Review Of Barron's -- Dated 1 October 2012

Recently back from vacation and wanting to catch up on all of the news I missed it Italy (fewer hotels offer internet service and fewer internet cafes because so many people have smartphones and WiFi equipped laptops), I bought this weekend's issue of Barron's.  The magazine/newspaper was VERY KIND to throw a nice slow and fat pitch: the Cover Story is "Time To Buy Goldman".  Wow!  How could I resist that?

Author Michael Santoli writes a very positive piece on Goldman Sachs (ticker: GS).  They were the lest damaged by the financial crisis (of the major banks).  Morgan Stanley has somewhat switched their business model, Citigroup is back to focusing on international banking and JPMorgan Chase, Goldman's most important competitor has changed its business mix.

Goldman is still the world's largest investment bank and institutional broker.  Santoli notes that, yes, they did file the papers to become a bank during the crisis in 2008, but they did not BECOME a normal bank, they kept at their business model, which is much more lucrative than other niches in banking and finance.  Santoli gives some history of Goldman since 2006, back when they were minting money, and that yes, the stock price is 50% lower than its peak.  He also notes that all banks would be at peril in another financial crisis.

Santoli lays it on the line: Goldman's stock could be up 25% in the coming year.

Goldman has apparently been very risk-averse, they have long held a LOT of cash and cash equivalents which has somewhat hurt their performance.  Return on equity is DOWN vs. other banks.  But, they are now less-leveraged than most other banks.  Another reason they hold a lot of cash, he writes, is that there is "regulatory uncertainty" (one of my new favorite terms) out there, and they want to be prepared...  Risk management has been their key philosophy (or maybe that would be screwing their customers?), and THAT is what CEO Bankfein, CFO David Viniar and presumed new CEO Gary Cohn are all think.

And, according to Santoli, "prop trading" was never a major profit center at Goldman.  I suppose this could be fact checked...

Watchers of the global financial markets believe an upswing is coming after years of bad ersults for eveyone, including Goldman.  But, Goldman is the BIGGEST on the block when it comes to managing BIG money and BIG mergers.

As Goldman is HATED by many of my Zero Hedge readers, I would be very interested to hear, by reply at ZH or by comment below. the BEAR CASE for Goldman Sachs.

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Alan Abelson this week writes about this marvelous stock market, which keeps going up despite much bad news, and any news that is not bad is mediocre.  He cites a court case that might be of interest to any soon-to-be laid off Wall Street types: it seems a prisoner sued because he was forced to share his cell with roached and mice (no other details given), the court threw out the case on technical grounds, but Abelson suggests that prison cleanliness issues come up  again in the future, well maybe there would be some work for any dis-enfranchised financial pros...

Abelson goes on to write that it looks like we are no closer to the "Fiscal Cliff" than when I went on vacation.  What irresponsibility!  Companies are now holding back on spending, hoarding their cash.  These companies fear that this issue may NOT get resolved, and over the Cliff we go...  Abelson then cites Bank of America Merrill Lynch as saying the whole world would suffer to, as we go over the falls, so would they.  Ugh.

He finishes his column by noting that Robert Schiller (yes, THAT Schiller of the Case-Schiller index of home prices) thinks maybe we have touched bottom.  Both Schiller and Abelson note that we have had that thought before as well...

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Jacqueline Doherty ("Streetwise") wrote on two interesting items: First that the "Dow Theory" (in that the transportation sector leads other stock prices) seems to have broken down, the DJIA is up, and transports down.  Secondly she writes that Harvard, Yale, Stanford (and likely Princeton) Universities are all having LOWER returns than the S&P 500 or the "60/40 Blend" (60% stocks, 40% US bonds)...  Really smart those those Ivy Leaguers!  (Special smile out to my friend John, you will like this!)

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Kopin Tan (Follow-Up) says that Google still has great longer term prospects, while Tiernan Ray (same column) notes that Hewlett-Packard (HP) still has many woes, missing the boat on new products.

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"Review and Preview" has two gems today...  Zach Trenholm wrfites a short piece noting that our Debt Crisis is a huge 60% based on ENTITLEMENTS, only 20% on national defense (includes the wars)and some 10% on interest and 10% on "Other".  I will say it again: entitlements have to get SOLVED, benefit must be cut, retirement ages raised (some), and then MAYBE we can talk about raising some taxes.

The other gem:

"She Says":

"Time seemed to view his job as protecting Citigroup from me, when he should have been worried about protecting the taxpayers from Citi."

Former FDIC Chief Sheila Bair on then NY Fed Chief Tim Geithner

Whoa, harsh words!

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Andrew Bary suggests how we can play the Kraft spinoff.  Kraft will split into two roughly equal sized companies: Kraft Foods Group (basically stodgy US processed foods) and the Moneléz (snack foods, expected higher growth overseas).  He thinks both are OK, but prefers Mondeléz...

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Author Sandra Ward writes up a bullish case for Steelcase, the office furniture maker.  Offices at many companies are modernizing, they need more creative furniture, Steelcase is winning this battle vs. Knoll and Herman-Miller she notes.

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Tiernan Ray ("Technology Week") writes that Research in Motion (RIMM) may have yet more trouble ahead.  They are behind in the Holiday Season with a new smart phone, which will not come until 2013.  Apple (AAPL), Samsung Electronics, Google (GOOG, via their Motorola acquisition), Microsoft (MSFT) and Nokia (NOK), all of them (and their brother, LOL!) are rolling out new smart phones now or imminently.

Mr. Ray also moderated a social networking panel.  While West Coast bankers are all excited about Twitter and Facebook, he is not.  My words sum him up: "Where's the money?"

