Goldman is Profitable – Dollar, Yen Move Up
by Rebekah Manning
Goldman Sachs and the Eveready Battery keep on trying. The platinum level financial is doing its best to carry the load and lead the American financials up the hill and over the top of the financial crises.
After Monday’s close, Goldman Sachs Group, Inc. released stellar, early 1st quarter profit reports. The net income gain of $1.66 billion surpassed expectations as the company announced a plan to raise private funding for a quick TARP repayment and escape. This is welcome news to taxpayers and the Obama administration that looks to the shoring up of the financials as the key to leading the country out of the recession.
In the wake of last week’s good news from Wells Fargo, the market responded well to the financials on Monday. JP Morgan, whose 1st quarter results come out on Thursday, jumped 3% to $33.70, as shares in Bank of America and Citigroup, whose report card comes out Friday, also rose. An optimistic Les Saflow of Cabot Money Management reflected the market’s view that, “these banks are clawing their way back, literally from the brink of extinction. My view is that a key phase of this economic downturn is behind us.”
Not all investors were reading the Goldman report the same way. Coupled with dismal GM and Chrysler activity, Boeing released a late report indicating a significant production downturn. The market quickly reversed a positive shift and finished slightly down.
The downturn highlighted investor fears that stocks remain at risk. The reaction caused overnight investors to move to the dollar and yen as safe havens.
Another View of Goldman Sachs
Two weeks ago Secretary of the Federal Reserve, Ben Bernanke, said that private investment returning to the markets would signal a recovery was underway. Goldman’s plan to raise $5 billion in order to repay taxpayer TARP funds looks good on the surface. Skeptics take a dimmer view and raise interesting issues.
The company’s first quarter results do not reflect a change in the fiscal year that conveniently removes December from the first quarter of 2009. Previously, first quarter results would have been posted through February 27th and would have included December 2008. Instead, Goldman Sachs released a December, one-time, one-month loss of $1.03 billion.
Skeptics also question the receipt of a multi-billion dollar payment from AIG, who has taken $183 billion from taxpayers. And then, there is the hard push to escape the regulatory restraints caused by the outstanding Troubled Relief Asset Program (TARP) indebtedness.
Goldman Sachs pays well, perhaps, a little too well and definitely too well by TARP standards. The reported average first quarter income for the company’s employees was $168,901 and marks a 35% increase over the 2008 first quarter. At this rate, average Goldman employees will earn $675,000 in 2009. 953 Goldman employees earned more than $1 million in 2008.
And, then there is Warren Buffet. Buffet’s Goldman investment is reportedly earning $1 million a day.
Wells Fargo led the financial’s charge with an early unexpected first quarter profit report last Thursday. Despite high mortgage volume, analysts have raised questions about the quality of the bank’s loan portfolio and the repercussions of those loans on the bank’s balance sheet.
The Obama administration met last Friday to review Treasury Secretary Tim Geithner’s stress test findings. As the financials grope to soothe investors, they may have a more difficult time convincing the government of their solvency although mark-to-market changes should help.
Dollar and Yen Signals
Analyzing the equity market, Rebecca Patterson, global currency chief at JPMorgan, may have said it best. “It’s not clear to me we’re out there, at the bottom.”
Explaining why she is recommending currency trading, Patterson went further. “It’s not just a risk appetite play. It’s also a valuation play. And, it’s an intervention risk play. In other words, I think if the yen strengthens too much, the government of Japan will put a halt to it.”
The dollar and yen continue to be safe plays against the equity risk. Overnight, the yen moved higher against the euro for the fifth time in six days, closing at 1331.11. Japan’s currency climbed 0.8% against the Aussie to 72.70.
On Monday, China reported that its economy will shrink more than at any other time in the economy’s 44 year history. A report from Singapore indicates a 9% contraction is in the wings. As dismal as the news from Asia remains, Germany’s Federal Statistics Office is likely to release a dismal first quarter report on today. The European Central Bank may be forced to intervene with a higher-than-anticipated rate cut. As a result, the euro has fallen sharply of late.
“There doesn’t seem to be much improvement in the real economies around the world. The yen is likely to be bought and the dollar also may be bought as a safe-haven currency,” reported Toshihiko Sakai of Tokyo at Mitsubishi UFJ Trust & banking Corp.
US retail and manufacturing numbers are due this week. Strong numbers should boost investor confidence in equities, but with the continuing struggles of GM, Chrysler and Boeing, the prospects for breaking the current trend are not promising.
About the Author - Rebekah Manning
Rebekah started in the Forex industry as an intern in 2001, and worked her way up the ranks to a C-level management position. She enjoys the field of trading as well as MMA fighting, shooting ranges, and action movies.
