Goldman Sachs' Power on Display; Blankfien Should Be Jailed

Make no doubt about it. The only reason stocks gained today was because the traders at Goldman Sachs were boosting prices, especially for their own stock and others in the banking sector.

One must really have to stretch credulity to its most outer limits to believe that actual investors - real people playing with their own money - would have so much as touched financial shares with as many ten-foot poles as one could offer them.

Today's argument was that the SEC decision to bring fraud charges against Goldman Sachs came down to a 3-2 vote, thus, the charges cannot be well-founded. While that may be so, and well and good, the argument is as superfluous as what little hair remains on Goldman CEO Lloyd Blankfein's (left) head. There's something there, surely, but it has no meaning.

Looking at the larger scheme, suppose Goldman Sachs is completely innocent, all the way down the line. They did nothing wrong throughout the period from 2003-2007, in which trillions of dollars were packaged, sold and then vaporized. Suppose that is true.

If that's the case, then why would anyone do business with the most incompetent firm on the planet? They must not have known that housing values should not rise by 15% a year, that loans for mortgages should be closely scrutinized and offered only to potential borrowers with the highest credit standards and ability to pay.

Truly, if the chiefs at the Goldman Sachs roundtable didn't see anything wrong with the deals they were facilitating, packaging and selling, then they must be the greatest buffoons on the planet.

The argument simply doesn't work, unless, of course, you are dealing with what actually may be the greatest gathering of idiots in the history of the world, the American public, who still might buy their story, though even that is doubtful.

Politics comes into play in the SEC, just as in any organization. The two dissenters on the decision to charge the firm with fraud might have been concerned over their futures. Goldman Sachs is an incredibly powerful organization, with tentacles throughout the government and society. Taking them on in the courts is a task not for the meek. The regulators who finally, after nearly two years of dawdling, mustered enough courage to do what is right, will likely become pariahs on Wall Street, as unwelcome as a sell rating by any analyst.

Thus, Goldman's political muscle must be weighed in this light, as well as in any trading while the matter is being litigated. Just as the control freaks at Goldman Sachs made sure today would be a shining moment for capitalism, they will be equally resolute in promoting a massive sell-off should the tide turn against them.

It's a simple argument once one boils out all of the politics and media spin: Goldman Sachs either committed fraud on a grand scale or they are completely incompetent and unfit to handle even the simplest financial transactions.

So it is that as of today, all trading in equities and commodities - Goldman's playgrounds - should be eyed with the highest degree of skepticism possible. The firm controls so much of the markets, to such an extraordinary degree, that they may not only be too big to fail, but too big to even be a fair, honest and practical participant.

Dow 11,092.05, +73.39 (0.67%)
NASDAQ 2,480.11, -1.15 (0.05%)
S&P 500 1,197.52, +5.39 (0.45%)
NYSE Composite 7,596.56, +11.94 (0.16%)

Offering credence to the "control" argument are the indices, today hopelessly out of kilter. While the Dow was up sharply, the NASDAQ was down, and the NYSE Composite barely registering a gain. Further, DECLINING ISSUES LED ADVANCERS, 3774-2621. New highs ebbed lower, to 259, while there were only 48 new lows. Volume was magnificent, especially on the NYSE, because it took a lot of trading to boost specific stocks (ones that were, in reality, being sold off by spooked investors).

NYSE Volume 7,341,836,000
NASDAQ Volume 2,163,046,500

This New York Times article about the loyal Goldman Sachs' employees rallying around their beleaguered company and their head honcho, Mr. Blankfein, speaks not only of the company's incredibly adroit reach into the media, but also of the levels of deceit they will employ to save themselves.

The game is up at Goldman, whether they like to admit it or not. Blankfein, if he pushes back hard enough, may find himself looking out at the world from behind bars, which is probably where he belongs, as do many of his cadre of overstuffed, self-important, greed merchants.

Oil prices fell for a third straight day, probably because the Goldman traders were too busy propping up the stock market. Oil slipped another $1.79, to $81.45. Gold fell $1.10, to $1,135.20. Silver gained 6 cents, to $17.72.

Goldman Sachs is still in control, for now, but if there is any justice remaining in what little is left of our democracy, they won't be for long. We can only hope that they don't blow up the economy for good as their final tribute to greed.

SEC Sues Goldman Sachs; Is the Tide Turning?

There was only one piece of news today that mattered and it was the enormous disclosure that the SEC has initiated a civil lawsuit against the leading investment bank in America: Goldman Sachs.

