Government Sachs

The revolving door between the U.S. Government and Goldman Sachs has gotten quite a workout in the last 2 administrations. The influence of Wall Street, on both sides of the aisle cannot be discounted, especially those hailing from the historic white-shoe firm.

Bob Rubin, John Corzine, Steve Friedman, Josh Bolten and Hank Paulson are the most recent departed, that found homes in executive and legislative branches of government (John Corzine has actually left the Senate to become Governor of NJ this past election). On Monday, however, we saw the first government official leave for Goldman, the number 2 man at the State Department, Robert Zoellick.

Goldman Sachs is smart. They have continually kept the peace between the trading and banking sides of the firm (something many other investment co.’s have had difficulty with) and understand macro trends perhaps better than the rest of their peers.

Robert Zoellick was instrumental in consolidating power in the State Department in the Bush Administration—he single-handedly shaped many of the policies and proposals that allowed Secretary Rice to usurp influence back from the Pentagon. Much like the former head of Goldman, Hank Paulson, he also has a very intimate relationship with the Chinese and his counterpart in their government. With Beijing’s close involvement with the business community and their desire to list many of their public companies in the United States to gain credibility—this pickup was truly a coup on GS’s part. Look for a clear edge in IPO’s and banking due to their newest arrival.

Love them or hate them, Goldman Sachs sets the bar for international business. Look no further than their share performance since coming public for confirmation:



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Net Loss for MSFT, Net Gain for Humanity

Late last week Bill Gates announced his plan to transition out of Microsoft, mainly to focus more on his philanthropic endeavors. Whether or not you like Mr. Gates or disapprove of the tactics that Microsoft has engaged in over the past two decades—to begrudge the man is simply unacceptable, given his track record as a person.

Bill Gates is bigger than life. He spent his early years tirelessly engineering new products and was the single-handedly responsible for innovating the GUI interface. Where PARC saw a problem, Bill saw an opportunity. He executed MSFT’s strategy flawlessly, to the point of surpassing the GDP of several nations with revenues throughout the 1990’s.

The Bill and Melinda Gates Foundation dwarfs every other charitable organization in the world (in terms of contributions), which possesses a net worth of approximately $29 billion USD. For the Gates’, it is not only about the money. Bill Gates himself can be seen often at schools—many with children living at or below the poverty line—trying to make their lives better through technology. In fact, Bill Gates made technology an important medium which people could not only improve their lives, but improve their character.

Do Your Homework

The market and its players have a tendency to become preoccupied from time to time, often to the point where a witch-hunt emerges. Very recently, we saw this during the Enron/WorldCom debacle when practically every stock was taken out back to the woodshed on the possibility they may have been engaging in fraudulent activity. There is usually a point where paranoia takes over reality and the baby goes out with the bath water, so to speak. I believe we are on the brink of this type of mentality with the newest display of egregious behavior by corporations—back dating stock options.

The SEC has already launched inquiries into a handful of companies which made questionable decisions regarding the issuance of options to their executives. Expect these inquiries to widen; morph into probes and eventually into disciplinary actions.

Unlike Enron and WorldCom, however, it is easy to determine the guilt on the part of companies and those you may have in your portfolio. Since all option grants, values and exercises are material public information—check the filings. You can find these at Yahoo Finance, EDGAR or any website that carries insider transactions.

Check the date they were issued. Check the stock price when they were issued. See if the press release and date of the grant are suspicious, i.e. near an important or historical low. If the market behaves similarly to the way it has in the past during any corporate scandal—shooting first and asking questions later is often the modus operandi of smart investors.

Al-Zarqawi Dead

Last night, U.S. soldiers killed Abu Musab Al-Zarqawi and seven of his top aides in an air strike. Using fingerprints and facial recognition technology, we are sure we got our man. Good riddance.

While futures don’t seem to care much, anybody behind the effort to bring peace to Iraq should be enthralled.

The Federal Reserve has done quite a job on the market over the past few weeks, with yet another Governor hinting that rates have further to go. The biggest casualties have been commodities related stocks (energy, metals, etc.), financials (brokers) and technology. These stocks have been the clear leadership group over the past few years and not had a serious correction in quite some time. This time may be here:



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The Morgan Stanley Commodity Index looks to break the late May lows and test the 200 day EMA.

The Bears Return

After taking a brief respite from the late May sell-off, the bears reemerged, sending the market plunging yesterday. With a little help from the Supreme Leader of Iran, whom threatened utilized oil as a weapon—oil started the day substantially higher and sent futures reeling.

Later in the afternoon, Fed Chair Bernanke gave market players further insight into his take on rates, which clearly dispelled an early end to the tightening campaign.

If the S&P 500 were to undercut the 5/24 low of 1245, it would be confirmation of a new down trend—establish recent “lower highs” and “lower lows.”

It is also worth noting that today’s date may signal that the apocalypse is upon us
(6-6-06).



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Happy Birthday Adam Smith

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