Goldman's down... JPMorgan sees a strong consumer... The economy is improving... Rogers: Get ready for more printing... Spain's bad debt hits record high... IMF wants $500 billion... China and Russia dumping U.S. paper...
Goldman Sachs – the jewel of Wall Street – reported earnings today... And they fell 47% to $4.4 billion (before you account for $1.9 billion in preferred dividend payments). Revenues dropped 26% to $28.8 billion. Fourth-quarter earnings dropped 58% to $1.01 billion from a year ago. Despite the huge drop in business, Goldman earned $1.84 per share, beating estimates of $1.24. Shares are up more than 6% today... And as Dan pointed out yesterday, sentiment and expectations are low.
The number of Goldman employees fell by 2,400 – or 7% of the workforce – from the end of 2010. It also cut compensation and benefits by 21% to $12.2 billion... According to a firm spokesman, bonus payments were down "significantly more" than the firm's decline in revenue. Goldman's ratio of compensation and benefits to net revenue for 2011 was 42.4% (it's normally closer to 50%).
Goldman's investment banking division took the biggest hit... Revenue fell 43% from a year earlier to $857 million. And fixed income, currency, and commodity trading – Goldman's forte – fell 17% to $1.36 billion. The firm saw lower results in mortgage and credit products.
"This past year was dominated by global macro-economic concerns, which significantly affected our clients' risk tolerance and willingness to transact," CEO Lloyd Blankfein said in a press release.
The market didn't go anywhere in 2011. And interest rates are at zero. It's more difficult to trade when there are no trends and no yield.
JPMorgan also posted lackluster results... The bank reported fourth-quarter net income of $3.7 billion, down from $4.8 billion a year ago. Revenue was $22.2 billion for the fourth quarter, down from $26.1 billion a year ago. JPMorgan's full-year earnings were a record $19 billion, up 9% from 2010.
As with Goldman, JPMorgan's investment bank disappointed... fourth-quarter earnings in investment banking were down 52% from a year ago to $726 million (only 19.5% of the total).
For the first time in three quarters, the bank generated more income and revenue from its credit card and card loan businesses than any other sector. Consumer credit earned $1.1 billion for JPMorgan... Credit card sales volume increased 10% and net charge-offs improved. And the commercial-banking arm reported record revenue and net income for 2011. Loans grew 13% and deposits increased 26% to an all-time record. Total deposits at JPMorgan are $1.1 trillion.
This consumer strength is a sign the economy is getting a little better – a topic we broached earlier this month… to some dismay. Many sectors are hitting 52-week highs (including small banks, homebuilders, and consumer stocks). Home Depot is at a 52-week high. So is Rayonier, a $6 billion timber real estate investment trust (REIT). In the past month, copper – a bellwether for construction activity and demand for industrial products – is up from $3.30 a pound to $3.75. The National Association of Homebuilders/Wells Fargo sentiment gauge increased to 25 this month, the highest level since 2007. While homebuilder sentiment is improving, it's still low – readings below 50 mean poor conditions.
And investing legend Jim Rogers thinks the good times could continue as governments continue printing money through the election...
"You have to remember two things – election in America in November, so you are going to see a lot of good news. Of course, you have the American government spending staggering amounts of money right now, printing a lot of money and getting ready for the election," Rogers told The Economic Times, an Indian English-language newspaper. "It happens every four years in America. They do their best to get the economy juiced up so they can win the election."
On a side note, Porter recently interviewed Jim for his new radio show – Stansberry Radio. If you missed the segment, you can listen in here...
Before you start sending nastygrams about us straying from the End of America, remember... Our End of America thesis is centered on the U.S. losing its status as the world's reserve currency. The decline in the currency comes from the U.S.' unserviceable debt load. It's going to be a long road with plenty of ups and downs, especially when the world governments continue printing trillions of dollars to bolster the economy.
Enough of the rosy projections... Let's focus on Europe. A friend of mine, a high-ranking Wall Street executive, recently returned from a business trip to Europe. He told me, "Things are going to be so much worse than anyone expects." We won't delve into the specifics… which we discuss in these pages on a near daily basis… but to recap, there's no growth in Europe, high unemployment, and soaring debt. And the entire European Union is depending on Germany's triple-A rating for safety.
Spain's situation is certainly getting worse... The bad-debt ratio of Spanish banks notched its eighth-straight monthly increase and hit a 17-year high, according to the Bank of Spain. The data shows 7.51% of loans were more than three months overdue in November, up from 7.42% in October. Total nonperforming loans equal $170 billion. That compares to bad debt levels under 1% prior to 2008. But even at these record levels, we think the true number is much, much higher.
Despite the worsening news from Europe, the euro rallied to more than $1.28 today... We've said since this crisis began that world governments, mainly the U.S., would come together to save Europe. And today, the International Monetary Fund, to which the U.S. is the largest contributor, said it's seeking an additional $500 billion in lending capacity to rescue Europe. We can hear the printing presses whirring now... But they'll spit out much more than $500 billion.
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New 52-week highs (as of 1/17/12): Invesco Insured Municipal Income (IIM), Nuveen Premier Municipal (NIF), Automatic Data Processing (ADP), Monsanto (MON), U.S. Ecology (ECOL).
If you don't know what the U.S.'s central bank is, you should... It's going to play a big role in the markets this year... Send your questions to feedback@stansberryresearch.com.
"You mentioned in your Digest Central Banks worldwide are purchasing gold. What is our equivalent of the central bank? Is it the Federal Reserve or the U.S. Department of Treasury?" – Anonymous
Goldsmith comment: The Federal Reserve is our central bank. It controls monetary policy by manipulating credit and interest rates. It also supervises and regulates U.S. banks. The U.S. Treasury does the actual currency printing. It also distributes payments to the American people (more and more, it seems these days), collects taxes, and provides other financial services necessary to run the country.
"Right on, Porter! I'm glad someone has the jewels to tell it like it really is. Keep up the good work…
"This situation is similar to the housing crisis in that there's extraordinary greed benefiting a chosen few, the lack of oversight by agencies fiducially responsible for providing checks and balances, and there will be a spiraling downturn once a watershed event occurs. The end result will make the housing crisis look like a minor speed bump and will jeopardize the continued existence of this great nation.
"Neither big government, big business or big labor have the collective desire to correct their deficiencies to make the situation better. Ethics and integrity have taken a back seat to money, power or votes. This is not the nation our Founding Fathers envisioned." – Paid-up subscriber CR
"I just turned 85 and I never thought I would live to see 'truth' in any American publication or Media. For 'truth' I have to be satisfied with Chomsky or, my favorite, another Baltimore native, H L Mencken.
"Congratulations on a great article. That took balls and I'm glad you can afford to do it." – Paid-up subscriber Roy E. Adkins
Regards,
Sean Goldsmith
New York, New York
January 18, 2012