Don't expect the same exuberant response to U.S. investment bank earnings reports.
Indeed, Wall Street analysts are expecting a very different set of results from the U.S. investment-banking sector, when giants Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) report their third-quarter results this week. Goldman reports today (Tuesday) and Morgan Stanley tomorrow (Wednesday).
Analysts started reducing profit forecasts on the U.S. investment-banking sector back during the summer - and with good reason: Uncertainty about the strength of the economic recovery - and worries about the Bush tax cuts and the midterm elections - have led to a major drop-off in such important businesses as fixed-income trading.
Dealmaking volume - thanks to the spike in mergers and acquisitions - enjoyed an advance in August. And fees from bond underwriting could at least partly offset drop-offs in the equity-underwriting and advisory businesses.
But it won't be enough: As a result, analysts are forecasting an overall decline in investment-banking revenue from last year's third quarter.
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The "60 Minutes" piece prompted this letter from a reader wondering if the technological shift means it's time to readjust investment strategy.
Sunday night on "60 Minutes" they had a story about high-speed computers that are out-trading humans. Is it time to refocus on the world stage and find tangible rather than paper investments to put your money in? A partnership in a retail or manufacturing venue surely is more transparent than the stock market.
--RomanMoney Morning has been examining the effects of high frequency trading for years. In August 2009 Contributing Editor Martin Hutchinson said high frequency trading systems were front-running the market.
JPM, the second-biggest U.S. bank by assets, told about 20 traders who work on its commodities trading desk that the company will close the unit, Bloomberg News reported, citing an anonymous source.
The bank eventually will close all in-house trading to comply with new U.S. curbs on investment banks, said the person, who asked not to be identified because New York-based JPM's decision hasn't been made public.
A tax increase won't be good news for an already wheezing economic recovery that seems to get weaker with each new report or indicator that's issued. But the type of tax that's chosen will go a long way in determining just how much damage the U.S. economy will have to endure.
With a deficit in excess of $1 trillion, there aren't a lot of options. One possibility would be to allow the 2001 and 2003 Bush tax cuts to expire, which would have a depressing effect on the economy and most people's pocketbooks.
But a better option would be to devise some new taxes that may prove less damaging. Indeed, there's even one possibility that might even do some economic good if it's implemented correctly.
It's called a "Tobin tax."
To see how a reasonably set "Tobin tax" could help U.S. leaders to fix the nation's finances, please read on...
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But the overall level of factory activity continued to expand, suggesting that manufacturers may be experiencing a return to more normal rates of growth rather than heading for a contraction.
In China, manufacturing growth slowed more than economists had forecast, and a gauge of factory output in the 16-member euro region fell for the second consecutive month, two surveys showed.
Every time a Tobin tax is proposed, it has failed to gain traction - which isn't surprising: Wall Street, with its international affiliates and legion of lobbyists, hates the idea.
Even so, the Tobin tax idea just refuses to die - which is a good thing, since it is probably the best way of curing some of Wall Street's pathologies.
Goldman Sachs Group Inc. (NYSE: GS) just reported that its first-quarter earnings nearly doubled to $3.46 billion, the investment-banking giant's second-most-profitable quarter since going public a decade ago.
JPMorgan Chase & Co. (NYSE: JPM) recently said its first-quarter earnings came in at $3.3 billion, up 55% from a year ago.
And Bank of America Corp. (NYSE: BAC) reported that its earnings for the first three months of the year rang in at $2.83 billion.
For all three of these banking giants, the first-quarter results blew past analyst expectations. Their stock prices? Approaching levels not seen since the start of the financial crisis. In fact, JPMorgan's stock is within 10% of its five-year high.
Major bank profits are zooming - despite the fact that U.S. consumers are struggling to repay loans.
So how are these guys pulling this off? Well, if you dig, you'll find that the bulk of major bank profits are coming from stronger trading revenue and other segments that are enabling the largest banks to overcome weakness in the lending area, which decades ago was the banking sector's bread-and-butter business.
If you dig deeper still, as I've done, you unearth one of the key reasons these banking behemoths are booking such massive profits. They've been moving enormous amounts of capital into one area of the market.
I'm talking about commodities.
For an inside look at how banks can reap 15-fold returns on their physical-commodities stakes, please read on...
The SEC accused Goldman Sachs of failing to disclose vital information on a synthetic collateralized debt obligation (CDO) that was peddled to clients while the bank bet against its success, knowing the bank was likely to come out the winner. The SEC says Goldman used hedge fund Paulson & Co. to pick particularly risky securities for the product with a higher chance of collapsing.
The whole financial sector slid after the SEC's announcement. Goldman's stock fell over 12% Friday to close at $160.70 a share.
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The proposed buyout calls for Prudential to hand over $35.5 billion to U.S. government-owned AIG. But Prudential's biggest investors are resisting the deal because they believe the company is paying an overly rich premium for AIA, according to sources cited by the New York Post.
Additionally, the method of financing the blockbuster deal puts too much pressure on Prudential shareholders to come up with $20 billion in cash through a rights offering.
But that's truly not the case. The tiger does not waste his energy showing his strength. Instead, it sees the future and knows precisely when to pounce on its prey. Those who can see past the great wall of today and look into the future - much like our wise friend, the tiger - understand just what it takes to be successful.
If we were to analyze the growth potential for the worldwide construction industry, we would find that Japan's Komatsu Ltd. (OTC ADR: KMTUY) and the U.S.-based Caterpillar Inc. (NYSE: CAT) are best-positioned for global success.
However, it may not be much longer before prices take off again, possibly hitting $100 a barrel by the end of the year.
Current prices are "beautiful," Saudi Arabian Oil Minister Ali al-Naimi told reporters before OPEC's meeting.
"The producer is looking at this price, the consumer is looking at the price, the investor is looking at the price, and everybody is saying this is great," he said.
OPEC, which supplies about 40% of the world's oil, set its official cap at 24.845 million barrels per day (bpd) in December 2008 and has kept it there for five straight meetings. In that time oil prices have more than doubled.
That's no small question. U.S. stocks could be experiencing one of three scenarios at present. They could be:
- Undergoing a short-term "correction" of its 2009 gains.
- Beginning a multi-month "pause."
- Or starting a new bear-market cycle.
But a new bear market is an entirely different animal. A bear-market cycle could last as long as two years and could be marked by a decline of 20% or more.
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For this column, I'm going to focus on the latter - and show you how this seemingly unconventional investment strategy can actually make you a lot of money.
If you want quantifiable proof, consider this nice bit of research from Cem Demiroglu at Koc University in Turkey, and Michael Ryngaert at the University of Florida: In 2008, they conducted a study that showed that stocks without any analyst coverage experienced a 4.82% higher return than their peers after coverage initiation.
The lesson here is simple.