US stocks rally sharply in the afternoon, despite the high-profile Goldman fraud case. DJIA rises right into the close, gaining 73 to 11092, S&P 500 gains 5 to 1198, Nasdaq Comp slips 1 to 2480.
Financials, down early, lead the way. Something’s got the Street thinking the Goldman case will blow over. Citi rises 7% after its best earnings report since the recession began.
But Greece is still a looming concern; while IMF officials can’t physically get there because of volcanic ash, Bundesbank President Axel Weber suggested the nation may need 80B euros to avoid default.
Paul Vigna and Madeleine Lim discuss the latest on Goldman Sachs and its role on the financial regulatory reform bill. They also talk Greek bonds as well as Citigroup’s earnings. Check out Tomorrow’s News Today.
- “Lloyd, you should just come out and tell it like it is,” our WSJ colleague Evan Newmark writes. “That may not make you a good guy, but at least you will be an honest one.”
- Fraud charges against Goldman Sachs (GS) “can either be a one-month story that you lose, or a two-year story that guarantees a steady stream of negative publicity and wears on morale, but that you win,” Economics of Contempt blog says.
- The SEC is suing Goldman Sachs, but NYT’s Room for Debate bloggers ponder whether regulation or monitoring of these financial instruments could have prevented such losses.
- Barry Ritholtz asks a baker’s dozen worth of questions related to SEC litigation vs. Goldman Sachs.
- Former IMF chief economist Simon Johnson says SEC’s fraud charges against Goldman are a perfect rallying point for financial reform.
- “The suit against Goldman may just be the tip of the iceberg in what will hopefully become a wide-ranging probe that stretches beyond failure to disclose to include the corruption that helped to build the bad cars in the first place,” Dylan Ratigan writes.
- April hasn’t been too friendly to Palm. First, reports surfaced that the company put itself up for sale. Then software chief Michael Abbott departed. Now it looks like RadioShack (RSH) is dumping Palm’s smartphones, Digital Daily blogger John Paczkowksi reports.
- By happy hour today, expect Silicon Valley bars to be crammed with technophiles hunting for next-generation Apple (AAPL) products. Gizmodo hits the jackpot of gadget scoops, finding a device that was lost in a bar in Redwood City, Calif., that appears to be the next version of the iPhone.
- Mortgage delinquencies are on the decline. But don’t celebrate just yet. “A turning point would be welcome news – but either way, there’s still a long slog ahead,” Barbara Kiviat says.
Don't expect any of this from Blankfein anytime soon.
Goldman Sachs’ (GS) decision not to previously disclose the fact that the SEC was investigating it for fraud is raising some eyebrows, especially as the firm’s reputation takes hit after hit.
Variousreports suggest the SEC issued a Wells Notice to Goldman back in July 2009, with the Journal even reporting Goldman knew as far back as August 2008 that regulators were sniffing around its controversial mortgage securities.
But Friday’s bombshell left industry watchers perplexed as to why Goldman failed to disclose anything in the first place, especially since previous disclosures would’ve lessened the blow from last week’s civil-fraud charges.
“As with a lot of things in SEC filings, it all boils down to an issue of materiality: was the existence of the Wells Notice material enough to Goldman that it required disclosure?” Michelle Leder ponders at Footnoted. “The rules on materiality are pretty vague and it’s now clear that Goldman’s attorneys came to the conclusion that the Wells Notice was not material, even if the market seems to disagree.”
Given Goldman’s size and the relatively small amount listed in the complaint, she says it’s reasonable to understand why Goldman wouldn’t consider the Wells Notice material.
Still, she notes GE, Bank of America (BAC), UBS, JPMorgan (JPM) and Berkshire Hathaway (BRKB), which are all over $50 billion in market cap, have all disclosed Wells Notices in the past.
“If disclosing a Wells Notice was material enough for these companies, why was it not material enough for Goldman?” Leder wonders.
Have you had your fill yet? With the stock market gyrating as much as it has the past two days, it’s hard to discern what investors really think. But you can take your own temperature.
“Take a moment to think about what you did when the news hit and the market dropped — were you gleefully checking your liquidity for a buying opportunity or packing up the circus tents because the fun has been had and now it’s time for reality to set in,” Joshua Brown writes at his Reformed Broker blog. “It really is that cut-and-dry.”