The case alleges fraud by Goldman Sachs in the marketing and selling of certain mortgage-backed securities selected by hedge fund Paulson & Co. Investors lost $1 billion, though Paulson, allegedly aided by Goldman Sachs, made bets (credit defaults swaps or CDS) against the securities and made $1 billion by being on the opposite side of the transaction.

Obviously, the SEC has targeted only one instance of alleged fraud in the marketing of mortgage-backed securities which consisted primarily of sub-prime mortgages, though the case may serve as a test for many more lawsuits to follow. What's apparent from the government's position is that Goldman Sachs will be brought under severe scrutiny in the arcane area of collateralized debt obligations (CDOs), at last seeking to pull back the veil of secrecy surrounding the financial instruments which eventually resulted in a massive collapse of the financial industry and the larger economy.

Should the government prevail against Goldman, the implications could be severe. It's not as though Goldman's marketers were the only Wall Street big wheels who were involved in the sale of such securities. Other banks and financial institutions may find themselves on the receiving end of the government's wrath, notably Bank of America, Morgan Stanley and Citigroup, while JP Morgan Chase may receive something of a pass. Bank of America may be culpable after its acquisition of Merrill Lynch in 2008, while Citigroup and Morgan Stanley merged their brokerage units in January, 2009 under the Smith Barney moniker.

With all of this potential litigation weighing in the background, investors scurried out of Goldman Sachs and other financial stocks en masse on Friday. Goldman Sachs (GS) closed at 160.70, down 23.57 points (12.79%). Other financial stocks suffered declines ranging between 5 and 10%, but the broader market was noticeably spooked, sending all the major indices tumbling into the red. As such, investors were granted the perfect opportunity to bail out and head to the sidelines for the time being, though these lawsuits could take years in which to unravel.

It is worth noting that today's tumble nearly wiped out all of the gains for the week. The news could not have come at a worse time, right in the midst of earnings season. The potential for billions of dollars being vaporized is once again front and center as scandalous lawsuits will almost surely put a lid on further advances and may actually serve to focus investors on other less-than-satisfactory economic news.

Dow 11,018.66, -125.91 (1.13%)
NASDAQ 2,481.26, -34.43 (1.37%)
S&P 500 1,192.13, -19.54 (1.61%)
NYSE Composite 7,584.62, -135.04 (1.75%

The extraordinary nature of todays trade was evident in the internals. Declining issues trumped advancers, 4991-1524. New highs slipped back to 464, though there were only 39 new lows. Volume was at the highest level in months, nearly double the normal volume on the NYSE alone.

NYSE Volume 9,108,087,000
NASDAQ Volume 2,878,199,000

The Goldman news spared no markets. Crude oil dropped $2.27, to $83.24. Gold was hammered, losing $23.40, to $1,136.30. Silver was battered down 76 cents, closing at $17.67 per ounce.

One can only wonder about the timing of the SEC suit and its effect on the markets. Was it mere coincidence that stocks had become ridiculously overbought in recent days or was this yet another well-timed assault on the senses by the money moguls?

Only time will tell, but this is certainly not a time to be very confident in buying stocks. Again.

The Music Never Stops

Consider Wall Street's dizzying performance of late as a prelude to a classic collapse which could happen at any time, though, if you listen to experts, will be delayed until at least September or October. Wall Street's attitude, since the March '09 bottom, is reminiscent of the Broadway show "Cabaret," wherein the overriding theme is one of a libertine hedonism against a backdrop of impending cataclysm. People are making money in stocks, hand over fist. The problem is that the same people who brought us "Death Wish 2008" are reaping most of the profits, awaiting a timely exit.

Individual investors have barely participated, still licking the wounds of the last collapse, fearful that a reprise is just around the corner. While they may be right, they have missed out on some very favorable trades. Their solace, like mine, will be in missing the next collapse by being completely in cash, which, by the way, remains King of the Hill.

On a day in which initial unemployment claims came in not just a touch higher than the estimates, but in fact were devastatingly negative and RealtyTrac announced that residential bank repossessions in America reached yet another record high in the first quarter of 2010, investors kept their eyes on the prize, that being the abundance of nearly-risk-free gains in stocks.

According to ReltyTrac, "Foreclosure filings - default notices, scheduled auctions and bank repossessions - were reported on 932,234 properties in the first quarter - a 7% increase from the previous quarter and a 16% increase from the first quarter of 2009." Apparently, government efforts to stave off the increasing flood of defaults on home mortgages has not been effective. Home owners are under severe duress in one of the most devastating real estate meltdowns ever witnessed.

