Tuesday December 30, 2008
Navivest

The Federal Reserve announced on today, that it expects to begin purchasing mortgage-backed securities (MBS) in early January and that it has selected BlackRock Inc., Goldman Sachs Asset Management, PIMCO and Wellington Management Company, to act as its agents in implementing the program.

According to the Federal Reserve, the program is being implemented to help foster improved conditions in mortgage markets. The purchases will be financed by the creation through the creation of additional bank reserves.

Under the program, only fixed-rate agency MBS securities that are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae will be considered eligible assets that can be purchased. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers. Not eligible under the program, are CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents.

The Federal Reserve is projecting a very limited risk exposure, as both the principal and interests of the assets purchased under the program are fully guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae.

The Federal Reserve does expect that the market valuation of the MBS purchased can fluctuate over time based on the interest rate environment. However, it expects its interest rate risk to be “mitigated by the conservative, buy and hold investment strategy of the agency MBS purchase program.”

Tags: TARP  Federal Reserve  BlackRock  Goldman  Mortgage Backed Security

Tuesday December 16, 2008
Navivest

In what turned out to be a rather fortuitous day to report disappointing earnings news, Goldman Sachs (GS) today reported a Q4 2008 loss of $2.12 billion, which translated into a per share loss of $4.97 on negative net revenues of $1.58 billion. Analysts had been looking for a Q4 loss of $3.73 on revenues of $662.78 million.

In the comparable period a year ago, the company reported a net income of $3.17 billion or $7.01 per share on revenues of $10.74 billion.

For the full year, which ended November 28th, the company reported net revenues of $22.22 billion, net earnings of $2.32 billion and earnings per share of $4.47. This compares to an earnings per share net income of $24.73 in the year ago period on net revenues of $45.99 billion, which produced a net income of $11.60 billion.

Analysts had been looking for the company to earn $6.49 per share on revenues of $24.68 billion for full fiscal year 2008.

The year has been a difficult one for Goldman Sachs, as evidenced by the earnings report. According to Lloyd C. Blanfein, the company’s Chairman and CEO, “our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class.”

On September 21st, 2008, the bank became a bank holding company that’s now regulated by the Federal Reserve instead of an investment bank. As a result, the company has elected to switch to a calendar fiscal year and will now use the last Friday in December as the end of its fourth quarter and full year.

The company chose to become a bank holding company, so that it would be able to tap into the government’s $700 billion dollar Troubled Assets Relief Program (TARP), which became law on 10/03/08, as part of a bailout program of the U.S. financial system. Under the TARP, Goldman Sachs has already received $10 billion from the government, in return for preferred stock.

After the company released its earnings report, Moody’s Investors Service lowered its long-term credit rating on Goldman Sachs to A1 from Aa3, because of the ongoing credit-market crisis as well as a persistent difficult operating environment.

Goldman Sach’s shares which were up moderately after the earnings report, closed $76 +$9.54 (14.35%).

Tags: Goldman Sachs  Earnings Report

Wednesday November 12, 2008
Navivest

Shares of Goldman Sachs (GS) were all over the map yesterday, on a wild volatile ride. With the stock market opening yesterday on a bearish note, Goldman Sach’s shares which had closed at $71.21 on Monday, opened at $69.36, down $1.85.

The stock then trended mildly to the upside to trade in the $73 area, before turning around again to hit an intra-day low of $66.68.

By 12:20, the stock hit bottom and started moving to the upside, to eventually settle at $74.68, up $3.48 or 4.87%. This was remarkable, considering that all three major indices closed down about 2% on the day.

We would expect that volatility to continue again today and traders looking for intra-day profits could trade Goldman shares today. The trading plan will be to guage direction of the overall market and trade Goldman Sachs shares accordingly.

If in early going, it looks like we will be getting a bullish day, go long the shares and go short on the inverse.

Once in, unless the tone of the market is overwhelming, in which case you stay in, look to take a 2-3% early profit. Traders should monitor the stock to see if it will be moving between positive and negative trading for multiple intra-day trading opportunities.

