All Atwitter About Goldman

So Goldman Sachs earnings declined 10% but beat Wall Street's lowered expectations, so the market is euphoric. It doesn't make sense. What drove their earnings is something akin to a confluence of one-time events, namely the timing of government-mandated equity issues and the fact that given the absence of competing underwriters like Bear and Lehman, among others, Goldman took a bigger share of a lucrative fee business. Investors now want to equate the health of "the banks" with the health of the Goldman and Morgan duopoly. The banking sector proper still has massive issues that are being swept under the rug using the whisk broom of press releases.

Stephen Roach was for many years the readable, insightful economist for Morgan Stanley. He sums the issue up for me.

"The financial crisis is not over,” Stephen Roach, chairman at Morgan Stanley Asia said on CNBC. “The (International Monetary Fund) is telling us that by the end of this crisis $4 trillion worth of bad assets will be written down. Thus far financial institutions have written off, at most, half of that. So there's plenty more to come.”

Ted O'Glove's phrase, the "quality of earnings" is germane to the Goldman report. Big numbers, but low quality because of the "one time" issues. As for missing Wall Street expectations, that's easy to explain. What's left of the Street's banking analysts are so shell shocked and afraid of being whipsawed that it's safer for them to take estimates down through the basement and then be "surprised" but cautious going forward. The owners of the stock are happy with the "upside surprise" too.