GOLDIE

As expected, Goldman Sachs blew the doors off with their earnings announcement of today. Despite what one might think of these guys they can turn on a dime and make a hell of a lot of money in any environment. Of curse when you are about the only guy left in the business life does get a bit easier and remember, GS is now a bank just like Citibank and is therefore eligible to borrow from the Fed and practically zero interest. With this kind of cost of funds, even I could make money but probably not as much as Goldie.

What is interesting is to note the absolute confidence they have in themselves as even with their low cost of funds you don't make $3.4 bil without taking risk, and obviously this is what they did. This strategy stands in marked contrast to their only real competitor left on the Street, Morgan Stanley, who had previously announced a meaningful reduction in their risk-taking well over a few weeks ago. I still believe that the earnings of financial institutions this quarter will be modest as little can be expected in stock appreciation at this stage whereas risk management and the building of reserves will take front stage. Again, I think earnings will be deliberately understated without comment from regulatory authorities. As to which approach is the wiser? Time will tell.

Meanwhile, the scuffling still continues over the proposed new world of regulators albeit at a more subdued pace, as official Washington is caught up in Supreme Hearings, Obamacare and Energy. It is encouraging to see, however, that the Brits are facing the very same politics now that there appears to be somewhat of a general agreement that the FSA didn't work worth a damn and that maybee the Old Lady should get another shot at it this time around. I've been thinking about my view that at least in regard to systemic risk (whatever the hell that is) The Fed should clearly be the entity that is in the forefront. The contrary view points to the fact that to mix the traditional role of the Fed as the setter of monetary policy with this new and perhaps conflicting role of systemic regulator might not be a good idea. There is merit in this, but as a practical matter, the nitty gritty of risk management, oversight or whatever one wishes to call it, was never the purview of the Federal Reserve in Washington but rather, of the Federal Reserve Bank of New York. So I said to myself, "Self, why don't they make de jurie what was always de facto?" The answer came back, "Beats the hell out of me." I'm going to think about this some more. I could continue to run on, but there aint that much happening. Later.