Dan Greenhaus is at the Equity Strategy Group at Miller Tabak + Co. where he covers markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi).

This is his most recent commentary:


Let’s be clear about something here: GS earned twice what the street expected in a period of time that should have been among the worst in the company’s history. I’m not a conspiracy theorist or someone who believes we should have let bank after bank declare bankruptcy but GS’s profits were, in many cases, the result of being made whole on a variety of transactions where the counterparty was AIG. These transactions were settled at par, 100% on the dollar, despite the prospect of an AIG bankruptcy that would have surely resulted in bank after bank taking a haircut on many of these securities, swaps and other transactions. So lets be clear about this; GS is one of the major beneficiaries of our tax payer dollars and the great irony is in an alternate universe, the quarter in which GS’s reported earnings were twice street expectations would have been the quarter in which GS declared bankruptcy.

At the same time, let’s not forget that the entire reason we originally injected $85B into AIG was because it was systemically important and its failure could have jeopardized the entire financial system. Whether that actually would have come to pass, I don’t know. But what’s done is done and GS was one of those institutions that benefitted. So before people throw up their arms ranting and raving, let us remind ourselves that this is exactly the outcome the government wanted when it handed AIG the original $85 billion. They wanted that money to filter through the global banking system and help get capital to financial institutions that were in need. But once again we are reminded of the fleecing of the American public by bondholders and counterparties the world over. While we are on the hook for billions upon billions of dollars, these creditors have not taken one penny of losses despite, in theory, being on the hook for billions. I once again refer you to Tyler Cowen’s NY Times article on the subject. http://www.nytimes.com/2009/04/05/business/economy/05view.html?_r=1

Lastly, I would just add Good for GS! Pay back that TARP money. There is no reason to allow government intrusion into your business one second longer than absolutely necessary and absent everything else, an organization that does not need government assistance and does not want government assistance should not get government assistance.

All around the world

Mixed trading around the world with the Nikkei trading lower and Europe, open once again today, trading generally higher. Over in Japan, UBS is out with a report suggesting that Mizuho Financial, which has already raised over $4 billion, may need as much as $14 billion more in order to shore up its capital base. As well, the Japanese government may start borrowing money in three and seven year increments in order to help fund its latest stimulus plan. Over in Europe, markets are up about 1%. And ECB member signaled that further rate cuts may be in order to combat rising deflation risks. The Euro is generally lower as a result. In Germany, Woolworth which employs 11,000 people filed for insolvency. Not much else is going on.


There are a few important data points today beginning at 8:30 with PPI and Retail sales. In the case of PPI, expectations are for no gain on the headline and a .1% gain at the core which would put the YOY figures at -2.2% and 4.0% respectively. Its difficult to predict the individual components but lets keep an eye on motor vehicle prices. They seem to be trending higher as of late. In the case of retail sales, expectations are for a .3% gain on the headline and no gain at the core although I would guess the bias is to the downside. Like the PPI, let’s keep an eye on unit vehicle sales which were up for March. That said, core sales are probably due for a pullback after the relatively strong start to the year and perhaps March will see some moderation.

And lastly, at 10 is business inventories which are expected to fall again, down 1.2%. This would be the sixth consecutive month of inventory declines which, in the longer term, certainly bodes well for economic performance but as always, the short term catches the brunt of the negative repercussions. This is a February figure and if in line, continues to set up the first quarter as the worst on the inventory front in some time, not that the fourth quarter was a day at the beach.

Category: BP Cafe

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

4 Responses to “4/14 Morning Note”

  1. Simon says:

    Good for GS???… Not when they were among the roots of the origin of this mess. Not when their alumni hold strategic positions throughout the administration and the corporate world. Not when the garner obscene profits from the destruction of the productive world. Not when they are like a giant tick hanging from the neck of society.

  2. roc says:

    So…. Assuming the treasury got the warrants on GS stock as a TARP recipient… and assuming GS is desperate to get this stock offering done before this thing blows up… when should the treasury exercise the warrants and sell the stock for maximum profit? Some of the banks have returned their TARP money already but I haven’t heard an absolute answer on whether the warrants will be held to their full term. Anyone know the last word on that?

  3. HoldYourHorses says:

    GS remaining a viable company because of gov’t intervention is one thing. It is good to remember we want GS to be profitable. BUT should we not be hugely skeptical and concerned that GS did not just barely coast into the next quarter, but posted big gains (Even after corrections for the mysterious December debt vacuum)?

  4. rktbrkr says:

    GS windfall profits are no more surprising than Halliburton’s on their no-bid Iraq contracts,GS was just bigger and more brazen. Systemic risk or weapons of mass destruction, fear in the right hands can be very profitable!