Goldman Sachs Strikes Again (gs, lnkd)
We're getting a reprieve from the European debt sell-off today. Some say that Greece is too small and shouldn't move the U.S. stock market like it has. Others say that the ratings agencies have been overly aggressive in lowering Greece's credit ratings as they don't want to repeat the mistakes they made in giving mortgage-backed securities high ratings when those securities were highly risky.
The fact is, the stock market rarely sells off for one reason. The issues from Greece might be making all the headlines, it's not the only catalyst. Economic data has been weakening, the end of QE2 is looming, government spending is likely to get reigned in, albeit slightly, and the stock market has been on a remarkable run since last August.
Add it all up, and it's not surprising that investors are taking some money off the table.
*****We might boil the market's crosscurrents down into two important trends. One is the Fed, which is moving from easing to tightening. We may not see interest rates rise until 2012, but the end of QE2 is the first step toward tighter monetary policy.
On the bullish side, we have corporate profits, which are showing no sign of slowing. Companies did a great job adjusting productivity after the financial crisis. They are lean and mean and profits are at record levels, and that trend is likely to continue.
A company's biggest expense is labor. And right now, companies clearly do not have to add employees at a rapid pace to meet demand. It's an unfortunate irony that lower unemployment is a negative catalyst for corporate profits.
I should add that valuations are not extreme. The S&P 500 is reasonably valued with a forward P/E of 13.5.
The stock market, and economy, should be able to handle tighter monetary policy just fine. But that doesn't mean there won't be a rise in bearishness. There almost certainly will be...
*****Goldman Sachs (NYSE:GS) strikes again. Just a few weeks ago, Goldman said commodities were topped out and investors should sell. Now, the traders at Goldman are bullish again. The firm is even giving Brent crude a $130 target.
It's critical to remember two things about Goldman Sachs. The first is that they are ruthless opportunists and they look out for number one. The second is that they are almost always correct. Sure, one could argue that they have enough cash to make themselves right.
The company also has enough influence that investors and traders will follow their lead. Nobody wants to be on the other side of a Goldman Sachs trade. That's a good way to lose money.
As an aside, Goldman shares look pretty good at current levels.
*****Today is the day that LinkedIn (Nasdaq:LNKD) shares are available for shorting. And Thursday, I believe, options become available and investors will be able to buy puts in anticipation of move lower for the stock.
The sentiment toward LinkedIn is unanimous: overvalued. Heck, I made fun of the IPO the other day...
And while the stock may seem overvalued, I would not even consider shorting it. Or buying puts. This looks like a huge set-up to me.
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