Monday, March 12, 2007

Goldman Sachs (GS)

It's either going to be a great day, or horrible day tomorrow. Goldman Sachs (GS) will post earnings before the bell. What's good or bad for Goldman will be good or bad for the stock market. Today the S&P rebounded back up to about that 38% Fibonacci retracement/resistance level again basis the S&P 500. Good GS numbers and reaction tomorrow would certainly vault the market on a journey toward 50%. Bad numbers/outlook would certainly take the market below today's lows which were briefly below the 1400 area.

Why do I say it's either going to be a great day or a bad day? In looking at the GS March options straddle, a move of nearly $9 is being priced in post earnings tomorrow in either direction. Wow.

5 comments:

jim r said...

jim, gs will most likely report good earnings, i assume. but, isnt the outlook terribly important?any thoughts on how this plays out?

Jim K said...

Jim, that's the $64 question.. the outlook. beating on Q1 has got to be in the bag, but what they say going forward is what moves the stock tomorrow. Last time around, I recall that there was a modest pullback in the stock after earnings. I am biased toward thinking it will be tough for GS shares to move higher simply because 2007 is no 2006 and that turbulence and uncertainty going forward will make it tougher for these brokerages. we'll know in a little more than 15 hrs.

jim r said...

jim this is excerpted from the street.com and doug kass' latest:
Here is a tidbit from Page 132 (yes, I do read every page in these filings!) of Goldman Sachs' (GS - Cramer's Take - Stockpickr - Rating) 10-K dated Nov. 24, 2006.


Securitization Activities
The firm securitizes commercial and residential mortgages, home equity and auto loans, government and corporate bonds and other types of financial assets. The firm acts as underwriter of the beneficial interests that are sold to investors. The firm derecognizes financial assets transferred in securitizations provided it has relinquished control over such assets. Transferred assets are accounted for at fair value prior to securitization. Net revenues related to these underwriting activities are recognized in connection with the sales of the underlying beneficial interests to investors.

The firm may retain interests in securitized financial assets, primarily in the form of senior or subordinated securities, including residual interests. Retained interests are accounted for at fair value and are included in "Total financial instruments owned, at fair value" in the consolidated statements of financial condition.

During the years ended November 2006 and November 2005, the firm securitized $103.92 billion and $92.00 billion, respectively, of financial assets, including $67.73 billion and $65.18 billion, respectively, of residential mortgage loans and securities. Cash flows received on retained interests were approximately $801 million and $908 million for the years ended November 2006 and November 2005, respectively. As of November 2006 and November 2005, the firm held $7.08 billion and $6.07 billion of retained interests, respectively, including $5.18 billion and $5.62 billion, respectively, held in QSPEs.

Glen said...

From Earnings Whisper, regarding Goldman tomorrow:

"Goldman Sachs averages a 20% upside surprise and beats more than 95% of the time, but sells off 60% of the time and averages a 1% decline after its earnings release. Furthermore, we have found nothing that has shown to be a positive indicator for the stock ahead of its earnings release - even its second largest earnings surprise over the past 7 years resulted in a sell off. The stock has recently sold off recently and is below its historic valuation multiple, but two of the four times this happened in the past, the stock still sold off after beating estimates and the declines were greater than the gains."

Not much help there.

Glen said...

From Earnings Whisper, regarding Goldman tomorrow:

"Goldman Sachs averages a 20% upside surprise and beats more than 95% of the time, but sells off 60% of the time and averages a 1% decline after its earnings release. Furthermore, we have found nothing that has shown to be a positive indicator for the stock ahead of its earnings release - even its second largest earnings surprise over the past 7 years resulted in a sell off. The stock has recently sold off recently and is below its historic valuation multiple, but two of the four times this happened in the past, the stock still sold off after beating estimates and the declines were greater than the gains."

Not much help there.