Meredith Whitney made a bull call on Goldman, and the stock market rallied as a result.
There are some important qualifiers in this that the markets seem to be ignoring.
Goldman is positioned as more of a 'one-off' in her forecast, which remains decidedly gloomy for the overall economy, with unemployment as it is under reported by the BLS rising to 13%.
She believes that Goldman will benefit from being in the position to take fees and profits from the heavy government debt issuance to come in the US, especially since it was able to eliminate some long term rivals in Bear Stearns and Lehman Brothers.
Ironically, a richer Goldman does little or nothing for the overall economy since the company pays out about half its profits in bonuses to employees. There is some trickle down to the real economy as they buy their luxury cars, place their children in the finest private schools, and make huge contributions to key politicians, but not much else.
Goldman is not a commercial bank. It has taken on that name to tap into the Government funds, and despite their noises about paying back their TARP, they are huge beneficiaries of the ongoing bailout of AIG with their 100% payouts on Credit Default Swaps.
So, the people give their tax money to Goldman, and in turn a little of it trickles back to those working in the luxury industries, perhaps as servants to great households, and certainly as politicians managing the outlays of public monies to Wall Street.
The debasement of the currency is going to hit the middle class particularly hard, since the monetary inflation is being so heavily targeted to the wealthy few, while little or no quality jobs creation is stimulated. And it is the middle class that is paying for this, in more ways than one.
And economists call gold a barbarous relic.
WSJ
Meredith Whitney Bullish On Goldman,Sees 2Q Above Views
By Ed Welsch
NEW YORK (Dow Jones)--Goldman Sachs Group Inc. (GS) will benefit from being a key player in a "tsunami of debt issuance" by governments as they try to fill gaps in underfunded budgets, financial analyst Meredith Whitney said Monday in an upgrade of Goldman to "buy."
Whitney predicted Goldman Sachs would post second-quarter results Tuesday above Street estimates - she expects earnings of $4.65 a share, compared with the average analyst estimate of $3.48, according to a survey of analysts by Thomson Reuters. She set her 12-month price target on Goldman shares at $186.
Shares of Goldman Sachs rose 2.7% in recent trading to $145.75.
A bullish call from Whitney is rare; she gained renown during the financial crisis for initially unpopular bearish calls on the stocks of large banks that ultimately proved to be correct.
However, Whitney said her bullish view of Goldman is rooted in her overall bearish outlook for the U.S. economy and other U.S. financial companies. While Goldman has made most of its money in the past through a focus on equity markets, Whitney said during the next two years the firm will shift focus to the government debt markets, facilitating new issuance from local, state, federal and sovereign governments as they try to raise money to fill budget gaps.
Whitney raised her earnings estimates for Goldman in 2010 to $19.65, compared to the average analyst expectation of $14.44, and for 2011 to $22.10, compared to the average expectation of $16.75.
She predicted that sovereign and municipal debt markets will grow more than 20% over the next 18 months, and that the state and local municipal debt market could eventually grow more than 50%.
While Whitney predicted U.S. corporate debt will reach about 60% of the levels of the last three years, she said Goldman will get a larger share of that market as well, due to the absence of formerly key players, including Lehman Brothers Holding Inc. (LEH) and Bear Stearns Cos.
Whitney also expects Goldman to take advantage of relatively high capital levels to buy back stock, and by late 2010 could reach the share count level it had before raising capital this year and last.
