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Goldman Sachs: The Poster Child for Class Warfare


The other side of a V-shaped recovery.

We asked the question yesterday, "Does anyone doubt that Goldman Sachs (GS) will blow out earnings?"

We then inquired, "Will it matter?"

The most profitable investment bank in Wall Street history crushed their quarterly results this morning, posting EPS of $5.59 (vs. est. $4.01) on revenues of $12.78 billion (vs. est. $11.07 billion). $12.78 billion in three months; How about that?!?

The issue, of course, isn't what was. I've traded the financial sector almost twenty years -- almost 100 quarterly reports -- and can tell you these events are particularly rear-view. I've seen banks miss estimates by a mile and rip higher on forward-perception. I've seen banks blast past expectations and get crushed as investors channel Janet Jackson.

Today's earnings aren't just another run-of-the-mill, trade-it-to-fade-it, make-it-to-take-it, hit-it-to-quit it news item. It's evolved into more than that. It's somehow symbolic in the grand scheme of the socioeconomic sphere. You won't find a topic more polarizing than Wall Street and no firm represents its virtues and vices more prominently than Goldman Sachs.

A few years ago, I wrote War is Hell and the financial markets morphed into a matter of national security. The government saved the system -- or, perhaps, a system -- but did so at a profound cost with a litany of unintended consequences, including a burgeoning class war. It's the have's vs. the have not's (we've discussed this dynamic for many years), and it's cumulative in cause and effect.

That's why the SEC allegations of fraud are so far-reaching. This isn't about high-end hedge funds anymore -- it's about pension funds, public trust, and faith in the system. In the eyes of John Q. Public, it's about justice and redemption. What remains to be seen is whether that takes the form of class-action lawsuits and one-time write-offs or pitchforks and torches and tricky trifectas.

In August 2007, I penned The Credit Card, which offered that while a credit crisis loomed large, credit of a different breed -- credibility -- was the issue at hand for markets at large. I reference that column often, not because it was particularly prescient -- the DJIA was a kitten's whisker from an all-time high -- but because it's true.

It's one thing for Wall Street to make bank while Main Street quietly goes about its business. It's another to read about outsized bonuses -- Goldman's compensation and benefits were $5.49 billion this quarter -- while you're out of work and trying to feed your family; particularly after you, the American taxpayer, bailed out the industry.

Seeds of discontent have grown into weeds of worry. I feel it, see it and hear it everywhere I go.

Perhaps I'm sensitive to the situation and maybe my antenna is too finely tuned. As someone who sat in that seat, made millions of dollars, had a shocking spiritual awaking and plunked down his life savings on an off-the-wall dream to effect positive change through financial understanding -- I have a unique lens with which to view both sides of the tracks.

Wall Streeters will tell you they earn every dime they make. That's how I once felt at the end of sessions that saw swings of $20 million or more -- eat what you kill, a Darwinian meritocracy defined by a single number at the bottom of a long list of positions.

Main Street will speak to the inequity of risk gone awry and attendant culpability. They have every right to be angry as we edge into The Age of Austerity. What were once parallel, coexistent paths of mutual, albeit disproportionate prosperity morphed into a V-Shaped recovery of a different breed, with the great divide growing wider with each passing day.

Digest this earnings avalanche, monitor technical inflections and pay heed to the structural underpinnings, including the still-buff corporate credit markets. At the end of the day -- and during it, for that matter -- just remember that social mood and risk appetites shape financial markets.

That might not be today's business, but Goldman's reaction to earnings will help shape the framework of time and price.

Good luck today.

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