“Astounded” by Goldman’s Upgrade Banks “Heading Into the Storm” Whalen Says: Tech Ticker, Yahoo! Finance

Goldman Sachs making headlines again. Today, it’s on two accounts.First, Bloomberg is reporting Goldman could earn about $1 billion should the troubled lender CIT Group, enter bankruptcy or otherwise end a $3 billion financing agreement. I’m sure it’s adding fuel to the fire for the “Government Sachs” conspiracy theorists, who probably see it as a repeat of what happened with the AIG bailout.For those that don’t remember, Goldman received $12.9 billion from AIG after the government rescued the world’s largest insurer. That raised suspicions of conflicts of interest and unfair treatment, since then Treasury Secretary Hank Paulson also happened to be a former CEO at Goldman.Chris Whalen of Institutional Risk Analytics is a Goldman conspiracy sympathizer and someone who “doesn’t like their politics.” But, in this case, he doesn’t necessarily think anything is askew. “Like any distressed lender they have a right to their payment. They took the risk,” he admits.What strikes Whalen as more curious is Goldman’s call on the big banks. Citing a positive outlook on earnings, Goldman analysts raised the outlook on banks from neutral to “attractive” this morning. They also upgraded Wells Fargo to “buy” from “neutral”, Comerica to “neutral” from “sell”, and added Capital One to their “conviction buy” list.Whalen is “astounded” Goldman would make such a move “when the banking industry is heading into the storm.” Contrary to the Goldman call, Whalen says the earnings outlook will get worse over the next two quarters, culminating in a bloodbath in the fourth quarter. Part of the problem for Wells Fargo, according to Whalen, is the bank still has plenty of write-downs to come associated with the Wachovia merger, as detailed here. But Goldman employees and shareholders have no fear. Whalen is confident the firm will fare better than those it upgraded today, “because they’re not a bank.” Instead, he says, you must consider Goldman, “a trading operation with a private equity firm attached.”If there is a risk for Goldman, it is political. “They are so visible and so high profile,” Whalen speculates, “that if the economy doesn’t recover next year I think Goldman is in for some severe criticism.”And that, no doubt, would please the Goldman conspiracy crowd.

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Greenspan Says Recession May Come

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Greenspan Says Recession Still Possible After Fed Cut

By Steve Matthews and Albert R. Hunt

Sept. 20 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan said the odds of a recession remain “somewhat more” than one in three even after this week’s cut in interest rates, with home prices likely to drop further and hurt consumer spending.

While lower rates may have reduced the chance of a recession, “remember, we still have a problem out there, which is a large overhang of unsold newly constructed homes,” Greenspan said in an interview today following the publication of his book, “The Age of Turbulence.” Home prices “are down only about 3 percent but they are clearly moving lower.” Continue reading

Effects of Rate Cut

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Investors Hunt for Effects of Rate Cut

NEW YORK (AP) — A big rate cut by the Federal Reserve and the stock market’s huge rally in response to that move has many on Wall Street wondering: Now what?

The Fed’s decision Tuesday to slash its benchmark federal funds rate by a larger-than-expected half percentage point sent stocks soaring and lifted the Dow Jones industrials nearly 336 points. It also raised questions about the Fed’s next step and how markets might fare in the coming months.

“I think it’s probably going to help stabilize things. It seems to me that the Fed had enough room on the inflation front to really get out ahead on this,” said Bruce McCain, head of strategy for Key Private Bank’s investment management unit.

Before the Fed’s decision and even with recent moves to cut the rate it charges to loan directly to banks — known as the discount rate — Fed Chairman Ben Bernanke left some investors asking whether the central bank would cut rates at all in the face of concerns about inflation.

With that question answered, investors rushed in and put stocks a good deal above their recent lows in August. The Dow’s jump — its biggest one-day point gain in almost five years — left the blue chip index only about 1.9 percent below its record close of 14,000.41 reached in mid-July.

Still, some on Wall Street will likely question whether the Fed’s rate cut signals a deeper unease at the bank about the effect of tightness in the credit markets and widespread weakness in the housing sector. Continue reading