Ocean Day

“How appropriate to call this planet Earth, when clearly it is Ocean.”

-Arthur C. Clarke

 

Today is Earth Day.  For those that didn’t know, Earth Day was founded 40 years ago by Senator Gaylord Nelson as a day to inspire awareness and appreciation for the environment.  That’s pretty simple, and, to use an overused phrase, it is what it is.

 

Personally, I’ve never really studied environmental issues, so I’m willing to admit what I don’t know.  Maybe Al Gore is a story teller.  Maybe he is not.  One thing I am willing to accept, though, is that respecting the environment is ultimately a good thing.  To that end, I drive a hybrid.  Yes, this right leaning, hockey playing, Alberta born, thirty something bachelor drives a hybrid.  There it is.

 

Just as in Arthur Clarke’s quote above, sometimes we just have to call things at face value.  Ultimately, I think that is the issue that Goldman Sachs is facing.  I don’t need to scrutinize the SEC’s case against them to know that they probably did something wrong, nor do I need to hear their high priced New York lawyered excuses to know that they can probably justify what they did. 

 

Warren Buffett famously said that it takes a life time to create a reputation and 10 minutes to destroy it.  Time will tell whether this is the 10 minutes of reputation destruction for Goldman.  My guess is it probably isn’t.  There are too many fine people that work at Goldman, some of whom we are honored to call friends, for the firm not to endure.

 

In the short term though, as we’ve outlined in the chart of Goldman Sachs below, there is an impact on the company’s valuation, and currently there is limited support for Goldman Sachs’ stock.  More critically, the Political War on Wall Street will accelerate with an enduring impact on Goldman and its peers.  As point in fact, and highlighted by NPR’s Planet Money blog, a Google search of "Goldman Sachs SEC" provides an advertisement for www.barackobama.com and “financial reform that protects main street”.  We’ve posted a picture of this below.

 

Ocean Day - goldman1

 

It is unlikely that Goldman Sachs will come out and admit wrongdoing in this instance, but being forthright and transparent may well be their most effective tool for taking the political momentum out of the sails of those who will now be focused on reforming Wall Street.  Imagine if Lloyd Blankfein stood up in front of Congress and said: “We failed our clients in this instance. And we will work to repair that trust.”  His stock would probably be on its way back towards $200 per share. 

 

Financial reform is a topic that will impact your investments over the coming month, so we want to highlight a few key dates as it relates to financial reform, which starts today:

 

1)      Today (4/22/10) - Senate likely to begin debate on Senator Dodd's (D-CT) Financial Reform bill.

2)      Today (4/22/10) - UK general election debate between PM Brown and Conservative Candidate Cameron will likely focus heavily on the GS/Financial Reform issue. US politicians may watch closely to gauge voters response to different posturing around this issues.

3)      Today (4/22/10) - President Obama will visit Manhattan to deliver a speech on the importance of Financial Reform at Cooper Union; an interesting choice of location, for it was there that President Abraham Lincoln galvanized New Yorkers for the first time in his quest to become President with one of his most famous speeches decrying slavery. 

4)      Thursday (5/6/10) - UK general election for Prime Minister.

5)      Memorial Day (5/31/10) - This is the Date President Obama has given to Congress to have a Financial Reform bill on his desk. After Memorial Day, Congress will go into full swing campaign mode, and passing any meaningful legislation will become difficult.

 

In completely non-sequitur fashion, I’m going to give one of our analysts, Howard Penney, a tire pump this morning.  He nailed his long call on Starbucks.  Since he recommended the stock, the unrealized return in our virtual portfolio is up ~120%. Last night, Starbucks reported same store sales that were +7%, which is the highest level in 4-years.

 

Like most large multinational companies, Starbucks also provides Macro analysts with some interesting nuggets.  As it relates to consumer spending, Starbucks’ comps were driven by a 5% increase in ticket prices (the amount spent per purchase).  In the year ago quarter, ticket prices declined by 3%.  The simple point as it relates to the consumer spending is that based on this Starbuck Proxy, consumers are willing to spend more and accept marginally higher prices.  Clearly, there are some inflation implications here.

 

If you don’t have access to our stock picks or Howard’s fine research, email us at .  While our research isn’t free, we’ll let you trial it for a few weeks and are confident you will be impressed.

 

We would be remiss this morning if we didn’t also mention Fitch’s warning on Japan’s credit worthiness.  While ratings agencies are typically lagging indicators, the reality is that Japan is a lesson for those nations that continue to Pile Debt Upon Debt. While Japan is not at imminent risk of a default, the unintended consequence of its massive government balance sheet was long term deflation, and hence its equity market has done nothing for more than 20-years.  That’s not good.

 

Enjoy Ocean Day!

 

Keep it real,

 

Daryl G. Jones

Managing Director

 

Ocean Day - Goldman


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