by a pumping system that failed as crews tried to bring the reactor's temperature down, Chief Cabinet Secretary Yukio Edano said Saturday. The next step for workers at the Fukushima Daiichi plant will be to flood the reactor containment structure with sea water to bring the reactor's temperature down to safe levels, he said. The effort is expected to take two days." While the government is trying to play down the threat from the explosion, it has nonetheless double the evacuation zone radius from 10 to 20 kilometers: "Radiation levels have fallen since the explosion and there is no immediate danger, Edano said. But authorities were nevertheless expanding the evacuation ...
Note from dshort: I retired this chart series last summer in deference to my prefered inflation-adjusted series that aligns the S&P 500 2000 high with the Nikkei peak in 1989. However, I continue to receive requests for this version, despite the "V" shape of the the recovery since the March 2009 low. This chart series overlays the current S&P 500 with the L-shaped "recoveries" after the Dow Crash of 1929, the Nikkei 225 after Japan's 1989 bubble, and the post Tech Bubble NASDAQ. Click the chart below for a larger version and use the links to see various comparisons.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
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You have a few choices at that point: You can be a perma-Raider and keep betting more and more on your team (not smart); You can swallow your losses and leave the stadium; You can swallow your losses and stay on the sidelines and watch the game; Or you can switch sides and start betting on the Giants, maybe even recovering some of what you lost. You can keep some of your useless-looking Raiders bets, just in case a miracle occurs but what’s the sense of not betting on a clear winner when it’s right in front of you? Even if you are skeptical, that can be useful as it keeps you out of trouble as you should be wise enough to take your profits off the table. 
Whitney And CNBC
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(