Stock Preacher

Goldman Sachs and JPMorgan Chase Co. have emerged two bellwethers of the US finance sector in the post-bailout Wall Street, leading the surge of optimism with their strong profits in the Y 2009 Q-2. Six major US banks have reported their second-quarter profits in the past two weeks, vastly beating analyst predictions. The business of Goldman has little to do with common consumers, its quarterly earnings of more than US$3.4B posted were buoyed by record results in its trading and underwriting business. According to the quarterly report, the Wall Street giant generated a record US$6.8B in revenue from fixed income, currency and commodities trading during the quarter. Revenue from equity underwriting jumped to US$736M form UD$ 48M in the first quarter compared with US$616M last year. JP Morgan Chase, the largest US bank by market value, posted a US$2.72B earnings, and made its profits mainly from investment-banking services including bond and equity trading, and underwriting debt to help companies issue shares and bonds, not commercial loans and consumption credit.

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The benchmark S&P 500 should move back to its October 2007 record high above 1,500 by the end of 2012, provided the US economy sees a V-shaped recovery, JPMorgan Chase Chief U.S. Equity Strategist Thomas Lee said last Wednesday. “The global economy is in the midst of a synchronized recovery,” Lee said at the Reuters Investment Outlook Summit “If we end up with a V-shaped recovery, we could go back to our record high of 1,500 in 2011-2012,” he added, referring to the S&P 500. Lee also reiterated his year end 2009 target of 1,100 for the S&P 500, saying the United States will likely come out of its recession some time this summer, followed by the rest of the developed world. In October 2007, the S&P 500 hit a record closing high of 1,565.15, before falling back. In March of this year, it slumped to a 12-year closing low, but has rebounded by about 35% on hopes the recession that begun in December 2007 was moderating. Lee added that a market correction in the wake of the recent run-up would be “healthy,” and could lure back investors who opted to sit out the recent rally. “This rally has left many investors uninvested or underinvested. The pullback is the entry point to really see more meaningful money put to work,” said Lee, who has been named a top analyst in Institutional Investor magazine’s annual all-star poll. He favors the financials, industrials, technology and consumer discretionaries sectors, in that order, saying the sectors would be the biggest beneficiaries of an economic recovery. Within financials, he favors asset managers. The S&P financial index .GSPF is up 84 percent since the broader market’s 12-year low on March 9, 2009

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The conventional wisdom is that retail investors, and not institutions, have powered the market’s rally off the March 2009 lows. Not so, says Charles Biderman, CEO of TimTabs Investment Research. The firm tracks the flow of money in and out of mutual funds. Since the start of May, he says, “U.S. equity funds have taken in a modest US$7.1B” despite improved performance. Instead, retail investors are plowing money into bond funds. Moreover, Biderman says that individuals did capitulate in the heat of the crisis, having been burned twice in the last ten years. The retail investor is not in the market yet, but history tells us that they will be, Biderman expects them to come in to the market in 2010.

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One of Wall Street’s most optimistic equity strategists told clients that the S&P 500 may rise even more than he expected this year. “There is actually upside risk,” JPMorgan Chase & Co.’s Thomas Lee wrote in a report on Thursday and that he expects the S&P 500 to end the year at 1,100, or 21% higher than Thursday’s close. Stable retail sales, a pickup in pending home sales, and other indicators signal the recession may hit bottom by midyear, leading to higher share prices, the report said. The S&P 500 rose 34+% from its March 9 low through Thursday’s close. “We want to become ‘slow buyers’ of stocks,” he wrote, citing the likelihood that prices will drop below their March lows before rising anew. This so-called retest would serve as a trigger to buy “in a larger way.”

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As home values across the USA continue to slide, law enforcement officials are saying that a new breed of swindler is preying on homeowners desperate to avoid foreclosure.

Until recently, defrauders tried to swindle homeowners out of their equity. Now, with that equity often dried up, they are presenting themselves as “foreclosure rescue companies” charging illegal advance fees to modify loans but often do nothing to stave off foreclosure.

The US Federal Trade Commission brought lawsuits last year against five companies representing 20,000 consumers, and state and local prosecutors have brought more. In Florida, Attorney General recently sued a company that had more than 600 victims. “There’s no way for the consumer to sort out the legitimate companies,” the Florida Attorney General, who added that he had limited resources to fight the fraud.

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