The Federal Department of Goldman Sachs (NYSE: GS) beat earnings expectations with a $4.79 billion profit for the 4th quarter. Goldman has strong gains in its investment banking division, which handles stock and bond underwriting deals. Go figure. With companies selling debt and stock like crazy to pay off TARP money and improve their balance sheets, it’s no wonder Goldman did well.
Goldman earned $13.4 billion for the year. But I haven’t seen if this figure includes the $25 billion in funneled TARP money it received from AIG (NYSE: AIG) to pay off credit default obligations (CDOs).
As you know I’ve criticized Treasury Secretary Geithner for handling the banks with kid gloves. And the fact that his office attempted to suppress the transaction that had AIG paying Goldman off with bailout money is more than just a black eye for him, in my opinion.
President Obama was wrong to nominate him. But you have to wonder how much choice he had. After all, the Federal Department of Goldman Sachs is pretty powerful.
China’s efforts to reel in lending and take some of the stimulus froth out of its economy has been all over the news lately. According to a Bloomberg poll, 64% of respondents think China’s economy is a bubble. I wonder; how many would say the same thing about the U.S. economy?
Both the Chinese and U.S. economies have benefited from stimulative monetary policies. There should be no doubt that cheap money is directly responsible for higher asset valuations. I suppose if you want to nitpick, then yes, China’s economy is a bubble. But frankly, dismissing China’s growth as a bubble completely misses the point.
Perhaps the biggest difference between monetary policy in China and the
U.S. is that the U.S. is adding debt to the system. The Treasury has to sell bonds to fund spending. China, on the other hand, has two things that make its stimulus policies less disruptive. One, it maintains a trade surplus and has $3 trillion in cash reserves. And two, it has an unbelievably high savings rate, around 39%.
In other words, much of China’s lending is backed by cash. In the U.S., lending is often backed by assets, and the value of those assets can fall. That’s exactly how the housing market brought down our entire banking system.
The talking heads on CNBC are all worried that China’s moves to reign in liquidity will reduce demand for commodities and impact earnings for many companies. There are probably right. But once again, such fears miss the point. I mean, many of these same people are calling on the Fed to raise rates here in the U.S. to fend off inflation.
The simple fact is: China is beating us to the punch. Again. Its stimulus efforts were more effective than ours. Because of their cash reserves, their debt situation is better than ours. And now, China is moving to ensure "price stability" before the U.S. does. Price stability is supposed to be the Fed’s prime directive.
Will China’s move put a dent in global demand? Sure it will. Will it be the disaster that some fear. No way. It hurts a little to say it, but China is making all the right moves.
China’s economy grew at a 10.7% clip in 2009. Estimates are that another 9% is coming in 2010. That’s not too shabby.
The World Bank raised its forecast for global growth to 2.7% from 2%. That is a huge revision. And the gains are largely credited to China. In fact, it’s widely believed that China will take over the Number 2 spot in GDP ranking this year.
In 2009, China overtook the U.S. as the world’s biggest auto market, and Germany as the world’s biggest exporter. It will be a few years before China’s $4.9 trillion economy is larger than America’s, but that day is coming.
Another positive sign for China is retail sales. Chinese people spent 16.9% more in 2009 than in 2008. To me, this suggests that China’s middle class is growing. Domestic demand is improving. And that’s the final step for China’s economy.
I don’t see how any investor can ignore the long-term potential of investing in China. Sure, there will be ups and downs, but over time, investors will make a lot of money on Chinese stocks.
For more on my Chinese investment strategies, you can watch the replay of last night’s video investment conference China Inc.: Understanding China for Outstanding Profits. You can watch the 24 minute video HERE.
And so you know, I just released a new Chinese stock to SmallCapInvestor PRO readers. They are already buying into the $4 stock that’s seeing 147% year over year revenue growth from the Chinese government’s push to implement their super-efficient electrical transformers.
Demand for these transformers is so strong that the company will increase production capacity 200% this year. I expect a surge in revenue and stock price. You’ll find the details on how to buy this stock during China Inc.: Understanding China for Outstanding Profits.