- It shouldn’t come as a surprise that AIG’s reportedly considering suing Goldman Sachs (GS) and other Wall Street banks over soured mortgage assets, Yves Smith says. “Other shoes are starting to drop on the Goldman CDO front.”
- “The real scandal isn’t the Street’s unlawful acts (i.e., SEC vs. Goldman Sachs) but legal acts that have reaped the Street a bonanza and nearly sunk the rest of us,” former labor secretary Robert Reich writes.
- “The thing which struck me most about Goldman’s earnings call this morning was how guarded they were,” Felix Salmon says. “For a company which has happily been talking to the press and leaking the letters it sent to the SEC, no one on the call seemed to want to talk candidly.”
- Banks posting “favorable” earnings on lower loan-loss provisions isn’t necessarily cause for celebration, John Hussman writes. “Keep in mind that Enron and Worldcom were able to report outstanding earnings for a while by adjusting the manner by which revenues and expenses were accrued. I suspect that the US banking system has become a similar breeding ground for innovative accounting.”
- “For years, sophisticated investors and big financial institutions, all run by very well-paid individuals, invested huge sums of money on the basis of a few pearls of folk wisdom (‘housing prices never fall’) and the words of some highly conflicted players, like the ratings agencies,” James Surowiecki notes. “This was a recipe for disaster, and disaster was what we got.”
- “There are simply no social benefits to having banks with over $100 billion in total assets,” former IMF chief economist Simon Johnson asserts.
- Dept. of Transportation reports miles driven in February fell 2.9% from a year earlier. “If vehicle miles continues to decline on a year-over-year basis, it might suggest high gasoline prices are starting to impact the economy,” Calculated Risk says.
- “The key factor for a sustained recovery will be a continued improvement in job creation rates at existing firms and stabilization in the rate of new business formation,” Ellyn Terry writes on the Atlanta Fed’s macroblog.
- Lawmakers took aim at Lehman and federal regulators for the investment bank’s collapse, accusing the firm of manipulation and its watchdogs of negligence.
US stocks jump across the board as energy leads the way following a 2.5% rise in crude oil futures. DJIA gains 25 to 11117, S&P 500 increases 10 to 1207, Nasdaq Comp rises 20 to 2500.
All ten of the S&P 500′s sectors post gains amid light volume.
Oil snaps back after a three-day losing streak. Earnings, however, disappointed investors, with IBM dropping 1.9%, Coke falling 1.5% and Johnson & Johnson declining a fraction.
Keep in mind the Dow has gained 98 points this week, coming close to regaining the 126 points it lost last Friday when the SEC dropped its bombshell civil-fraud suit against Goldman.
Lots of activity on the earnings front after hours.
Apple (AAPL) tops expectations for FY2Q, which comes as a surprise to anyone who’s never heard of Apple. The company’s FY3Q EPS estimate of $2.28-$2.39, which is well below Wall Street’s estimate for $2.70 a share, is a classic strategy of remaining overly conservative. Take its FY2Q EPS of $3.33, which blows away the estimate of $2.45 a share.
Results were largely driven by iPhone sales, which doubled year-earlier results and eclipsed the holiday period.
Yahoo (YHOO) posts a profit of $310.2 million, or 22¢ a share, as company posts its first quarter of revenue growth in a year and a half and surprises analysts with strong profit growth.
Paul Vigna and Madeleine Lim review Goldman’s jump in revenue, Johnson & Johnson’s lack of consumer demand and Greece’s “successful” bond auction. It’s Tomorrow’s News Today.
We always hear investors shouldn’t worry about the high unemployment rate because it’s a lagging indicator. Expect the stock market to jump first, the overall economy to follow suit and then slowly but surely the labor market will start showing significant improvement.
Sounds good on paper, but Michael Schuman picks up on a theme that we’ve hit on before: the fickle joblessness cycle.
There’s certainly some economic improvement out there, but the labor market isn’t reflecting it much and seems like policymakers are hard-pressed to foster job creation.
“That means the jobs crisis won’t abate until the excess capacity built up during the debt-driven boom years works itself out,” Schuman writes at Time’s Curious Capitalist blog, which leads him to describe the “vicious cycle” that comes with high unemployment.
“Joblessness means lower demand, which makes the slack in the economy harder to alleviate, which means a slower recovery, which means fewer new jobs, and so on and so on,” he says. “So much for optimism.”
