I sit here and write to you today with a serious sunburn. I must learn to get better at using sun block when I am at the shore.
Anyways, today was all about Meredith Whitney and her CNBC appearance. She has been totally blasted by the blogosphere following her upgrade on Goldman Sachs.
I must admot, I am pretty surprised at the negative reaction to her appearance. I thought she was on top of her game except when it came to the loan modifications and the losses. I do believe she understands these mortgage hits must be taken. I say this because later on in the interview she explained that she understood that the banks have $6 trillion in bad debt that they need to get rid of.
I think the problem here was that MEredith didn't do a very good job at explaining herself when it came to the mortgage losses and how damaging the loan modifications will be for the banks balance sheets.
Let's take a look at her appearance and I will have some more comments below:
Here is the the bullish call on Goldman:
Here is Meredith the Grizzly Bear on the consumer
I really don't see why there is so much anger on the web around this today. Perhaps some people got caught on the wrong side of the trade as the market bounced almost 200 points almost solely as a result of the Whitney's Goldman upgrade?
Now I have no position on Goldman, but you need to ask yourself why wouldn't you be long Goldman as long as the game is rigged?
I have gained a different perspective on the market as I sit here and just accumulate cash versus trying to trade this ridiculous casino. The manipulation and fraud are on a scale that makes me simply not want to participate in any way at all in terms of adding new positions. All my current trading holdings are small and diversified so no matter which way the market moves I am not going to get hurt too much.
So as an observer, I think Meredith made some excellent points today. Before I explain, let me say right here and now that Goldman Sachs makes me want to vomit. They are some of the most vile greedy scumbags on the planet. They lie cheat and steal in order to make money, but you have to admit they are pretty damn good at it.
They are also the best firm on Wall St at this point in the collapse because they are the most well connected to Washington. In addition to being connected, they are also the best risk managers on the street. They are also one of the best on Wall St at adapting and reinventing themselves as the conditions change in the economy.
Wall St won't hesitate to shift resources and completely abandon the old game(housing) in order to look for the next one. I don't expect a new game for a generation or so, but I do believe there is money to be made in fixed income in the short term. It also sure as heck helps when the government is at your beckon call offering any assistance that's needed in order for you to succeed.
We all know Goldman still has housing bubble skeletons in the closet in the form of many worthless level 3 assets. However, as long as the government doesn't force them to mark to market, does it really matter?
Basically, from a current operations perspective, they have totally reinvented themselves into a giant fixed income bond dealer/trading conglomerate in a market that now has fewer competitors with the fall of some of the investment banks. Lehman was one of the strongest bond houses on Wall St.
The housing bubble is now in the rear view mirror at Goldman Sachs. The only thing that remains are the tens of billions of dollars in losses. This cannot be ignored, but remember, Goldman is totally out of the housing game unlike the other banks who continue to do mortgage loans.
Fixed income should explode moving forward as investors continue to flock to safety. Goldman is perfectly situated to take advantage of this.
The bottom line is when you add up all of these advantages and add the fact that the government has their backs, is a Goldman upgrade really that crazy? I don't personally think so.
That being said, I couldn't go long here because the fundamentals of the consumer are still a mess.
This leads me to the second video from Mrs. Whitney. You can tell that she is still firmly in the bearish camp. She is calling for 13% unemployment with the possibility of seeing 14%. Her outlook on the consumer was godawful. She brilliantly discusses the bearish implications of the huge contraction in credit availability for the consumer.
She basically expects to see the consumer laid out flat on its back through 2011. so much for green shoots by the end of the year!
The Bottom Line:
The one thing I love about Meredith Whitney is how cautious and thorough she is. She admitted that she missed a big piece of the move in the financials, but she explained that she needed to see how they could make money before upgrading any of them. Goldman's big moves into fixed income have convinced her that for the short term they could make a lot of money.
That's the key folks: SHORT TERM. Long term she sees no way out of this mess for the banks or any other sectors of the economy until the consumer rebounds. Meredith also explained that we need to completely overhaul of our economy before we see any long term sustained recovery.
This all makes sense to me! I don't see what the big fuss is about. I remain a huge fan of Meredith Whitney.
We have huge earnings releases tomorrow including Goldman. Lets see if Meredith was right!