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Goldata Financial
Dedicated to above average returns in the stock market.
STOCK MARKET COMMENTARY
July 20, 2009
From Elliot
Goldberg, Registered Investment Advisor, Goldata
Financial
Last week, Mr. Market confounded the market
technicians with solid gains. Leading up to this past week, we had four weeks
of losses and a technical chart that showed a bearish “reverse head and
shoulders” formation. The bears pressed their bets looking for a
continuation of downward action and were looking good until Monday when
Meredith Whitney, stock market guru du jour (Joe Granville, where are you
now?), renounced her previous bearish position on the financials and the averages
never looked back. The bears spent the rest of the week buying back their
short positions at higher and higher prices, resulting in a big week for the
averages. Intel had an impressive earnings report, but IBM and Goldman Sachs
released reports with some warts. IBM beat solidly on earnings, but the top
line (revenues) were down and government sales were the only bright spot of
growth. Goldman also beat handily, but trading profits (think risk) were the
main source of revenues. Recall that last fall, Goldman was about to fail as
an investment bank as a result of the excessive leverage(risk)
it was taking. It was forced to convert into a commercial bank to save itself
with our government providing new capital via the TARP program, a government
guarantee on the new bonds they issued, and 100% reimbursement of AIG
derivative contracts. Goldman took a mulligan with Uncle Sam’s help and
now can raise cheap capital at Uncle’s rate and reload to play again. It’s
“heads I win, tails you lose” time and this quarter it worked for
them. Result – not a year from what should have been their extinction
(think Lehman), bonuses are projected to be at record levels for 2009. They
do pay for performance at Goldman, except when they risk the company and
lose. In Washington, Obama promised us that health care for all was going to
happen, he just didn’t let us know in what form it would be and who was
going to pay for it. Detractors received ammunition when plans for
surcharging incomes over $350k and/or an 8% tax on businesses were pulled up
the flagpole. The conclusion here is that the Senate is prepared to pour cold
water on the whole thing as related stocks have behaved better recently. CIT,
a provider of factoring which allows small business to sell its receivables
at a discount to receive cash earlier and remove the credit risk of the
invoiced company, has been attempting to resuscitate itself with government
help, but apparently they don’t have enough alumni in government (think
Goldman) so they were turned down.
The latest is that a bankruptcy filing is imminent and Goldman and JP
Morgan will provide DIP (debtor in possession) financing. How ironic! Game
plan: Just as the previous week’s downward action needed to be
discounted, last week’s surge deserves the same. We remain in a trading
environment and will continue to hedge when cash is available, moving up
stops on both the longs and the synthetic, hedged shorts when they surge to
lock in profits.
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