Although a Star, Whitney Could Be Wrong on Goldman

Bank analyst Meredith Whitney made headlines Tuesday when she downgraded Goldman Sachs (NYSE: GS) to a “neutral” from a “buy”. With Goldman up over $130 from its US$40s low of earlier this year, Ms. Whitney may well by right that the time has come to take some money off the table. JP Morgan (JPM) and Bank of America (BAC) shares have also recovered somewhat from the meltdown, which could well be all the gas they have left until the market has some clarity on 2010/11 earnings.

But let’s not make too much of the fact Ms. Whitney “called it right” on Citibank (C) last year. She did, but the fact pattern surounding that call is entirely different than the one today. As for being perfect, no analyst would pretend to wear that label.

Ms. Whitney thought Lehman Bros. would survive when we appeared on BNN Television last year (see prior post “BNN interview on challenges at Lehman Brothers” March 17-08), and she even owned Lehman (LEHMQ.PK) shares personally at the time of JP Morgan’s takeover of an insolvent Bear Stearns.

That’s not to say that she’s wrong this time, but can you name even a handful of “rock star” analysts from the 1990s who are still plying their trade today? The market is cruel, even for the analysts.

Disclosure: I own GS and GS sub debt

Comments

[really:]

No one knows her reasoning on this except her paid clients, also she only moved to being neutral. If you analyze the GS results, however, trading led the way, but the other operations of investment banking, etc. were acceptable, not great. Given that bonds had a huge rebound this year and Goldman was able to ride that huge wave with a higher than average beta, you have to ask yourself how repeatable this will be next year. With spreads as close as they were before the market fell apart, there's little upside. It would be hard to repeat such a performance being short next year if that's what pays off simply because of the size of the assets needed to invest. So, I believe, there's a good chance she told clients the easy money has been made this year and it will be more difficult next year, much of it is in the stock, so take your profits or don't expect a lot more upside.

Oct 15 09:23 AM

[Gravity404:]

I am still dumbfounded over Ms Whitney's self proclaimed and esoteric anal-yst "star status." She didn't predict anything a million others didn't already know; except she has a great publisist and CNBC hype for ratings.

Reminds me a lot of Mary Meeker.
Who?
Exactly.

Oct 15 12:28 PM

[User 256653:]

what is GS sub debt and what is the code and how to invest in it?

can you elaborate please.

Oct 15 06:42 PM

[getgolmans*cks:]

There is a very simple and elegant solution we should all be pursuing in the case of the likes of GS (some call it Goldman S..cks!, excuse me! I agree, they S..ck!). As they gained from the federal bailout, converted themselves to a bank without being a bank WITH FED GUARANTEES, borrowed money again from us at 0%, then leveraged it 29-31 times (currently, still at 13-14 times when the regulators balked AT THE HUGE RISK TAKING THERE!!!!), GS took enormous risk AGAIN IN 2009, EVEN WHEN MS CHANGED THEY RISK TAKING STANCE!!! (smarty pants at GS hedge risk always and make it a society problem), They basically had WINDFALL profit, and CONGRESS SHOULD PASS A LAW THIS YEAR TAXING THESE PROFITS AS WINDFALL PROFIT.
Simple suggested formula - if any firm got bailed out, took federal or state money, had federally provided guarantees (eg FDIC etc.) or changed their charter (eg became a bank from an investment bank), for the year Y2009+ time frame to extend to X years beyond that, they would be allowed 10% return on the equity THEY PROVIDED BEFORE ANY BORROWING FROM GOVT OR OTHER ENTITIES LIKE BANK (except direct deposits and firm's equity). Any profits beyond that would be taxed as WINDFALL PROFIT TAX, to be taxed at 90% - THIS WAY THEY STILL GET 20% RETURN ON THEIR MONEY - NOT BAD CONSIDERING THEY WOULD HAVE GONE UNDER AND LOST 100%!!! I am sure the smart group of people here have other ways TO BRING THE MONEY BACK TO WHERE IT RIGHTFULLY BELONGS - TO THE COMMON TAXPAYER.
Lets get your ideas going and to the lawmakers to institute this Windfall Profit Tax as a part of the comprehensive tax and financial reform currently underway in the house.
Long live America and the freedom loving people!

Nov 06 12:13 PM