Truth be told, most of the banks now repossessing properties are the source of the blame, due to overly aggressive appraisals and non-existent underwriting standards. Most of the foreclosures that have been occurring could have been successfully defended by homeowners, though most have neither the knowledge nor the money to fight the bank attorneys and their prolific money-grinding machine.

As for the unemployment condition, initial claims came in at 484,000, fully 44,000 than "expert" predictions and 24,000 more than the previous week, which were also higher than predicted.

Pundits in the financial and mainstream news realm attributed the higher unemployment claims to seasonal conditions, citing Easter as the culprit. Oddly, Easter was also credited with inducing higher retail sales. Something simply doesn't add up.

The RealtyTrac new release was widely disregarded, as the new was so bleak apparently nobody could fathom a method in which to spin it positively.

Other economic data that was largely ignored by the markets were capacity utilization, which barely budged in March, at a dismal 73.2%. Industrial production was up 0.1%, essentially a rounding error. The Philadelphia Fed's Index of economic conditions weighed in at a laughable 20.2, and was hailed as a "good sign."

Taking all of this in stride, stocks continued upon their ridiculous path to ever-higher ground.

Dow 11,144.57, +21.46 (0.19%)
NASDAQ 2,515.69, +10.83 (0.43%)
S&P 500 1,211.67, +1.02 (0.08%)
NYSE Composite 7,719.66, -9.30 (0.12%)

On the day, advancing issues beat decliners, though by a slim margin, 3443-3025. There were 1109 new highs to just 82 new lows. Volume, for a change, was substantially higher than normal, though most of that could be attributed to options expiration on Friday.

NYSE Volume 6,485,359,500
NASDAQ Volume 2,756,471,750

Commodity markets displayed a modicum of caution, with oil futures, losing 33 cents, to $85.51. Gold gained a slight 70 cents, to $1,159.70. Silver was up 2 cents, to $18.42. All of the commodity prices seem to have hit a wall of resistance. Coupled with the overbought condition in the equity markets, an early warning sign of a near-term tumble can easily be extrapolated from the data.

Stocks, like all other asset classes, will eventually succumb to the gravity of deflation, which can be seen almost everywhere, as prices for many goods remain out of reach for large segments of the economy. Currently, supply is matching demand quite well, though there are issues of class distinctions which have not yet become apparent. Further out, the lack of new job creation is a recovery killer, just as is the decline in home values.

Intel Earnings Spark Big Move

Stocks closed sharply higher on Wednesday after Intel (INTC) released 1t quarter results that handily beat street estimates.

The Dow Jones Industrial average sprinted to its best close in 19 months. The NASDAQ and S&P 500 each cleared psychological hurdles at 2500 and 1200, respectively. Investors were cheered by strong earnings results, a benign reading on inflation and optimistic sentiment ion the trading floor.

The government announced that Consumer prices (CPI) grew at an annualized rate of just 0.1%, with core CPI (excluding food and energy components) flat for March. This spurred speculation that the Fed would keep rates at their absurdly low levels into the third quarter, though deflationists warned that the numbers reflect not a recovery, but a flat-lining in economic growth.

Investors were not dissuaded, however, boosting shares of technology stocks ahead of the broader market.

Dow 11,123.11, +103.69 (0.94%)
NASDAQ 2,504.86, +38.87 (1.58%)
S&P 500 1,210.65, +13.35 (1.12%)
NYSE Composite 7,728.96, +90.61 (1.24%)

Advancing issues blew past decliners, 5014-1459, a margin of better-than 3:1. New highs erupted to 1222, with only 95 stocks making new 52-week lows. Volume was impressive on the NASDAQ, but subdued on the NYSE, an ongoing trend.

NYSE Volume 4,512,912,000
NASDAQ Volume 2,799,845,500

Commodities joined in the rally, with crude oil futures gaining $2.84, to $85.84. Gold was higher by $6.20, to, $1,159.00, while silver added 16 cents, to $18.40.

The Dow is up 12% since the February 8 bottom at 9908. Investors will be keeping a close eye on initial unemployment claims on Thursday, as employment and housing continue to lag the stock market. Any good news from either sector will help keep the rally going.

