Maybe it's not so bad out there?

Wall Street profit may hit $19 billion in 2010


NEW YORK | Tue Nov 16, 2010 2:31pm EST

NEW YORK (Reuters) - Wall Street may earn $19 billion in 2010, its fourth-most profitable year, even as regulatory changes and a weakened economy limits its ability to generate profit, New York State Comptroller Thomas DiNapoli said.

In a report released Tuesday, DiNapoli said profit might decline 69 percent from last year's record $61.4 billion, but may have settled near levels more in line with pre-crisis amounts.

DiNapoli said Wall Street broker-dealer operations had lost $54 billion in 2007 and 2008, but have benefited from a series of federal bailouts as well as low interest rates.

"Wall Street is adjusting to regulatory reforms and learning how to do business in the new financial reality," DiNapoli said in a statement.

Wall Street profits topped $20 billion in both 2000 and 2006, as well as in 2009, according to DiNapoli's report.

The comptroller said it is too soon to determine year-end bonus payouts. Bonuses totaled $20.3 billion in 2009, up 17 percent from a year earlier, he said.

BUBBLES? or NOT?...

The president of the Minneapolis Federal Reserve, Navayana Kocherlakota, recently published a paper in which he argues that government guarantees helped fuel the bubble in real estate. While his paper was largely aimed at prescribing solutions to this problem, it raises the question: What other bubbles are lurking out there in the global economy? We asked several experts and to our surprise, they had a long list:

1. Gold. The price of gold bullion has risen from $294 an ounce in 1998 to $1,404 today, an increase of 377%. "It's the biggest, baddest bubble of them all," says Robert Wiedemer, author of Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown. Gold has no intrinsic value. A telltale indicator that gold is a bubble: incessant cocktail party chatter about buying gold and endless TV commercials offering to buy gold jewelry. The SPDR Gold Trust ETF (GLD) is up 28% since the beginning of the year.

2. Real estate in China. Chinese real estate prices are up only 9.1% this year, which may seem more frothy than bubbly. But rising prices are generating rising demand, which is a clear sign of a bubble, says Vikram Mansharamani, whose book, Boombustology: Spotting Financial Bubbles Before They Burst, will be published early next year. The participation of amateur investors like waiters and maids in the property boom is a clear sign of a property bubble in China. The fact that developers are building more apartments than there are buyers is another giveaway.

3. Alternative energy. Solar technology is still uneconomic, yet governments all over the world are subsidizing solar energy firms. "There are plenty of people who shouldn't be in the solar energy industry who are," says Mansharamani. Do we really need 250 venture-capital-backed solar cell companies? The Market Sectors Solar Energy ETF (KWT) had a 100% gain this year, before dropping back.

4. Commodities. Blame it on the weather, China or the Fed, but commodities have shot higher in recent months. Wheat is up 60% this year, and other food commodities like corn have also risen dramatically. "The focus is on the food category for bubbles," says Wiedemer, but industrial metals like copper are also very frothy.

5. Apple (AAPL). OK, everybody loves their iPad and iPhone (except if they live in New York or San Francisco, where signal strength is a problem). But Apple shares are up 1,200% since 2001, which has to come close to being the definition of a bubble. "Apple is a high-fashion company," says Wiedemer. "If CEO Steve Jobs either leaves or dies, I think they will have trouble maintaining that incredible fashion sense, and as such it's time will go," he says. Sponsored Links

6. Social networking. Sure, Facebook has 500 million members, but what is that worth? Some estimates put the company's market value as high as $35 billion, but shares in these social networking companies are not listed and are so far only traded by a few insiders. Twitter, with almost no income, is said to be worth $1.5 billion, and LinkedIn is also estimated to be trading at a market value of $1.4 billion. "There aren't any anchors or valuation methods to guide investors in terms of valuation," says Mansharamani. "When you have that lack of clarity, almost anything is possible." Many in the tech world try to figure out what these companies might be worth some day far in the future and then discount that back to some reasonable price today. Remember Boo.com?

7. Emerging market stocks. As an asset class, these shares have risen 146% in the past two years. "We're only halfway along the way to a gigantic eventual bubble in the emerging markets," says Barton Biggs, the former Morgan Stanley Asset Management chairman who accurately predicted the U.S. stock market bubble in the late 1990s. These countries, such as Indonesia, Australia, Russia and Brazil, are growing wildly even though there's no growth in the world economy. Much of their gains is backed by commodity prices, which are also a bubble (see item No. 4). "I have every reason to believe this will turn into a bubble," says Mansharamani.

8. Small tech companies. It's only been a decade since the tech bubble burst, but cash-rich large tech companies are gobbling up smaller firms without regard to price. For example, Hewlett-Packard (HPQ) got into a bidding war with Dell (DELL) over computer storage company 3Par and ended up paying a whopping $2.4 billion, 325 times the firm's earnings before interest, taxes, depreciation and amortization.

9.The U.S. dollar. Although the dollar is down 10% against the euro so far this year, Wiedemer believes the greenback is firmly in bubble territory. He believes it will pop when foreigners stop buying U.S. assets such as stocks and bonds. "Foreigners say, 'I'm worried about inflation -- you're going to pay me back in dollars worth less than when I invested'." While China may hold its dollar bonds forever, he says, pension funds in Japan and insurance companies in Europe will start dumping dollars as U.S. inflation climbs.

