Market Talk

- Don’t dismiss the notion that retail spending is being partly driven by homeowners strategically defaulting on mortgages, even though it’s hard to quantify exactly hoe many people are “spending the mortgage,” Paul Jackson writes at HousingWire.

- Small businesses, which have led job creation in previous recoveries, may be finally contributing to job growth now as the economy rebounds, Atlanta Fed’s macroblog says.

- “The Squid has been living for years off the simple fact that, like the fabled IBM of yore, no-one ever got fired (or sued) for picking Goldman Sachs,” the Epicurean Dealmaker notes. “That calculus has been changed,” and everyone knows it.

- Google’s (GOOG) recent acquisition of secretive early-stage start-up Agnilux ranks as the “most curious” deal in its history, Digital Daily blogger John Paczkowski says.

- Picking apart Apple’s (AAPL) blowout earnings, Silicon Alley Insider’s Dan Frommer says Apple’s iPhone business is growing much faster internationally than it is in the US.

- Lots of merger chatter swirling swirling around UAL Corp’s (UAUA) United Airlines. And while a deal might make sense for operational reasons, Footnoted’s Theo Francis notes the company has made it “substantially more attractive” for its top executives to seal a deal.

- Facebook’s launching an ambitious plan to essentially take over the Internet.

- Looks like Adobe (ADBE has finally given up on getting Flash on the iPhone. “We will still be shipping the ability to target the iPhone and iPad in Flash CS5,” Mike Chambers, Adobe’s principal product manager for the Flash platform, writes on his blog. “However, we are currently not planning any additional investments in that feature.”

- Investors take note: A stock-market indicator with a good long-term record has flashed a buy signal.

- The grudge match over your 401(k)

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.

Just because Goldman Sachs’ (GS) reputation has been hit hard in recent months doesn’t mean its shares have taken the same sort of abuse.

Quite the opposite, in fact, as Goldman’s stock has enjoyed an 18% run-up throughout the last six weeks even as the firm’s rep has been under attack.

Goldman, famously dubbed the “Vampire Squid” by Rolling Stone writer Matt Taibbi, has often been criticized for its controversial role throughout the financial crisis. Recently it seems like Goldman has been bending over backward trying to preserve its reputation. The latest defense came last month from Lucas van Praag, Goldman’s head of corporate communications, who went into granular detail in a blog post rebutting a NY Times story that described the firm’s controversial relationship with AIG.

But putting the negative publicity aside for a second, Chad Brad, founder and president of Peridot Capital, makes the case that Goldman shares are undervalued and at current levels present a good buying opportunity for investors.

Goldman is still the “best investment bank in the world…has seen many of its competitors go out of business or dramatically scale back operations, and yet at around $170 per share the stock still trades for less than 10 times estimated 2010 earnings,” he says.

Brand, which discloses his firm is long Goldman shares, notes the firm trades at a lower valuation than both Bear Stearns and Lehman did pre-crisis.

And buying Goldman at less than 10x earnings is a “tremendously attractive risk-reward opportunity,” he adds.

Goldman shares were recently off 1.4% at $172.44.

Please, Lucas, tell us another one.

It seems like ever since Rolling Stone’s Matt Taibbi tagged Goldman Sachs (GS) the “vampire squid,” the firm has bent over backward trying to defend itself.

Latest defense comes from Lucas van Praag, Goldman’s head of corporate communications. He pens a blog post in The Huffington Post that goes into granular detail to rebut Sunday’s NY Times story detailing the firm’s controversial relationship with AIG.

He breaks the story into nine different sections, labeling “NYT assertions” and then correcting these errors with “the facts,” claiming several aspects of the story are false, misleading and mischaracterize the situation.

Bottom line, van Praag disagrees with notion that Goldman was biggest beneficiary of mortgage market’s decline. “Through prudent , we limited our losses, rather than generating ‘enormous profits,’” he says. “AIG was only one of many counterparties with whom we had hedging arrangements.”

This isn’t the first time Goldman’s gone out of its way to take part in damage control. In December, van Praag responded to several questions the Zero Hedge blog posted related to Goldman’s prop trading operations as well as how it defines market risk and if it even has a risk policy.

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