Paul Vigna and Madeleine Lim analyze the potential fallout from SEC charges against Goldman Sachs (GS). “This was a big shot from Washington to the height of Wall Street,” Paul says.
Also, they discuss the lack of revenue growth in Bank of America (BAC) and GE earnings. And, to no surprise, there’s still uncertainty surrounding Greece. Check it out, it’s Tomorrow’s News Today.
- The SEC fraud charges against Goldman Sachs (GS) aren’t likely to hurt the firm much financially, but clients will likely have more questions about conflicts of interests surrounding the firm;s dealings, Chad Brand writes.
- The big question now “is whether this is just the tip of the iceberg,” James Kostohryz writes at Minyanville. “Given the details of the transaction, it seems highly unlikely to me that this was the only transaction of this nature.” And lawyers “will be chomping at the bit and contacting investors that lost money in mortgage, CDS, etc., transactions to see if there were similar patterns that can be exploited in lawsuits.”
- In the fallout from SEC fraud charges, Goldman CEO Lloyd Blankfein needs to step down, Stephen Gandel notes at Time’s Curious Capitalist blog.
- Goldman Sachs “can go long markets and it can go short markets. But it can’t lie to its clients,” Felix Salmon says. “That’s well beyond the pale.”
- “The only sure way to ensure that no bank becomes too big to fail is to make sure no bank is too big,” Robert Reich says.
- Barry Ritholtz strongly disagrees with the “strategic default” thesis – which states people are defaulting on mortgages and instead using that money for consumer discretionary items.
- Economy’s in early stages of healing process. “If it continues, and the labor market shows sustainable growth, and inflation stays moderate, and the eventual increase in interest rates doesn’t derail the still-fragile state of consumer sentiment, the future looks encouraging,” James Picerno says. “There’s a lot of ‘ifs’ to step over.”
- “Curb your enthusiasm” about the economic rebound,” Economist’s Free Exchange blog says. “Yes, the economy is recovering, as everyone save the nihilists expected. However, the debate ought to be about the strength, not the fact, of the recovery.”
- Within weeks though we’ll be able to see the natural forces of supply and demand at work in the housing market” without major government incentives, says Miller Tabak’s Peter Boockvar. Economy’s definitely improving, but “the steroid juice of cheap money is again having its influence,” he says. “We can only hope that we can make the transition without it over the next few years better than we did last time.”
- Boomtown blogger Kara Swisher reports Yahoo’s (YHOO) M&A chief is hard at work trying to buy Foursquare, the hot mobile startup of the moment.
US stocks suffer their worst selloff since the big winning streak began, after the SEC stuns the street with fraud charges against Goldman Sachs, and the market wonders what’s next.
DJIA drops 126 to 11019, its worst one-day percentage loss since Feb. 4; S&P 500 loses 20 to 1192, Nasdaq Comp falls 34 to 2481. Financials fall nearly 4%, and every sector loses ground. NYSE volume is very heavy at 8.1 billion shares traded. Anything above 5 billion lately has been regarded as strong.
Still, the Dow added 0.19% on the week, just enough to nudge it higher and notch the seventh straight weekly gain, and nine of the past 10. The seven week streak is its longest since May 2007. But that’s little solace given the carnage today.
But Goldman shares get hammered relentlessly, closing down 12.8% at $160.70. The $23.57 loss is the worst one-day dollar loss in its history; on a percentage basis, it’s the worst day for the stock since Jan. 20, 2009. Their travails dragged the entire financial sector down, and that in turn dragged the entire market down.
On the one hand, the market was overdue for a selloff, a strong wind could’ve blown it over today. On the other, well, the charges do look bad.
The market looked weak early, with investors not very excited about GE or BofA’s earnings. But the SEC stuns the market midmorning with charges that Goldman Sachs defrauded investors in a 2007 CDO is created along with Paulson & Co., which was shorting the securities in the CDO. Goldman and Paulson have both denied the charges.
The SEC really walloped Wall Street today. Usually the agency is reduced to proving its worth by circling rinkie-dink Ponzi schemes, or second-rate boiler room operation. But they’re going after Goldman, firing a broadside at the whitest of the white-shoe firms, and at a rather critical moment for the fate of one of their biggest and most successful, and least regulated, cash machines. Derivatives.
Goldman’s shares are getting hammered, as is the wider financial sector, even though the case focuses on a single deal at a single firm. But you can’t view this in a vacuum. The SEC is filing charges related to the marketing of a CDO as the debate is at fever pitch in Washington over whether and how to regulate them. It’s a debate that the Street has thrown a lot of money at, and the GOP has actively played the lackey for, all in an attempt to keep any strings from holding that that cash cow.
Wall Street does not want derivatives to be regulated. And now here comes the SEC, which might as well have Inspector Clouseau running it for all the good it’s done the past decade, pulling off something of a Colombo moment. “Ah, just one more question, Lloyd.”
The Squid uncovered.
Goldman Sachs (GS) shares are tanking and the broader stock market’s falling as the SEC announces fraud charges against the investment banking and securities firm. But the selloff could be an overreaction as the fallout from this case may actually be limited when its all said and done.
That’s the reaction filtering through the blogosphere immediately after the charges hit the wire. Business Insider blogger Henry Blodget says there aren’t any “screaming smoking guns” in the complaint. Goldman will probably have to defend itself from civil lawsuits that will ultimately dismissed or settled. “This will cost Goldman some money, but not enough to matter to investors,” he predicts.
Michael Roston’s preaching the same tune on his True Slant blog, playing off the infamous “vampire squid” reference coined by Matt Taibbi last year.