And so much for that notion that jobs are a lagging indicator.
For Main Street, there are still considerable uncertainties out there. Wages, sans government transfers, are stagnant. Good-paying jobs, the kind that aren’t temporary for example, remain scarce. Taxes are almost certainly going up – at some point and by some amount.
But for Wall Street and the investor class, the times couldn’t be better, University of Oregon economics professor Tim Duy says.
The economy’s sitting in a “sweet spot” right now as far as the Street’s concerned, as the recovery is moving “fast enough to push corporate profits upward, not fast enough to attract the attention of the Fed,” Duy says.
“The combination of steady, solid growth with low interest rate and no inflation is about as good as it can get for Wall Street — the sudden work ethic on the part of SEC officials notwithstanding,” he notes.
And with the Fed still holding to its “extended period” pledge so far as keeping interest rates pinned to the floor, investors are experiencing “considerable certainty” in the near-term, Duy adds. “And that certainty is a valuable commodity.”
Yes, he has a point that near-zero interest rates combined with solid growth and high unemployment creates a great environment for stocks to push higher. But, as the stock market keeps running up, we can’t forget the only thing certain about the market is its uncertain nature.
Listen, whatdya want from me? Goldman made money. Could they have smoothed the accounting a bit, deferred here, smudged there, make it look like they’re not running a printing press? Well, sure they could have, but that’s not what they do. Goldman is around to make money, that’s what they do.
Think they really care about all the bad press? I mean, really care, like Toyota-sending-its-CEO-on-a-world-apology-tour care? No. They’re not selling Goldman Flakes on the shelves at ShopRite. So long as the Street reveres them, they’ll suffer the slings and arrows thrown by everybody else.
Of course, if you’re doing business with Goldman, you might want to keep in mind their rather singular focus on making money, for you, yes, but for themselves as well (and very well.)
International sales have been rising as a percentage of corporate sales for years, but since the credit meltdown and recession, companies have become more reliant on overseas markets to make up for domestic weakness. From today’s Upshot:
As first-quarter earnings get rolling, it’s becoming clear that those companies most reliant on domestic sales are lagging their more globally diverse rivals. U.S. consumer spending—the growth driver of the world’s largest economy—remains a lingering concern for corporate America.
Domestically, consumer spending is buffeted by high unemployment, stagnant wages and a weak housing market. That has meant smoother sailing abroad for some businesses with strong international brands and operations.
Personally, I’ve always find it amazing to hear people just blithely expect companies can replace the U.S. consumer with overseas consumers. For one thing, the U.S. is still, by far, the world’s largest market. The idea that the U.S. consumer can so easily be supplanted is spurious. It’s also, speaking as a U.S. consumer, offensive. And, it’s not like overseas markets are immune to the economic winds.
Of course, it’s not all roses for the biggest exporters. Companies including Boeing Co. and General Electric Co. are still struggling with weak world-wide airline and energy markets and lingering financial-markets turmoil.
Addendum: Take a look at Coke’s earnings today. Earnings were up 20% on? International sales.
Bulls aim for some follow-through on yesterday’s rebound, with Friday’s lapse in risk appetite just an irritating memory now. US dollar is weaker, with USD index back below 81.00, and oil and gold both up smartly.
Strong 1Qs from Goldman Sachs this morning and IBM late yesterday, but the results seem to be well-anticipated as IBM moves lower, GS edging higher premarket.
No notable economic data on the calendar.
On the earnings front, Coca-Cola’s (KO) 1Q profit jumped 20% on continuing strength abroad. But North American sales continued its declining trend as consumers continue to shy away from its pricier drinks. KO shares were off 1.2% at $54.65 premarket.
Johnson & Johnson’s (JNJ) 1Q earnings rose 29%, ahead of analysts’ expectations, as sales increased and it booked a $910M litigation gain. But JNJ slightly lowers its 2010 earnings forecast, which seems to have more to do with currency trends than US health-care overhaul. Shares were slightly higher premarket.
Yahoo (YHOO) and Apple (AAPL) report after the close.
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 […]
The bridge that collapsed on Interstate 5 bridge over the Skagit River in Washington was listed as “functionally obsolete” and “fracture critical,” which means the whole sha-bang could come tumbling down if one major part fails. Click here to read the details from USAToday. This sort of thing shouldn’t be happening in a modern, developed nation. Barry LePatn […]