Trading Idea  Goldman Sachs

Goldman Sachs (GS) shares are surging in after hours trading on Monday 09/22/08, up $15 or 12% from the closing price on Monday 09/23/08, on word that Warren Buffet through Berkshire Hathaway (BRK-A), is buying $5 billion in Goldman Sachs preferred shares. The shares closed at $125.05 in regular trading.

The shares will pay a 10% dividend. Berkshire Hathaway will also purchase $5 billion of Goldman Sachs (GS) common shares at a strike price of $115. Goldman Sachs (GS) in a separate deal will also raise $2.5 billion in a common stock offering.

In addition to Goldman Sachs (GS), the news is sending shares of Morgan Stanley (MS) higher, as well as S&P 500 (SPY) futures, which if holds, could mean a higher stock market at the open. Morgan Stanley (MS) shares are up $4 or 14% in after hours trading, to $32

If the stock market does open higher, traders might want to be careful not to get caught up in a bear trap. We will be getting Crude Inventories numbers for last week as well as Existing Home Sales numbers. These could possibly lead the market lower. So it might be prudent to wait until after 10 AM when those number come out, before initiating trades on Tuesday 09/24/08.

In addition to Goldman Sachs (GS), the news is sending shares of Morgan Stanley (MS) higher, as well as S&P 500 (SPY) futures, which if holds, could mean a higher stock market at the open.

If the stock market does open higher, traders might want to be careful not to get caught up in a bear trap. We will be getting Crude Inventories numbers for last week as well as Existing Home Sales numbers. These could possibly lead the market lower. So it might be prudent to wait until after 10 AM when those number come out, before jumping into the market on Tuesday 09/24/08

Tags: Goldman Sachs  Morgan Stanley  Berkshire Hathaway

With no major economic or earnings news expected today, the focus of investors will be on the continuing melt down of the financial industry and its aftermath. We got news Sunday night, that Goldman Sachs (GS) and Morgan Stanley (MS), which now operate as investment banks, will become bank holding companies.

While both already have subsidiaries that will speed their entry into their new status, it probably is also very likely that they will be looking to purchase existing banks, especially now that those banks can be had for cheap.

Traders should look for which bank stocks, especially the regionals, are showing very heavy volume on Monday and possibly take positions. Washington Mutual (WM) was already being mentioned as an acquisition candidate over the past week and Morgan Stanley (MS) was in merger discussions with Wachovia (WB), although this might end with Morgan Stanley’s (MS) new status. So we might see some bullish actions in those stocks although with the incredible rebound in stocks from last week’s lows, we could see some profit taking today.

Tags: Goldman Sachs  Morgan Stanley  Washington Mutual  Wachovia

The Federal Reserve on Sunday 09/21/08, announced that it has approved the applications of Morgan Stanley (MS) and Goldman Sachs (GS) to become bank holding companies, pending a five-day waiting period. As a result, both firms will become financial holding companies under the Bank Holding Company Act.

Both currently operate as investments banks and are less regulated than deposit taking retail banks. However, since the credit crisis has all but decimated Wall Street’s income generating model, with revenues from taking companies public and securitizations for instance, down drastically, the investments banks need to look for new ways to secure sources of capital and they’ve determined that the easiest way would be as deposit taking institutions. This would provide them with a stable and low cost capital base.

Morgan Stanley will convert its Utah industrial bank to a national bank and Goldman Sachs will create GS Bank.

Tags: Goldman Sachs  Morgan Stanley  Federal Reserve

This morning, we suggested that readers of the Navivest Stocks and Options blog buy the Capital One Financial (COF) September 50 puts and the Morgan Stanley (MS) October 42. We did not believe in the Fannie (FNM) and Freddie (FRE) induced rally.

The COF puts now have a bid price of $4.30, They opened at $3.10 this morning, that is a gain of 38% in a day, and the Morgan Stanley (MS) October 42 puts are now bidding at $3.8. The opening price was $3.10 on those as well. That is a gain of 22%.

Our rational for both trading ideas was the fact that we have economic news being released later on this week, that will probably drag the markets down. However, we have enough one day gains in the shares so we are suggesting that those who entered the trades exit today.

