Farrell: Goldman Sachs' Ability To Move The Markets
Chief Investment Officer, Soleil Securities
It's always a joy to be on with Sue Herrera and Michele Caruso-Cabrera. They help you to look good, which can be a monumental undertaking more often than not.Today on "Power Lunch"we touched on Goldman Sachs' ability to move the market and should we be happy or mad. I think a lot of people envy Goldman, but give them credit, they have had some awesome calls. Doug Kass joked their are two kinds of people. Those that work at Goldman and those who envy them that do.
Their oil guy called for a super spike in crude a long time ago and they have avoided the sub prime mess. Yesterday they unloaded on Citi and GM and those stocks got hit. Goldman effect? Sure. But it's also the end of a tough quarter and a lot of managers are scrambling for performance. I read the same papers you do and I see that it's expected a lot of money will walk from underperforming hedge funds. A hot hand will get played until it's not hot anymore and the fear is if you don't follow the call, you get left behind.
Merrill is rumored to need another capital raise. I have no idea if true or not, but they have options. Least palatable (after a dividend cut, I think) would be to sell additional equity. The equity buyers of just a few months ago have a ratchet down provision so if Merrill issues more equity at a lower price than the first issuance, the buyers of the first traunch get more shares. This would be much too dilutive.
Stakes in Bloomberg and Blackrock could be sold. There are challenges in so doing (right of first refusal etc,), but John Thain is a smart guy and I wouldn't bet against him figuring it out. The overriding issue is presuming they need capital and can raise it now, will it be enough? Seems like the banks are coming back for seconds and thirds and at some point the options fade.
Personal income jumped 1.9% in May due in part to tax rebates, but this was still a positive number. I continue to guess the current quarter will show a positive GDP reading of around 1%. _______________________________________