Is Meredith Whitney Now a Bull?

Just when I was wondering where Meredith Whitney had gone, she’s back. But she has a whole new tone to her. In this interview on CNBC, she says she is expecting a monster number from Goldman (GS) tomorrow morning, in 2010 and in 2011. She is well above the street on Goldman. She even uses the word ‘cheap’ when referring to the stock. Is Meredith Whitney a bull now? Have a listen – she also talks about other names and sees Bank of America (BAC) as the one to watch. I like her reference to ‘junk in the trunk’ when talking about JPMorgan Chase (JPM) in the 2nd video below.

Her comments seem a far cry from the bearish Meredith Whitney of yore. What happened to that woman? Maybe she read my post “Marc Faber: “it’s very tough for a forecaster who was ultra-bearish to stay bearish.”

For a view of what Whitney sounded like just a few months ago, see my May post “Meredith Whitney seems onboard with the fake recovery” or my April post “Meredith Whitney: Regardless of stress tests, banks will still need more capital.” She sounds very different today and is singing a tune I first got onboard with in April (“Wells profit forecast is a clear bullish sign”). But given the huge run up in shares, I do question how much more upside there is to bank shares now despite what are likely to be very good earnings. Let’s see how Goldman’s earnings and shares do and that should be a good test.

You will notice that in the first video she suggests that the disappearance of the likes of Lehman and Bear are good for the surviving behemoths (which increases banking concentration, a point I just made).

UPDATE 1230ET: Whitney makes a point regarding loan modifications that I first made on May 26th (“How refinancing helps the likes of Bank of America and Wells Fargo”) i.e. that the big banks are getting a HUGE incentive to do refis and this will goose their earnings short-term in three ways: a. they get a refinancing fee that goes straight to current income. b. they get an incentive fee due to rules the government made on May 21st, the subject of my May 26th post. c. the banks get to at least delay writedowns because past due mortgages become current and this will decrease their loan loss provisions over the short-term. Nevertheless, home mortgage default recidivism means that re-default likelihood is high and that the writedowns will eventually have to be taken. Whitney seems to be saying this makes banks a good trading play, not a good holding play.

Comments

[Roger Knights:]

I suspect Whitney has heard the whisper numbers on earnings and wants to position herself pro-actively as positive on earnings for the next three-six months or so.

Jul 13 02:37 PM

[CautiousInv...:]

Not al all. As the FT reports today, Whitneys sees Goldman able to capitalize on the avalanche of debt about to be unloaad on world markets.

"To be clear, our reasons for liking GS stock today are drastically different than any we have had recommending the stock on and off over the past decade. In the past, GS shares were a great play on equity markets and expansive global GDP. While that may still hold true down the line, our thesis today is that we expect GS to be the key competitor in some of the most unpredictable markets: government, corporate and municipal debt".

Jul 13 04:08 PM

[ertsfan:]

Thanks for your post.

Jul 13 04:10 PM

[Edward Harr...:]

Roger, I think Cautious Investor has the right take here i.e. that the pro-GS stance is largely because of the tsunami of debt to be issued by governments and municipalities. She still thinks the underlying earnings power is dubious and that the broader economy is likely to be weak.

What is most notable for me is her tone. Much more bullish in tone than substance. I think this is what has people surprised.


On Jul 13 02:37 PM Roger Knights wrote:

> I suspect Whitney has heard the whisper numbers on earnings and wants
> to position herself pro-actively as positive on earnings for the
> next three-six months or so.

Jul 13 05:10 PM

[Hugo O'Neill:]

There is after all no change from a long term perspective. The current level of refi activity is led by a one off government incentive lowering the cost of funds and by a change of rules allowing banks to reclassify their risky assets. This is a policy which will probably be changed back shortly. If in the meanwhile the economics of mortgage debtors will not improve, the problem comes back, causing banks renewed losses. This caution should be clearly made public as otherwise the news will play on people’s nostalgia for the old times and cause a second bubble with devastating consequences. Goldman will also be under surveillance by regulators looking for improper practice arising from the too close relationship between Goldman executives and the political clique.

Jul 13 05:32 PM

[Luke L:]

I’m dumbfounded. I watched the same interview as everyone else and came away with a completely different perspective. Yes, Ms. Whitney predicted that GS would have good earnings, but why shouldn’t they. GS has received every gift the Feds have to give and then some. As to BofA, I heard her say in the short term they could have an earnings boost but would be plagued by write downs far in the future.
As to the economy in general, she spoke of “high mid teens” for unemployment through 2012. This is way above any current consensus and if comes to pass will be devastating to the banking sector. I’m thinking GS should be the beneficiary of Ms. Whitney’s comments but hardly the stuff to rocket the Dow up 185 and the S&P up 22.
Trading was thin; I have to think the smart money stayed on the sidelines. Anyone looked at the ten year or the long bond lately? It’s whispering “watch your rear” not shouting “good times ahead!”
My grandfather said, “Nobody ever went broke taking a profit”. If you’ve got some profits, especially in the banking sector, I’d take them.

Jul 13 07:31 PM

[Ryu Mei Co:]

Crazy as it sound, it was the most profitable day I ever had.

M. Whitney's take on GS wasn't so much of a big news, I read an evening report on Sunday regarding GS's huge profit result, and I was already position to take advantage of the Financial rally this morning. What surprised me was that the rally was so much stronger than I thought and the volume was low. FAS was 17% up at the close and I only cashed in at 8-9% up (LOL..... I also looked at the Level 2 and quickly took a bet on FAZ at the opening and closed immediately for a quick profit before it crashed down! Phew!)

What I am trying to say is that this is a trader's market. Hold at your own risk even if the mighty M. Whitney said "buy" on GS.

Jul 13 08:05 PM