If Goldman Sachs is only going to lose the $15 million it earned from Paulson & Co., along with the interest and penalties, this SEC action will amount to catching the edge of a single tentacle on a squid that swims away to safely feed in vast quantities again.
To its credit, Goldman issued a statement responding to the complaint.
“The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation,” Goldman says.
The Vampire Squid is in trouble.
Goldman Sachs is getting beat up good this morning, after news broke that the SEC charged them with fraud in structuring and marketing a CDO tied to subprime mortgages. The news is ugly enough in and of itself, but what really captures the imagination are the possible implications and ramifications.
Goldman shares are down 12%, and the entire financial complex is down about 3% on the news. It’s kind of like that scene in “Training Day,” where Ethan Hawke shoots Denzel Washington, after Denzel taunts him, saying he doesn’t the guts to do it. When he finally shoots, Denzel screams in surprise (in a way that only Denzel can convey, too) “you shot me in the @#$!”
The SEC’s charges are straightforward enough: the hedge fund Paulson & Co. paid Goldman $15 million to structure and sell a CDO in 2007, just as the housing market was beginning to crack. Paulson picked the securities to include in the CDO, and then shorted them. Goldman went along, and told investors the securities were picked by an independent third party.
We’ll get all breathless here and suggest to you that this could be the biggest piece of news to hit the financial markets this year. It gets to the heart of the recriminations about Wall Street’s role in the housing bubble, the credit crisis and the financial meltdown. The big Wall Street firms weren’t just providing “liquidity,” as they claimed, they were actively gaming the system to their own benefit. That’s what this allegation says. And it’s Goldman Sachs.
It’s early. These are just allegations. Goldman has not been heard from yet. But another crack in the wall that Wall Street hides behind — that facade that says they’re so successful because they’re just that much smarter than everybody else — has appeared. No telling where it goes or how wide it gets.
Gosh the times are just swell!
For a second we’re going to buy into all the media hype glorifying the economic recovery. As bearish as we are over here at Market Talk, we can admit that the situation looks markedly better now than it did a year ago.
With that said, some things that just don’t add up. And the Pragmatic Capitalist does a great job noting “there are also signs of irrationality on the fray.” The blogger picks up on one specific theme that has us scratching our heads: the radical improvement in the consumer sector.
The Retail HOLDRS ETF (RTH) is experiencing a “full-blown v-shaped recovery,” blog notes, which is surprising considering the the high unemployment rate, declining consumer credit, increasing consumer bankruptcies and surging foreclosures.
We delved deeper into the numbers and found RTH was recently trading around $105, a level last seen in July 2007. Wait. July 2007? Back when the housing market was booming and the Dow Jones Industrial Average was just a few months away from soaring through 14000?
Yes, that July 2007. And now this retail ETF has erased any worries associated with the Great Recession and is pricing in some extremely lofty expectations.
Newswires telecom reporter Roger Cheng checks in with this report:
OMG! I dropped my phone!
Remember Sony Ericsson? With all the talk of Palm sinking into oblivion or getting scooped up, it’s easy to forget some of the other handset vendors that have been swept away by the great smartphone wave.
The mobile handset manufacturer—a joint venture between Sony and L.M. Ericsson Telephone—reported a slight profit in the first quarter, which represented a rare bright spot for a company that continues to lose market share and post declining sales. But the company is a long way away from a true comeback, and continues to stand on the precipice of irrelevancy.
Just a few years ago, Sony Ericsson was riding high on the strength of its colorful feature phones. The company had successfully used Sony’s various consumer brands, which included Walkman and Cybershot, to convey the strength and focus on a particular handset, whether it be as a music player or high-end camera phone. But like Motorola, and even larger companies such as LG Electronics, it had failed to anticipate the exploding popularity of smartphones, and that many of those “premium features” were reduced to standard features.
Why so glum?
So, let’s draw some conclusions here from what we’re reading in the press, from what the best and the brightest are saying about the state of the economy.
Here’s a good one: “Economy ‘Well Into Recovery‘ ” That’s from the Fed’s Dennis Lockhart.
“The economy is actually on track. ” That’s from the Fed’s James James Bullard.
“Evidence Mounts of Strong Recovery,” from the Journal.
“Why So Glum?” from Floyd Norris.
“America’s Back!” from Newsweek.
Hard to fight the tide on this one. I mean, boy, everything sure does point to a strong recovery from the depths of the recession. The housing market, the jobs market, Wall Street, it’s all good. Okay, I’m almost convinced. Maybe it’s time to step out of the bunker.
But let’s look just a little deeper, a little further, for even more confirmation.
“Business On Uptrend Now.” Hey, that sounds good. Oh, wait, my mistake. That headline’s from 1930.
“Business Now Coming Out Of Woods.” Again, a good sign. Oh, wait, a bad sign. That headline’s from 1931.
“Recovery From Depression Is Seen For US.” Hey, great! Oh, wait, not so great: yeah, that headline’s from 1930, too.
Premarket US stock futures suggest a flat open when regular trading gets underway, with reaction to upside earnings results from GE and BofA countering some disappointment with Google’s 1Q report late yesterday.
GOOG down 4.8% premarket, while GE rises 2.4% and BAC gains 1.6%. March housing starts due at 8:30 a.m.; Reuters/Univ of Michigan prelim April consumer sentiment gauge set for 9:55 a.m. ET. Kansas City Fed’s Hoenig (the guy who’s no fan of the “extended period” language) scheduled to speak around 12:30 p.m.
Dollar index recently at 80.65; oil, gold both lower. Markets in Asia lower overnight, currently down slightly in Europe. S&P futures off 2.70; DJ futures down 10. Ten-year higher, yield at 3.81%.
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