Monday, July 13, 2009

Meredith Whitney: Bearish on the Economy but Bullish on Goldman Sachs.

Hello Everyone

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






My Take:

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!

18 comments:

getyourselfconnected said...

Very strong article. I linked to it this evening.

Jeff said...

Thanks get

Minton Mckarkquey said...

Great analysis - I completely agree with your point-of-view. As long as mark to market is dead, and they're all starting to over-leverage in the absence of any legislation, we're back to Bubble Building 101!

LET THE GOOD TIMES ROLL! I'm getting myself another house right now...

Jeff said...

Minton

Thanks.

Its time to start flipping houses again!!!

YAHOOOO!!! Let the good times roll again!

getyourselfconnected said...

Deflation adherents fail to see the big plan;
wait some time period where everyone thinks the US will not inflate away debt, then go gangbusters with all that money "sitting in vaults". The stellar bank earnings this week will only bring that day closer.

John Maynes said...

Jeff, just a few days ago you told your readers to go short as a hedge. Today shorts got slaughtered and now you say: "So what!". Strange to me. Are you really that naive to think Whitney's appearance didn't serve a certain purpose?

Jeff said...

Get

Yup

Its deflation briefly for some period first followed by nasty inflation.

Its a tough call as to the timing of it.

Jeff said...

John

Come on bud. You know I am not a daytrader.

I have consistently said stay diversified. I will be the first to admit that day to day I have no clue what this market will do day to day.

Especially now that Goldman is gaming the system. Hedges in a variety of assets are a must here. The tape is just too unpredictable. Thats why I think hedging is important.

Today was just another example of how gamed this market is. I think we are in a range for now.

I would stay mainly in cash here. I haven't made a trade in weeks.

John Maynes said...

Doesn't matter if you are a short on a daily or a long-term basis. Today the shorts got ripped off. But doesn't matter. Will read your blog in the future but it won't influence my trading at all. You've been giving up trading anyway. So why should I listen to a non-trader for my own trading? ;-)

opportunistic said...

Stole this from a commenter on Marketwatch.

page 1 of 2

Once upon a time, I was invited to the White House for a private dinner
with the President. I am a respected businessman, with a factory that
produces memory chips for computers and portable electronics. There was
some talk that my industry was being scrutinized by the administration,
but I paid it no mind. I live in a free country. There’s nothing that
the government can do to me if I’ve broken no laws. My wealth was earned
honestly, and an invitation to dinner with an American President is an
honor.

I checked my coat, was greeted by the Chief of Staff, and joined the
President in a yellow dining room. We sat across from each other at a
table draped in white linen. The Great Seal was embossed on the china.
Uniformed staff served our dinner. The meal was served, and I was startled when my waiter suddenly reached
out, plucked a dinner roll off my plate, and began nibbling it as he
walked back to the kitchen.

“Sorry about that,” said the President. “Andrew is very hungry.”
“I don’t appreciate…” I began, but as I looked into the calm brown
eyes across from me, I felt immediately guilty and petty. It was just a
dinner roll. “Of course,” I concluded, and reached for my glass. Before
I could, however, another waiter reached forward, took the glass away
and swallowed the wine in a single gulp.

“And his brother Eric is very thirsty.” said the President.
I didn’t say anything. The President is testing my compassion, I
thought. I will play along. I don’t want to seem unkind.
My plate was whisked away before I had tasted a bite.
“Eric’s children are also quite hungry.”

With a lurch, I crashed to the floor. My chair had been pulled out from
under me. I stood, brushing myself off angrily, and watched as it was
carried from the room. “And their grandmother can’t stand for long.”
I excused myself, smiling outwardly, but inside feeling like a fool.
Obviously I had been invited to the White House to be sport for some
game. I reached for my coat, to find that it had been taken. I turned
back to the President. Their grandfather doesn’t like the cold.”

I wanted to shout- that was my coat! But again, I looked at the placid
smiling face of my host and decided I was being a poor sport. I spread
my hands helplessly and chuckled. Then I felt my hip pocket and realized
my wallet was gone. I excused myself and walked to a phone on an elegant
side table. I learned shortly that my credit cards had been maxed out,
my bank accounts emptied, my retirement and equity portfolios had
vanished, and my wife had been thrown out of our home. Apparently, the
waiters and their families were moving in. The President hadn’t moved or
spoken as I learned all this, but finally I lowered the phone into its
cradle and turned to face him.

opportunistic said...

page 2

“Andrew’s whole family has made bad financial decisions. They haven’t
planned for retirement, and they need a house. They recently defaulted
on a sub-prime mortgage. I told them they could have your home. They need
it more than you do.”