10. U.S. government debt. "When this bubble pops you're out of bubbles -- nothing is too big to fail any more," says Wiedemer. The debt bubble is growing very rapidly and will continue to grow, he says. Basically, there's no way the U.S. government can ever pay back the $13.7 trillion it currently owes(mainly to foreigners), and eventually they will stop buying. The bubble pops when the government has trouble selling its debt -- just like Ireland and Greece are experiencing at the moment. Instead of borrowing money, the government starts printing money, which is what's happening now. The Fed's balance sheet has gone from $800 billion in 2008 to $2.2 trillion, and the central bank just announced it was printing another $600 billion. Says Wiedemer: "The medicine starts to become poison."

See full article from DailyFinance: http://srph.it/a33aYr

Goldman Hiring: Traders Out. Risk Managers In.

By Stephen Grocer

Goldman’s revenue is off 14%, trading activity is down, advisory work remains muted and its prop traders are heading for the doors.

That seems like a recipe for reduced headcount. Not at Goldman. Goldman has been busy hiring. Deal Journal colleague William Wright reports over at Financial News that Goldman has increased its headcount by 19%, or 5,600, in the past 18 months.

The hiring is not taking place in New York or on the investment banking side, though.

“Goldman Sachs said it was taking advantage of market dislocation to expand its operations in Asia and Europe, to build up in asset management, and to boost risk management.

“On a conference call with analysts and investors this week to discuss its third quarter earnings, chief financial officer David Viniar said a lot of the recent recruitment was related to the new regulatory environment for the industry with hundreds of staff hired “on the risk management and control side of the firm.’”

Goldman’s biggest expansion plans are for is asset management group, according to Wright.

“One analyst who covers the sector said Goldman Sachs has made a strategic decision to shift the balance of its business towards asset management. He said less-heavily regulated businesses, such as asset management, would command a higher valuation in future compared with businesses such as trading or investment banking. This is because revenues and earnings from asset management are less volatile than in trading or capital markets, and the business consumes less capital.

“Revenues at GSAM in the first nine months of this year increased by 3% to $2.94bn, only a few hundred million short of the $3.22bn in revenues at Goldman Sachs’ high-profile investment banking business.

“Over the past six years, the asset management division has contributed an average of 11.0% of Goldman Sachs’ revenues, according to analysis of its earnings releases, compared to 13.8% from its investment banking division. “

Macro-Economic News: Fed's Danger of Leaks With 'QE'

Heard on the Street

Fed's Danger of Leaks With 'QE'

By Kelly Evans

475 words

18 October 2010

The Wall Street Journal 

This article explains that the Quantitative Easing can possibly cause an export-led growth, if it can be achieved, and that it is likely to come from more capital-intensive than labor-intensive industries. The only way that the export led growth could start is by devaluing the dollar. This will make it more expensive for us to import and also it also can cause other counties to also devalue their currencies as well.

Another point is that the quantitative easing might not be working. Kelly Evans notes that there is a risk that the money being poured into the market may be finding its way to the "gold trap." This is where the money is parked instead of being spend in other assets that may create activity in the economy. 

It is my opinion that this second round of quantitative easing is extremely weak, mainly because it is expected by investors and other countries. Countries are ready and willing to devalue their currencies at will, maybe the only exception is China, and investors are ready to pour their money into gold and other assets that will increase due to quantitative easing. The Fed needs to strike a balance between giving the markets confidence and telling the market what it is going to do.

 

Interested in trading?

Hello Traders,

                We encourage you to join us in our bi-annual Wall Street Club Trading Competition! Using the Wall Street Journal’s “Virtual Stock Exchange”, we are hosting a simulated trading competition that will run between Monday, October 18^th and Friday, December 3^rd, 2010.  Sign up now and start trading tomorrow Monday 18th. You do not need to be an active Wall Street Club member to participate.

                This competition will give you the opportunity to sharpen your analytical skills, both fundamental and technical, while also giving you the opportunity to discuss and share your trading strategies with members at our weekly Friday meetings. Winners will be awarded at our last meeting of the semester!

 

Join VSE: http://vse.marketwatch.com/Game/Homepage.aspx

Game Link: http://vse.marketwatch.com/Game/FindGameHighlights.aspx

Game ID: WSC-F10

Password: NVC3125

This would be a good way for us to practice our trading and also to compete and see how well we will do. I already signed up and look forward to seeing who else would want to compete. I would suggest if you are interested to read up on technical analysis to learn how to analyze charts, prices, and volume. I have books if anyone is interested.

 

Adam Camacho

FLP Blog

Hello Everyone,

Welcome to the Financial leadership blog. The intent of this blog is to post up noteworthy news as they come up and comment on the news with either what you are learning or your opinion on the news.

When posting if you can NOTE in the title what kind of news it is. I thought we should separate the news by:

1)Macro-Economic news- News that deals with the US or Global Economy
2) Capital Markets- News on how the Stock Market and Fixed Income markets are doing
3) Industry News- News on a particular industry. Please note what industry
4) Forex/ Currency News- News on currencies and their impacts
5) Company Specific News- News on a particular company. If you are doing analysis on their financial statements please NOTE it in the title

I look forward to the interesting articles everyone is reading!

Adam Camacho