The movements in the stock market over the next few weeks will say a lot about what people really think about the recovery, especially with the added uncertainty of the Goldman suit and who else could be implicated next. The DJIA was down this morning, but rose sharply this afternoon (for reasons that are still unclear.) Goldman was down this morning, too, on top of Friday’s 13% drop, but lately have climbed into the green, up 1.4%.
Friday’s double-digit drop was a rarity; Goldman shares have dropped 10% or more on only 13 occasions since the firm went public in 1999. But, as Bespoke Investment Group points out, those declines have proven to be short-lived.
So as you may or may not be aware, I think deflation is an issue, and potentially a big issue. Now, obviously, most of the rest of the world does not share my concern. In fact, most people are worried about inflation; indeed, the Fed is always talking about inflation. Inflation’s tame, inflation this, inflation that. They never seem to talk about deflation.
So, I was looking for an FT story from over the weekend, “Deflation of Threat Stalks Economy.” It notes that even though few people are concerned about it, deflation may very well be the bigger threat to the economy.
Ever since central banks began pumping trillions of dollars into the global economy just over 18 months ago in an attempt to stave off economic depression, a debate has raged over whether the eventual result would be inflation.
More recently, the conversation has shifted. Indeed, discussions are increasingly focused on the extent to which disinflation or deflation will take hold.
The topic returned to the spotlight this week when US consumer price inflation was shown to have been just 0.1 per cent in March. The core rate was unchanged.
But what struck me as the most telling was that to find the story, I googled “threat deflation stalks.” I got the link, but Google asked me if I was looking for inflation and not deflation. When even Google’s search results aren’t picking up deflation, well, there’s something wrong there.
When wages aren’t growing it’s hard to goose inflation, which is what the Fed wants to do, no matter what they say. They’re trying to get inflation, because without all that money the Fed’s pumped into the system, without those inflationary zero percent interest rates, I guaranteed we’d have already had a bout of deflation. The big question, though, is what happens if deflation shows up now.
Friday showed you what can happen when something from left field slams into a market like this one, a market that has been blissfully unaware of the fact that there is such a thing in as risk. When you’ve got a stock market that’s up 75% in a year and seemingly rising every day, when everybody from the White House to CNBC to the Times to Newsweek is proclaiming it’s a bright new day, it’s easy to lose sight of the risks. But they don’t go away just because the bulls want to make some money.
Risk has a funny way of rising up and smacking you down if you don’t pay it respect it.
The aftershocks of the credit crisis are still being felt, still working through the markets. It couldn’t be any other way. But the Street forgot about all that, so enamoured were they with their profit-making ways. They conveniently overlooked the little things that helped them out, like 0% interest rates, or the suspended mark-to-market rules, and thought they were doing it the old-fashioned way (and given what the SEC alleges, we’re not exactly sure what constitutes the old-fashioned way anymore.)
We have not had even a 10% correction throughout this entire rally, but one is coming. If the market’s lucky, it gets off with a 10-15% correction. If it’s not, well, it’ll be worse. Before Friday, I would’ve bet on May for a selloff, for reasons beyond the old “sell in May” trope. Now, it could come earlier. And the Goldman case isn’t the only thing lurking out there.
Stocks look a bit shaky premarket following Friday’s Goldman-related selloff. Some softness in equity futures ahead of the open may be residual from the Goldman brouhaha, though some also looks related to the ongoing Greek saga.
Travel issues delay an EU/IMF delegation scheduled to visit Greece, so euro’s under pressure, Greek bond spreads widen to record levels and CDS are higher. US dollar’s rising, oil and gold both slump.
Flow of 1Q earnings reports picks up, one-third of DJIA companies out with results this week. Data calendar thin until Thursday when we see March PPI, existing home sales and weekly jobless claims. Today, Conference Board’s March LEI due at 10:00am.
USD index recently at 81.15. S&P futures down 6.60; 10-yr flat, yield at 3.77%
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
Bernie Madoff tells CNNMoney he’s having trouble sleeping. Click here to read more about that from CNN. He doesn’t know how lucky he’s got it, living behind bars in America. In China this week, a 39-year old businesswoman received the death sentence for running a $70 million Ponzi scheme – pocket change next to the […]