My hands were shaking. I felt faint. I stumbled back to the table and
knelt on the floor. The President cheerfully cut his meat, ate his steak
and drank his wine. I lowered my eyes and stared at the small grey
circles on the tablecloth that were water drops.

“By the way,” He added, “I have just signed an Executive Order
nationalizing your factories. I’m firing you as head of your business.
I’ll be operating the firm now for the benefit of all mankind. There’s a
whole bunch of Erics and Andrews out there and they can’t come to you
for jobs groveling like beggars.”

I looked up. The President dropped his spoon into the empty ramekin
which had been his Creme Brulee. He drained the last drops of his wine.
As the table was cleared, he lit a cigarette and leaned back in his
chair. He stared at me. I clung to the edge of the table as if were a
ledge and I were a man hanging over an abyss. I thought of the years
behind me, of the life I had lived. The life I had earned with a
lifetime of work, risk and struggle. Why was I punished? How had I
allowed it to be taken? What game had I played and lost? I looked across
the table and noticed with some surprise that there was no game board
between us.

What had I done wrong?

As if answering the unspoken thought, the President suddenly cocked his
head, locked his empty eyes to mine, and bared a million teeth,
chuckling wryly as he folded his hands.

“You should have stopped me at the dinner roll,” he said.

/found at the Real Revo

Jeff said...

John

Good luck.

Your right, I want nothing to do with trying to trade this market other then a few small specs.

I read a lot of trading spots and everyone seems real confused right now.

The market is traeding on no fundementals. I have a few friends that daytrade and none of their indicators are working right now. they have been pretty flat as well for awhile.

This market is being seriously F'ed with by someone and everyone seems pretty lost in terms of how to play it.

Eventually the fundementals will come back.

GL

Jeff said...

Oppor

LOL

Classic.

At this point if this was our own current financial crisis Andrew would have already stolen our dessert and just got the keys to our house!

teddy bear said...

Bloomberg "Geithner Says Global Economy Faces Setbacks on Recovery Path"

setbacks on recovery xDDD

as for M. Whitney BUY

Goldman Sachs
in 2007: 200+
Dec 2008: ~75
Jul 2009: 150

to grap another 15% (she said) ... after 100% rise? really strange ;)

Jeff said...

Teddy

I can't wait to see Goldman's earnings report.

I wouldn't be surprised to see a sell the news happen here if they report stellar earnings.

PPI came in really hot up 1.8%. Gas was the main culprit but many other things were up including autos.

This must have made the deflationist's very nervous.

This market is so unpredictable. Its gets more complicated by the day.

In and out of the red this morning lets see how this sucker ends the day.

Minton Mckarkquey said...

Mr John Maynes,

I think you're being a little unreasonable towards Jeff, to be frank, and I hope not to step on any toes here.

Jeff has been more than clear in his skepticism of trading in the last few weeks, and I don't think anyone could have predicted what's happened with the banks' bizarre resurgence (hence his skepticism). Even the number from GS today was massively out of range for the analysts who are supposed to know this stuff.

Plus, let's not forget that Mr Jeff has had a two-year run of accuracy with calls that even the most wild pessimists would have missed. He's certainly saved many people quite a considerable amount of money for those that listened.

So I would just like to request that you give The Bear a break, Mr Maynes.

Respectfully, I thank you Sir.

Minton

John Maynes said...

Hi Minton, obviously I stepped on your toes. :-) I find it rather bizarre that Whitney has a bullish appearance on CNBC now that she has her own outfit. If you can't connect the dots...

Everybody trades for himself. If you listened to Jeff's buy of SRS at $80 you'd be bankrupt by now. I love Jeff's postings but they won't have any influence on my trading behaviour any more.

Minton Mckarkquey said...

John - I only listen to the calls I agree with. ;-)

I think Whitney has not handled this well at all. While she articulates many of the ideas she's talk about, she forgets that the headline concept shows she's made a 180. Connecting the dots, clearly she made a boatload of money by making that last-minute call on stock she owns... interesting to know if she bailed out today.

Anyway, I've been out of trading game for a while. It seems like I'm never getting back in with the way things are going. Strange, strange times. Maybe Jim Rogers is the only person making sense now, which is scary in itself!