Allow me to just go back for a moment to yesterday’s “unexpected” first quarter profit report from Goldman Sachs.
Peter Fisher, managing director of BlackRock, stated yesterday in a Bloomberg interview that Goldman's first quarter trading profit is non-recurring in nature and believes it was mostly due to AIG unwinds.
Equally important information we find on earnings report: The unaudited consolidated statement of earnings net loss for December 2008 is $1.028 billion, or negative $2.15 per share. Meanwhile, reported quarterly net earnings were $1.659 billion.
Adding the two numbers, Goldman Sachs really netted $631 million. Not bad but not blowout neither. Yes, just using simple percent to total arithmetic, four month earnings per share was about $1.29, or $0.35 below consensus.
Since there is no comparability, this number doesn’t have much meaning except as it reflects on the integrity of Goldman’s management with respect to full disclosure financial reporting.
Investors shouldn’t forget this and always try to do their homework alone or with help they can trust. Investors should learn not to trust their money to “entities” that don’t have a fiduciary duty. And, of course, if it sounds too good to be true, it probably isn’t. In my opinion, financials aren’t out of the woods yet.
Based on just-released consumer price data, we would have to conclude that even with all the gobs of government intervention, deflation risks continue to trump inflation risks. Investors should take notice that’s not a positive for the equity markets.
President Obama's economic advisor, Lawrence Summers, said recently: “If you look at the early part of this year, you couldn't find anything good. … Now there is a much more mixed picture.”
He added: “There are some encouraging signs in the financial sector … but it's important to understand we have a long way to go in working through the strains in the financial system.”
I think the global recession has further to run than most people think and that the coming recovery will be modest. The breadth, depth, and duration of this downturn also raises the potential for head fakes and false dawns on the path to a sustainable upturn that will, in turn, drive bouts of investor optimism and pessimism. I haven’t changed my bearish expectations on earnings of financials, either.
March industrial production, meanwhile, again has fallen 1.5 percent month-over-month (compared to a negative 0.8 percent consensus). The inventory correction is far from over.
This being Tax Day, it’s interesting to take a look at the Nelson Rockefeller Institute of Government's quarterly state revenue report, released yesterday. This is not a leading indicator but nevertheless gives us trustworthy information on what’s going in the real world.
Unfortunately, it’s not a flickering light at the end of the tunnel. Sales tax collections across the United States experienced their worst decline in a half century. Overall, collections fell 4 percent in the last quarter of 2008, while sales taxes were down 6.1 percent.
Early data for the first quarter of 2009 show further sharp declines. In addition to the sales tax decline during the fourth quarter of last year, personal income tax collections fell 1.1 percent, while corporate income tax revenue dropped by 15.5 percent.
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