4/16/10 Midafternoon Report: Goldman Craps

Oh no they didn't.  The SEC apparently found their shriveled ballsac hidden in Meaghan Cheung's now empty desk and hired Faye Reagan to skillfully tickle it back to life which has led the re-testosteroned agency to go after the biggest turd in the punchbowl, Goldman fucking Sachs.  Holy shit is it on.  The government hasn't gone after one of their own like this since Bill Clinton misplaced a cigar in the Oval Office (and yes, Money McBags considers GS one of the government's own since they are more intertwined than chocolate and vanilla in a marble cake or Wilford Brimley and Betty White sharing an electric blanket).  The SEC is claiming that Goldman Sachs defrauded investors by misleading them about the subprime mortgages they were packaging and selling as part of CDOs.  The government's case centers around the fact that Goldman is full of shit, and less importantly, around the fact that Goldman let John A. Paulson (no relation to former GS CEO and US Treasury Secretary Hank Paulson, and also no relation to other famous frauds such as Bernie Madoff) pick and choose which mortgages were going in to those CDOs despite the fact that Goldman knew Paulson was betting against those securities.  To be more precise, the issue centers around a subprime CDO called Abacus, whose name apparently signifies the sophisticaiton of investors who bought this fraud because they apparently were using an ancient roman abacus to calculate the likely value of the CDO after losses as we all know roman numerals and hence roman abacuses, don't contain a zero.  It is the classic case of heads I win, tales you lose, now go get me a fucking vodka tonic and hold the fucking lemon.  GS led investors to believe that an independent third party picked the subprime mortgages for their CDOs which was such a boldfaced lie that Money McBags is now going to rename them Boldman Sachs, or BS for short.  The suit by the SEC also names Boldman trader "Fabulous" Fabrice Tourre with helping perpetuate this fraud which now vaults him past Milli Vanilli's Fabrice Morvan as the most famous fraudster named Fabrice.  One only wonders if Mr. Touree will also blame it on the rain. 

In their defense, Goldman referred to the SEC accusations as “completely unfounded in law and fact” unless you are "talking about securities law and irrefutable details."  The firm did say they will “vigorously contest" the charges "and defend the firm and its reputation.”   When reporters reminded them that after the financial crisis and their ties to Washington, their reputation might have already been blown, the Goldman lawyers simply responded with "That's what she said."

Taking Boldman out of the equation today, which is a bit like taking Modigliani out of the Modigliani-Miller thereom, jelly out of a PB&J, or facials out of porn, US macro data was positive.  Housing starts beat forecasts and rose to their highest level since November of 2008 when everyone was putting up new cardboard boxes.  New home starts rose 1.6% to a seasonally adjusted annual rate of 626,000 units and economists were guessing that they would come in at only 610k.  Even more interesting is that February’s housing starts were revised up from a 5.9% drop to a 1.1% increase which is a bigger revision than Texas school text books are going through in the school board's attempt to reverse natural selection.

In earnings news, Bank of America became profitable once again thanks to their trading portfolio.  BAC earned $.28 a share which easily beat analyst guesses of $.10 but like JPM, earnings were driven by investment banking and trading profits as profit from the investment bank was $3.2B while overall net income was also $3.2B.  So if one does the math, the consumer is still a little bit dicey while paper gains are leading to positive returns.  It seems like we have seen this somewhere else before, but Money McBags can't exactly remember where.  Oh yeah, the last 15 fucking years of the financial sector.  But don't worry, nothing to see here, these guys have it all under control this time around.  Afterall, 30 day delinquent credit cards fell from 7.23% to 7.07% and the bank wrote off only 12.5% of their card portfolio as uncollectible, so phew.  Money McBags was a bit worried that they wouldn't be able to create enough phony revenue through trading gains to be positive, but as long as credit card delinquencies are only 7.07%, then everything is hunky fucking dory.

In other stock news, GE beat forecasts by besting analyst guesses of $.16 per share and earning $.21.  CEO Jeffrey Immelt said "We saw encouraging economic signs, including increases in airline passenger miles and freight loadings, declines in receivables delinquencies, and growth in local advertising markets.”  He then said, and "even if we hadn't seen markets pick up, we spent an inordinate amount of time relearning how Jack Welch "managed" earnings for so long and will be implementing that system once again."  That said, it wasn't all lobster tails and BJs in Jeffrey Immelt's exectuive suite as GE Capital's earning dropped 41% as they couldn't manipulate paper trades to hide their consumer lending portfolio like the recently profitable banks.

Finally, GOOG reported and is down 6% despite growing earnings by 38% with a 23% increse in revenues.  Even though they beat analyst estimates, GOOG apparently missed the whisper number for earnings of $7 and to be honest, the only whisper Money McBags wants to hear is from Lucy Pinder and includes the words "no" and "gag reflex."  GOOG's call was also notable because CEO Eric Schmidt did not take part in it which caused investors to worry that he may be leaving the company because apparently dominating the world has become less appealing.  Money McBags is looking at this as a buy opportunity and if Goog drops into the $530s, he will be adding to his position.

In small cap news, everything is down except CRTX has strangely continued to rally.  Money McBags mentioned this the other day and the stock has maintained it's perky-ness.  If you can believe management, the stock is probably 30%+ too cheap, but they have exectued poorly and had to buy growth at high prices in order to stave off the decline of their main drugs.  The company reamins cheap if you believe them, but Money McBags is gong to keep sitting this one out as it feels more like a lottery ticket than an investment.  That said, if you have some money about which you don't care and don't live close enough to a Rick's Cabaret, doing some work on CRTX and dipping a toe in might not be a horrible idea.  They are trading at around 1.5x revenue and are just starting to get the sales team ramped up on the acquired drugs so there could be some decent growth in their portfolio.

Until next week, enjoy your days off.