Wikinvest Wire

Can Goldman Sachs save the world?

Monday, July 13, 2009

Let's see...

There is much financial news to pore over this morning, but little of it is good, yet stocks are going up.

What gives?

The Associated Press reports that CIT Group is teetering on the edge of bankruptcy, having consulted specialists over the weekend to explore their alternatives during a loss-driven liquidity crisis with little help forthcoming from the FDIC to guarantee their debt.

The company's share price has plunged, but Treasury Secretary Tim Geithner says government help is on the way. It doesn't seem to be helping much.

Bloomberg was running a story about how Asian market shares are the priciest they've been since 2007 when markets began to tumble. That report can longer be located for some reason, but I know it exists - I printed it out about an hour ago to read while on the treadmill.

The news wasn't good - something about high valuations and that investors are paying too much for shares from China, India, and Brazil as the global economy continues to contract.

Reuters filed this report carrying a new warning from the World Trade Organization that the global economic downturn is far from over, recent protectionist measures taken by many countries being more likely to exacerbate the decline than to help individual nations.

Global trade has plummeted over the last year and unless a robust recovery in consumer spending materializes in the West, this is not likely to improve anytime soon.

The Telegraph carries this story about how the Chinese banking system may be nearing a point of maximum expansion, new loan issuance expanding rapidly last month, now around the half trillion dollar mark in 2009, an entire year's worth of lending based on an aggressive expansion launched months ago.

The idea that a good portion of this newly created money has gone into China's equity markets, helping to fuel its 60 percent rise this year, is starting to cause concern.

And then there's this Bloomberg report about how Brazil's currency and stock market are "poised for synchronized declines" based on a plethora of technical indicators that also bode ill for Russia, India, and China.

So much money has been pouring into emerging markets as a result of the widespread belief that they'll be the only regions where economic growth will occur this year, a speedy reversal of this money flow could be devastating.

So, why are equity markets rising today?

Goldman Sachs, according to this New York Times piece.

The word on Wall Street is that the behemoth financial firm, recently characterized as "the great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money" is readying a knock-out earnings report for release tomorrow and even Meredith Whitney is tingling with excitement.

It looks like Goldman Sachs is going to save the world.

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AJ said...

How hilariously ironic would it be if the Chinese ended up causing severe inflation for the yuan while telling America to avoid trashing the dollar?

I loved Matt Taibbi's Rolling Stone article. While his in-your-face, excessively snarky writing style is not good for forming constructive dialog with the other side of the argument, he manages to express the full insanity of situations with a color rivaling that of rainbows. You should have linked to it, but you didn't, so here.

And in the vein of keeping an eye on Government Sachs, I would love to encourage people to read Glenn Greenwald's post today.

Dan said...

One Hundred Dollars

It is the month of August, a resort town sits next to the shores of a lake. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town.
He enters the only hotel, lays a 100 dollar bill on the reception counter, and goes to inspect the rooms upstairs in order to pick one.
The hotel proprietor takes the 100 dollar bill and runs to pay his debt to the butcher.
The Butcher takes the 100 dollar bill, and runs to pay his debt to the pig raiser.
The pig raiser takes the 100 dollar bill, and runs to pay his debt to the supplier of his feed and fuel.
The supplier of feed and fuel takes the 100 dollar bill and runs to pay his debt to the town's prostitute that in these hard times, gave her "services" on credit.
The hooker runs to the hotel, and pays off her debt with the 100 dollar bill to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.
The hotel proprietor then lays the 100 dollar bill back on the counter so that the rich tourist will not suspect anything.
At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 dollar bill, after saying that he did not like any of the rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism .
And that, ladies and gentlemen, is how the United States Government is doing business today.

Tim said...

AJ - a few comments on the Taibbi story from last week - Matt Taibbi on Goldman Sachs' bubbles
Dan - no contributions to GDP in your tale - someone has to borrow some new money and spend it for us to move forward...

AJ said...

A-ha! And you know what, I probably read it here before I read it at Greenwald's.

Anonymous said...

Tim --- you don't understand -- it' all about juice -- it says so right here in this article:

"Investors are betting that strength in banks could juice the entire economy."

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