Is Goldman Guilty?
It is amazing what a difference a couple of days can make. Last Thursday it seemed as if there was nothing that could stop the market from climbing steadily higher. But we knew to be on the lookout for something that would disrupt the rally. On Friday that news arrived in a surprise announcement from the SEC that involved the heretofore clean investment bank, Goldman Sachs (NYSE: GS).
The SEC alleges that Goldman designed a group of securities with the help of outsiders (more precisely hedge fund managers) then subsequently sold those securities without disclosing that they had received the help. To make matters worse, it appears as if those hedge funds then bet against the securities Goldman had created, and made a bundle of money in the process. Of course, the parties that purchased the securities didn’t fare so well.
This is a major development, and does nothing to assure investors that Wall Street isn’t just a big game that is rigged by those in powerful positions. Now I don’t want to jump to conclusions, and it seems pretty clear that the SEC is looking for heads to roll. But many suspect that there is something amiss with Goldman’s dealings and the way the investment bank seemed to get out of the financial crisis relatively clean. British Prime Minister Gordon Brown floated the term ‘moral bankruptcy’ with respect to Goldman’s dealings.
What’s more, there is a high likelihood that Goldman wasn’t the only bank engaging in this type of activity, if it is indeed guilty. Investors are concerned that this will have broad implications for many financial institutions. Now I don’t think this development alone is going to lead to a major market sell-off. I don’t think the SEC would put this suit out there if the economy wasn’t stable enough to handle it.
***The other thing that will likely rock world markets this week is the economic impact of the Iceland volcano that is spewing ash all over Europe. Ash in the atmosphere is bad for airplane engines, and has grounded all but around 30% of scheduled European flights. For a region that is already having a hard time getting back on track, thousands of grounded airplanes is not helping. I’ve seen reports stating that the disruptions are costing airlines $200 million a day in lost revenue.
But this should (hopefully) be an improving situation. Apparently, once the ice and water on top of the volcano is melted, the lava will just pour out, rather the launching ash into the air. Bottom line – don’t mess with nature.
***On the brighter side of things, there is one segment of the economy that could benefit from less travel in Europe, at least in the short term. And that is entertainment. I’ve written here in Small Cap Investor Daily that I’m a fan of IMAX Corporation (NASDAQ: IMAX) as a way to play the recovering consumer and the popularity of 3D entertainment. And more people staying at home in Europe could mean more people going to the movies.
Some of the numbers I’ve seen out of the company’s international theatres suggest that this could be the case. IMAX reported today that Avatar just crossed the $100 million mark with international sales. This is a first for the company and absolutely crushed the previous international box office record of $14 million. Just imagine what they could do with a good movie! Shares of IMAX have pulled back from a recent high, and the company is set to report on April 29. Analysts are looking for a 383% jump in sequential earnings growth, from $0.06 per share in the previous quarter to $0.29 this past quarter.
***On a completely different note, I want to let you know that Trademaster editor Jason Cimpl is looking for readers to write in with ticker symbols for their favorite stocks. Starting today Jason will look at the tickers you send in and complete a full charting analysis video -- helping you decide whether he sees gains to be had in the stock you suggest.
Jason’s service is a great way to help you improve your entry and exit decisions for individual stocks, and I hope you’ll take this opportunity to check it out.