Greece Gets Great Loans; Talbot's a Loser; Stocks Tack on More Gains

If anybody out there can offer advice on how to write the same story 33 different ways, I'll be your first subscriber, because that has been my primary task since February 8, the date of the last interim bottom on the Dow.

While the index hasn't been going straight up, it often seems that way, as, over the span of the past 44 trading days, the Dow has advanced 33 of them. That's a 3-1 ratio of up days over down, and a winning investing formula in anyone's book. I admit, due to my disbelief in the overall economic recovery that everyone keeps talking about but nobody sees, to have completely missed this 1100+ point rally.

That's my fault, but I'm also not about to jump in at these seemingly inflated levels, either. I remain steadfastly, stubbornly, in cash, and it's not a matter of wanting to catch the next low, because I probably won't be investing in stocks for the next few years, at least not US stocks.

Today was more of the broken record variety of days on the Street. Stocks were up, though not by much. Earnings are beginning to trickle into investor equations, with Alcoa (AA) announcing earnings in line with forecasts on Monday at 10 cents per share in the 1st quarter on revenue of $4.9 billion, lower than consensus estimates of $5.24 billion.

After the closing bell today, Intel (INTC) announced 1st quarter results of 43 cents per share, beating the street consensus of 38 cents. Revenue for the chip giant was $10.3 billion, on expectations of $9.84 billion.

Earnings season is off to a good start. Even a company like Talbot's showed a profit of 7 cents per share, even better if you exclude one-time items (Why not? It's a party!). The women's retailer then shows 13 cents per share.

The company had been on the brink of failure, but has redefined itself over the past two years. Still, it's profit was a mere $4.1 million for the quarter, but shares rose significantly due to the amount of short interest. Selling at nearly $15 per share, investors are taking a pretty heavy risk with Talbot's. The company shows negative return on equity, virtually no growth, a p/e of 27 and nearly a half billion dollars in debt. That debt burden alone is enough to keep heavy volume investors away and the shorts making their downside bets.

Talbot's looks a lot like the nation of Greece, which should be the subject of some focus due to the favorable loans it secured from the EU and IMF. Greece will be able to finance its debts at around 5%, or about 100-120 basis points below market rates. The unusually-generous terms have been applied because all of the European finance ministers understand that a Greek default would likely have a severe domino effect on countries like Portugal, Italy, Ireland and Spain. The stronger nations, especially Germany, would likewise be affected, either having to underwrite immense losses or suffer a collapse of its own economy or the Euro.

While a decoupling from the Euro might be the very best thing for the Germans and the continent as a whole, scrapping the entire Euro project has not been something widely anticipated, though it could very well happen within the next 2-3 years. The Southern countries aren't nearly as industrious as their Northern neighbors, and the German populace isn't taking kindly to the concept of bailing out countries which cannot manage their internal budgets. Giving Greece better terms than the very best borrowers, when they are, in fact, sub-prime, at best, reeks of the kind of unfair "picking winners" that was a hallmark of the infamous bank bailouts in the US.

With Greece, failure is being rewarded. With Talbot's, failure has only been delayed. The losers will be the investors who could not judge the risk, as it should be.

Dow 11,019.42, +13.45 (0.12%)
NASDAQ 2,465.99, +8.12 (0.33%)
S&P 500 1,197.30, +0.82 (0.07%)
NYSE Composite 7,638.35, -3.40 (0.04%)

Volume was a little bit perkier than normal, possibly owing to options expiration on Friday or the flood of earnings announcements due out over the next two weeks. Advancing issues outnumbered losers, though marginally, 3362-3108. New highs bettered new lows, 646-50.

NYSE Volume 5,806,878,000
NASDAQ Volume 2,557,582,750

As oil dropped for the fifth straight day, CNN Money ran this headline, Oil declines on oversupply worries. All we can say, after watching naked speculation take the price above $87 last week is, "no kidding?" Crude dropped another 29 cents, to $84.05 on the day, which is still $20-35 above where it should be. The oil speculators are so concerned about keeping the price this high due to imminent, continuing threats of production cuts by the oil-rich nations of the mid-East. Their economies are teetering on insolvency and a price of at least $80 per barrel is needed to keep them current on payments. Eventually, somebody's going to see the light and force the price lower, despite the economic realities facing the royal Suadis and other potentates in the region. Maybe Russia.

Gold dropped $8.80, to $1,152.80, while silver slid 16 cents to $18.24. Once again, the metals are unable to break out to new highs, for reasons that should, by now, be pretty obvious to everyone.

Where are the jobs, and how about that housing market?