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Shirley A. Lazo notes that world's largest defense company Lockheed-Martin (LMT) will increase their dividend, up to a decent 5%.  I wonder what happens, however, to LMT if/when defense spending gets cut, which it eventually will...

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The Classifieds had two interesting little items:

-- a breakthrough jet wind turbine is ready for production for commercial wind farms, they claim it TRIPLES the power increase for commercial electricity.  Details at: 800 337 2411

-- a1oilandgas.com (that's a number "1" after the first "a") wants lenders to so they can get drilling rigs (and similar), oil & gas production wells, and a crude oil storage terminal.

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PENTA (Barron's special info for families with over $5 million) discusses how Prince Charles is actually a serious guy when it comes to philanthropy...

I am stumped for further comment...

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Lawrence C. Strauss interviews Bill Nygren (Oakmark Fund).  Nygren says that stocks are the way to go vs. bonds (probably so).  Nygren's picks:

AIG (?!, whoa, so NOT ME)
Delphi Automotive (?, not me!  How about Hyundai Motor instead?)
Devon Energy  (DVN, they have a LOT of drilling for more profitable oil)

I like Devon Energy, maybe I'll buy it.

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"Economic Beat" author Gene Epstein discusses Labor-Force Participation ("LFP" for now, vs. unemployement).  LFP is going down for both men and women since about 2007.  My eyes fuzzed over the dense economic-speak here, but Epstein says that there are disagreements about who to count as unemployed, those out of the LFP, whose numbers you use, etc.

Quite a puzzle indeed.

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Editorial Commentary this week is by Scott Powell and Jay Richards.  They write that the "Wall Street Reform and Consumer Protection Act (aka Dodd-Frank) that unleashed a NEW regulatory body: the Consumer Financial Protection Bureau (CFPB), which apparently will be monstrously bad.  It is apparently up and running already, this did not get much attention because Obamacare had center stage at its formation.

ANY new Bureau is likely to be bad, and if it says "Consumer" and "Protection" in it name, hold on to your wallets.

The CFPB was designed by Elizabeth Warren (running for Senator in Massachussetts), red flag number one.

The CFPB will have lots of arbitrary power to stick its nose into MANY financial issues.  The Bureau has turned its attention to student loans, housing, requiring new scoring models for prospective minority borrowers, etc.  They can impose fines of $1 MILLION PER DAY in penalties.  The new Bureau is also busy hard at work drafting some of the 400 new rules under Dodd-Frank...

Wht is also interesting is that this new Bureau (CFPB) is funded by and located at the Federal Reserve, and so immune to Congressional scrutiny.

Our .gov is REALLY trying to screw us, dear readers.

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In the Market Week section, Vito J. Racanelli tells us that the stock markets fell a bit over 1%.  He then writes that a number of defenese companies (including above mentioned Lockheed) will go over the falls is the Republicans lose the election.  He provides a handy table, with lots of UGLY "minus" numbers...  He does not like Transocean (RIG) either, as they had an oil spill off Brazil (less than 4000 barrels into the Atlantic, far offshore), the Brazilians are going after them.

Jonathan Buck ("European Trader") thinks that German airport operator Fraport (FRA.Germany, they operate Frankfurt's airport) could do very well, especially vs. other European .  Maybe so.  They are expanding operations and so far so good (more retail sales are icing on the cake).  Yet, I wonder how Germany will do if the REST of Europe falls...  He then goes on to look at Spain, but we all know their problems, and he offers us no cheer.

Kopin Tan ("Asian Trader") writes that things look gloomy in China.  But, some (like Steven Sun, HSBC) think that Macau and other sectors may do OK, also that Beijing is cooling real estate prices.  The latter is good?

Reshma Kapadia ("Emerging Markets") has good things to say about India.  recently I have only read BAD things about how India does not look to be well...  But, I have been away.  She builds her case by saying that Prime Minister Manmohan Singh has finally kicked off some reform proposals (cutting diesel fuel subsidies, inviting foreigners in to new sectors, working more on the electrical grid, all to bring in more foreign capital).  She quotes Ranjit Rajamani (Boston Company Asset Management) is cautiously optimistic, "cautiously" being operative word...  She gives some specific picks, but if it were ME, I would just buy a mutual fund for India.

Simon Constable ("Commodities Corner") writes that because of problems in Brazilian rice production (the Number One producer of rice in the W Hemisphere) and because fewer US farmers are planting rice, well, rice could go up!  There ARE a lot of short sellers of rice, however, but this, maybe, could be a bullish sign...  You can buy "Rough Rice" futures at the CME he tells us.

The "Bond Center" shows that interest rates are almost ALL coming down, still...

Insiders (please recall that I take data from both the Insider Transactions as well as the 144 Filings which are often very similar but different too) show that six insiders at OnAssignment (ASGN, who?) sold over $100 million in stock, that's pretty majestic.  Other big sales include SiriusXM Radio ($49 million), Allied Nevada Gold ($35 million) and AutoZone ($28 million).  I mention AutoZone as they have had LOTS of insider selling for as long as I can remember reviewing Barron's...  What's up with AutoZone?

And, finally getting all caught up with Peru, I am happy to report that the Mighty Peruvian Sol has yet again risen to a record high vs. the US dollar, clocking in at just under 2.60 per dollar.  For those interested, our own company there (family owned bearing importer Ameru Trading del Peru S.A.) had a BIG September, I am still working on the figures.  We're going to do it, dear readers (barring some kind of Black Swan), come in over $1,000,000 is sales down there...  :-)