Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Goldman Sachs Expected to Post “Blowout” Quarter Amid Run of Lackluster Corporate Profit Reports

Companies / Corporate Earnings Jul 14, 2009 - 05:22 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleStaff Report: The shrewdest U.S. investors understand that future profits will come from overseas.
But Goldman Sachs Group Inc. (NYSE: GS) is apparently getting those profits now.


Wall Street analysts are predicting that Goldman – which only recently repaid billions in government bailout money – will report a “blowout” quarter today (Tuesday), thanks to its own shrewd ability to trade its way through the overseas markets. Indeed, analysts are looking for profits in excess of $2 billion for the March-June quarter.

In an odd financial irony, Goldman’s good fortune could well underscore that many problems remain in the U.S. financial sector, meaning the U.S. economic recovery remains in the distance.

Goldman Sachs is “taking opportune risks that others aren’t taking,” Charles Geisst, a Wall Street historian and author of the forthcoming “Collateral Damaged: The Marketing of Consumer Debt to America,” told The New York Times. “They are scooping up all the risks that are available.”

Goldman’s shares surged $7.57 each, or 5.34% in trading yesterday (Monday) to close at $149.44.

As Money Morning has reported, less than a week into corporate earnings season – where U.S. firms are posting their second-quarter results – investors are anticipating a lackluster showing, but are hoping that big banks and high-tech leaders will report strong enough results to at least stop the stock-market’s current decline, or perhaps even to ignite another stock-market rally.

The Standard & Poor’s 500 Index and Dow Jones Industrial Average declined for the fourth straight week last week – the longest string of losses since stocks hit their low point in March. The Nasdaq Composite Index 2.47% in the week ended Friday.

Earnings reports this week from computer-chip giant Intel Corp. (Nasdaq: INTC) and several big banks – including JPMorgan Chase & Co. (NYSE: JPM)– could provide investors and economists some insights on where the U.S. economy appears to be headed.

Earnings are expected to improve over the last quarter, even though they’ll still be down substantially on a year-over-year basis, Binky Chadha, chief U.S. equity strategist at Deutsche Bank AG (NYSE: DB), told MarketWatch.com.

JPMorgan Chase & Co. (NYSE: JPM) reports Wednesday. Internet-search juggernaut Google Inc. (Nasdaq: GOOG) will report on Thursday. Other firms that report this week include Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C).
"A necessary condition for the markets to go up from here is that earnings have to deliver, and we need a dissipation of the uncertainty about earnings," Chadha said.

Thomson Reuters predicted that S&P 500 earnings will decline by 36% from last year’s levels, with financials (-53%) leading the way and techs (-24%) performing better than other sectors.  This should represent the eighth-straight quarterly decline, though analysts seem more concerned about the ensuing management comments on future operations, since that will shed some light on where the economy is headed.

Late last week, Dow component Alcoa Inc. (NYSE: AA) kicked off the corporate earnings season with a lower-than-expected loss.

Goldman Takes Risks, Goes Global

If Goldman posts the $2.17 billion in profits that many analysts are forecasting, it will stand as solid evidence that the investment bank has deftly navigated the ongoing financial crisis – with perhaps even better days to come. Goldman earned $2.05 billion in the second quarter last year and $2.29 billion the 2007 second quarter.

Traders said Goldman made several key moves during the quarter:

  • Played the whipsaw volatility in the global credit markets by trading bonds to generate part of its quarterly fortune.
  • Properly played a similar pattern in U.S. stocks this year, profiting as an early-year plunge reversed course and turned into one of the most-powerful short-term.
  • Capitalized on such commodities as oil, while also trading volatile currencies.
  • And made the most of its position as one of the few remaining heavyweight-investment-banking firms willing and able to service the deal-making market. It reaped lucrative fees from the high-margin business of underwriting stock offerings, which have surged anew this year as other more-troubled financial institutions raced to raise capital.

A look at a common risk-taking measure – so-called “value at risk,” or VAR – shows that while other investment banks were playing it conservative, Goldman was clearly game to take risks. VAR, an estimate of what an institution could lose in a single day, zoomed by more than 20% in the first quarter and analysts believe that figure was probably even higher in the second quarter, The Times said.

Analysts are concerned that many of these profit-making opportunities will disappear in the year’s second half – which looks much more challenging. Part of that challenge will be for the company to deal with the heightened group of regulations it is now subject to after having converted from an investment bank to the more-heavily regulated bank-holding company.
Goldman Sachs is betting on the markets – just as the markets are betting on Goldman, whose stock price has soared 68% this year. The stock closed at $141.87 on Friday – and remains about 76% below its record high of $250.70, reached in 2007.

And if the expectations are correct, the second-quarter financial report will extend a successful run for Goldman, which has only ever been marred by a single quarterly loss – a $2.12 billion loss last fall, The Times said.

That turnabout should allow employees to reap a major windfall, with top producers earning in the millions, The Times reported. Analysts estimate that the bank will set aside enough money to pay a total of $18 billion in compensation and benefits this year to its 28,000 employees – an average of $600,000 per employee, the newspaper reported.

Goldman’s shares were upgraded to a “Buy” from a “Neutral” rating by the Meredith Whitney Advisory Group LLC, MarketWatch reported early yesterday. Principal Meredith Whitney, who announced back in February that she would leave Oppenheimer & Co. (OPY) to form her own firm, is a Wall Street maverick who was one of the few mainstream analysts to really understand in advance how deep the U.S. finance crisis was destined to become.

Whitney says her firm’s bullishness on Goldman’s shares is based on their bearishness about the outlook for the U.S. financial-services sector – and for the U.S. economy in general. Whitney expects a frenzy of debt issues from federal, state and local governments in the United States, as well as by governments abroad, in order to finance massive budget deficits, bailout programs and stimulus packages that continue to be announced.

Furthermore, Whitney says that with the number of consolidations, conversions to conventional bank holding companies and outright failures and consolidations in the investment-banking sector – coupled with the aversion to risk being manifested by the remaining survivors – Goldman will have more of this market to itself than ever before.

Indeed, expect Goldman to gain market share in these areas, and in such businesses as derivatives, where growth is projected to resume, iStockAnalyst.com reported.

Whitney has a 12-month target price of $186 on Goldman’s shares, which would represent a 31% gain from Friday’s closing price.

However, Peter S. Cohan, president of venture-capital and management-consulting firm Peter S. Cohan & Associates,says the excitement over the projected Goldman Sach’s profits is way overblown.

“When Goldman Sachs Group reports on its second quarter tomorrow, analysts estimate that earnings will total $2 billion,” Cohan wrote in a column for Daily Finance early. “That sounds like a big number, but two years ago, when it paid its workers an average bonus of $661,000, it earned $2.3 billion in the second quarter. It looks like Goldman is going to try to pay near-record bonuses in 2009 despite less-than-record earnings.”

[Editor’s Note: Make sure to read Money Morning later this week when Contributing Editor Shah Gilani, a retired hedge-fund manager who is also an avowed expert on the global credit crisis, analyzes the long-term profit potential posed by the investment-banking sector.]

Money Morning/The Money Map Report

©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules