Greetings From 34,989 Feet
At his shareholder meeting this weekend, our good friend Mr. Buffett tossed his support squarely into Lloyd Blankfein's corner. The Goldman Sachs (GS) story seems to continually deteriorate. Certainly, the equity price is declining as each salvo is tossed GS's way. If I am an investor with particular interest in GS, I would temporarily not focus on the GS equity price, but rather take a look at the GS bonds. In fact, for best of breed financials, the better investment currently might just be to own the bonds, not the equity. I think investors forget that in times of "sector contagion," corporate bonds generally provide the better trade over the equity price. The reputational damage to GS and other financials is reflected in declining share prices. The balance sheet of GS, which is a priority concern for debt holders, remains strong. Every crisis provides an opportunity; my reminder to investors is to remember corporate bond opportunities along with equity opportunities.
While out in Los Angeles, I ran into Allen Loeb, the screen writer for Wall Street 2. He assured me that all financial movie fans will love this flick. Its release comes at a perfect time with the S&P 500 Index trading at the upper end of its 52 week range. As we head into the first week of May, my focus is squarely on Friday, May 7 with the release of the Labor Report. Investors should be focused on "continued improvement." The trajectory needs to continue higher for the next several months. Any "slip" will give credibility to those looking at last Friday's 3.2% GDP as a "peak" and certainly move the S&P 500 Index down from the upper end of its 52 week trading range.
I have suggested that we are entering a "baseball season of frustration." Friday's Labor Report, if not constructive, will be a significant contributor to that potential frustration. If we do "slip," I would expect money managers to shift to a more defensive position, favoring value over growth, large caps over small, and a return to quality over junk.