Not (likely) there just yet

Risk appetite hit another rough patch the past 4 weeks. Disappointment over the so far illusive economic recovery was pulling “growth” assets down again with a mood as damp and dreary as this summer’s weather. Then yesterday morning in a spark of light, respected banking analyst Meredith Whitney pointed out that Goldman Sachs was likely to report a surprising profit surge for the second quarter. This glimmer of profit, no matter how fleeting, was enough to spur some into a round of buying. I can’t blame people for seizing an excuse for a party. Things have been pretty grim the past year. Levity is scarce as unemployment rates move through 10%, and chunks fly off World Trade like a worn tire unravelling on the freeway.
But for anyone that cared to digest the detail in Whitney’s comments, it must be noted that she was talking about a short term trade potential for Goldman. She was not declaring an end to the world recession; she was not saying banks were all good again; she wasn’t even saying Goldman Sachs was all good again. Whitney was talking about the opportunity for a trade if this bank was able to surprise to the upside for this quarter. Today they did, reporting net income of $2.7 billion on record net revenue of $13.8 billion and the bank stocks sold off again. Great; now what? See Shining Results Aren't Solid Gold.
Unfortunately we are still too early in this summer to declare doldrums gone. Major market indices have recently been building a right shoulder of a bearish head and shoulders pattern now threatening to trace down over coming weeks. If they fulfill the risk of this bearish test, another 10% down could be easily in the cards over the next several weeks. Maybe they will buck this trend, but odds are not sufficiently bullish for equity markets to warrant the acceptance of much risk just yet.
On the bright side, those who don’t have money hidden in tax free havens off shore have reason to be grateful for that alone. Those that do, have real reason to be afraid:
“U.S. prosecutors estimated last year that UBS was holding about $20 billion in assets for American clients in accounts hidden from U.S. tax authorities. The so-called “undeclared business” accounts were estimated to produce about $200 million in annual revenues for the bank.” See US and UBS seek court delay.
The names of thousands of people suspected of using the bank for tax fraud are likely to be revealed. Being charged with tax evasion must be always bad, but being turned over now, when governments are desperate for tax revenue, and the mobs are financially strained and mad as hell, must be really bad. If the US gets its names, other countries will no doubt follow suit in efforts to ferret out offshore funds.