Navivest has a subscription based service, The Options Capitalist. Twice a week, we send out winning trading ideas such as these, with a target profit of 15-20% on each trade.

Yesterday, as stocks were rallying, we emailed our subscribers and told them to buy Goldman Sachs (GS) September 165 puts. We closed them out yesterday for a 36% gain. We also bought puts on Morgan Stanley (MS), Zions Bancorp (ZION) and Morgan Stanley (MS) and entered in the GS Sep 165 puts again and with the exception of the GS Sep 165 puts which we closed out for a gain of 22%, those trades are all up over 30% today.

If you’d like a free two week trial subscription to The Options Capitalist so you can get winning trades such as these, click here.

Tags: Options  Goldman Sachs  Zions Bancorp  Morgan Stanley

Back on August 7th, perhaps in a bid to jump ahead of government officials and do things in a manner that would cost it the least, Merrill Lynch (MER) announced that starting in January 2009 and ending a year later, it would purchase at par, ARS that were purchased from the firm by its retail clients.

New York Attorney General Andrew Cuomo promptly jumped on the firm, claiming that that was not good enough and this week, announced that if Merrill Lynch (MER) did not reach an agreement with his office by Thursday, he would sue the firm on Friday. On Thursday evening August 21st, Merrill Lynch (MER) announced that it had reached such a settlement.

It will now move the starting date of its repurchase of ARS from its retail clients up to October 1, 2008 and a start date of January 2, 2008 from other eligible parties. It will also compensate other clients who between February 13, 2008 and August 21 sold their ARS at a loss, participate in arbitrary hearings for clients who suffered a substantial loss in the ARS holdings, and pay a $125 million fine.

Also announcing settlements on Thursday August 21st, were:

Goldman Sachs (GS), which announced a settlement agreement with the New York Attorney General’s office and the Illinois Securities Department. Under the agreement, the firm will pay a $22.5 million fine and start repurchasing immediately, all ARS that was purchased by Goldman Sach’s (GS) Private Wealth Management clients through February 11, 2008.

Deutsche Bank (DB) will repurchase ARS from its clients and pay a $15 million fine.

 auction rate securities goldman sachs merrill lynch

Stocks are falling today 08/19/08, after Producer Price Index numbers released this morning by the Labor Department, renewed inflation fears. The Producer Price Index, which measures the price of goods using the manufacturers’ wholesale prices, rose 1.2% in July, the biggest increase in 27 years. This was twice what was expected by forecasters.

Core PPI, which leaves out energy and food prices, rose .8%, versus the .2% rate that was expected. This was the biggest gain in twenty months.

The news was harsh on the stock market. Currently, the Dow is down 124.49 points or 1.08%, to 11348.63, The Nasdaq is 24.30 points or 1.01% to 2392.68 and the S&P 500 is down 12.92 points or 1.01% to 1265.68

Financials also continue to drag down the markets. AIG is down 7%, Lehman Brothers (LEH) is down 7.98%, Goldman Sachs (GS) is down .72% and Merrill Lynch (MER) is down 3.8%

Yesterday at this time, stocks were turning around to tack on a gain of over 150 points on the day. Its a mirror image today. We are now down 152.82 points. The losses are across the board as all three major indices, Dow, Nasdaq and S&P 500 are all off over 1.3% on the day.

Financials are leading stocks downward, as they give back some or all of the incredible gains that put up yesterday.

MER	Merrill Lynch	30.64	2.13	6.50%	17,198,878
LEH	Lehman	20.51	1.76	7.90%	28,976,005
GS	Goldman Sachs	170.87	4.03	2.30%	9,308,586
FNM	Fannie Mae	15.88	1.74	9.88%	34,479,770
FRE	Freddie Mac	10.99	2.47	18.35%	38,964,384
AIG	AIG	26.72	0.68	2.48%	13,619,952
C	Citigroup	16.74	0.65	3.74%	68,702,601

 (MER), (GS), (AIG), (C), (FNM), (FRE)

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