Market Talk

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.

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- Overseas stocks ahead of US on correction course. “But note: Over the last year, foreign stocks have mostly followed the US market trend, not led it,” Tom Petruno says. “At this point, they probably don’t have a message for Wall Street so much as they’re looking for a message from Wall Street.”

- “Millions” of Kindles flying off Amazon’s shelves. TechCrunch’s Michael Arrington pegs it at 3 million.

- Hard to draw conclusions in this complicated market. “The markets right now are especially complicated and appear to be facing fundamental things that it has either never faced or not faced in modern times,” says Roger Nusbaum, portfolio manager at Your Source Financial.

- S&P 500 crashes through support. Traders had been watching 1080-1085 level. So much for the strong opening. “The reversal today was telling,” FusionIQ CEO Barry Ritholtz says.

- It’s getting ugly out there. “This type of action, when the market trades sharply down even though economic reports and earnings reports both beat estimates handily, is not good,” Bespoke says. “There’s simply no way to sugercoat it.”

- Seems like Apple hasn’t lost affinity for AT&T. “Apple has been happy with the company as a carrier partner and is confident of its plans to vastly improve its network,” Digital Daily blogger John Paczkowski says.

- Pressure on the euro accelerates as currency falls below $1.39 for first time in more than six months.

- Might be a little soon to talk about “post-crisis” times, Pimco CEO Mohamed El-Erian says. “Too many markets, too many institutions have assumed this would happen quickly,” he notes.

- AIG releases list Of troubled derivatives contracts. AIG says in SEC filing that it’s releasing documents “due to recent public disclosure of the full contents of Schedule A,” a detailed listing of $62.1 billion in notional value derivative transactions its financial products group wrote.

- This blog needs more Gaga!

Apollo, or Icarus?

US stocks see-sawing today as bulls and bears are fighting to a standstill, portraying a common theme exhibited in the market’s three-day winning streak this week.

Stocks have started sluggish each day, but still finished higher. S&P 500 is now up a whopping 60% since the market bottomed in early March. But it may have finally reached extreme overbought levels.

The index yesterday closed more than 20% above its 200-day moving average, which Bespoke Investment Group describes as basically an unprecedented move. It’s the first time this has happened since May 1983, and comes only six months after the index traded the furthest below its 200-day moving average since the Great Depression.

“Not even during the great bull run of the ’90s did the index get this far above its 200-DMA,” Bespoke notes on its blog.

Nevertheless, all the chatter this week is focused on when (not if) the Dow will hit 10000. But this isn’t 1999 anymore, MarketWatch editor-in-chief David Calloway writes in a column this morning, and with Dow 10000 looming, this is a time to worry rather than celebrate. From Calloway:

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The corner where skepticism and speculation meet

With summer coming to an end and stocks nearly 50% off their March lows, many market observers are skeptical this rally has room to run higher. But ironically, that skepticism may be exactly what the market needs to keep stocks moving up.

There are several reasons to think the market’s recent rally isn’t sustainable: jobs are still being lost at a historic pace, consumer spending is down and foreclosures are on the rise. Speculation has also caused several financial stocks to skyrocket without any fundamental reason - usually not a good sign for a sustainable rally.

But worrying about early stages of a recovery is normal and typical of post-recessionary periods, according to Citi’s global investment strategist Robert Buckland. “If equity markets weren’t climbing a ‘wall of worry’ we would be concerned,” he says(as relayed by FT’s Alphaville blog). Buckland quotes Sir John Templeton, who once said “bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

The commentary surrounding recent market action is not nearly as pessimistic as it used to be, but “a large dose of skepticism undoubtedly remains,” Buckland adds. “These periods are often good ones for equity investors and it has been no different this time.”

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If this doesn't work, we're gonna need a cash for corn program.

Wal-Mart’s (WMT) 2Q results this morning marked the unofficial ending to earnings season, and when reflecting on corporate profits, several themes come to mind.

Corporate profits are way down from a year ago, but results have largely exceeded analysts diminished expectations, helping boost stock prices. Cost-cutting rather than top-line growth has also been the name of the game as companies are more likely to beat expectations because of layoffs and other streamlining efforts rather than higher revenue.

Take Wal-Mart as an example. Same-store-sales dropped 1.2%, while the retailer had expected sales to be flat to up 3%. WMT CFO Tom Schoewe said the company missed sales expectations because of a tough spending environment. But WMT posted 2Q results at the top end of the company’s guidance and ahead of Wall Street’s projection due to expense control and lower inventory, sending shares up nearly 2%.

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Gotta love the herd mentality.

Much of the commentary from analysts and market pundits since March was overly optimistic as they claimed less-bad economic data meant the economy was on a path to recovery. That path seems to have been diverted as the stock market’s essentially been trading sideways throughout the last two months and a poor June jobs report has renewed economic fears. 

And now lots of commentary, not surprisingly, has turned negative.

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Lots of talk focused on how earnings reports and economic data haven’t been as bad as expected, which could fuel the economy back to prominence. But looking past the market’s recent 20% gains, it’s time to be realistic and realize that the economy’s problems won’t be fixed overnight.

Simply because key economic data points – like ISM data, new and existing home sales and nonfarm payroll – are coming off historic lows doesn’t mean the worst is over, FusionIQ CEO Barry Ritholtz writes on his blog.

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