Oil Continues Gushing Yet Markets Bounce on Greece

After last week's less than devastating 195-point drop, the markets bounced back on the first trading day of May to close up 143 points (1.3%). After last week's downgrades in Europe fueled fears of contagion and compelled investors to sell, Greece's acceptance of the EU austerity measures this weekend elicited a wave of buying in US equity markets to start the week.

Commodity sectors were notably weak even after a late-day New York Times article claimed "BP Says Crews make Progress Stemming Oil Leaks" and helped the entire sector mount a rally off lows. The article said the first of three containment domes have been constructed and all domes should be put in place over the leaks this weekend. The domes should then allow oil to be pumped to the surface in a controlled manner. We'll see if it works, I remain skeptical. BP (NYSE:BP) recovered from over 9% losses early in the day to close down 3.8%. The Oil Service Holders (NYSE:OIH) bounced back from 4% early losses to close up on the day 0.7%. The sector was primed for a bounce after last week's drubbing. Investors should have caution though as David R. Kotok of Cumberland Advisors advised in a letter to his clients. Kotok urges us to realize that this oil spill is already far worse than many claim and could be terribly ugly taking a decade to clean up, possibly inducing a double-dip and effectively disarming any ammo in the offshore drilling camp.

Shares of Goldman Sachs (NYSE:GS) found buyers today after Warren Buffett expressed his support for the embattled firm this weekend fueling a 3% snapback. Gold rallied early on to highs of 1,188 before drifting back down to the low 1,180s by the New York equity close.

Barry Ritholtz ran a competition last week for who could come up with the best caption for a picture of Lloyd Blankfein during his Senate committee testimony. My personal favorite: "You fool! You fell victim to one of the classic blunders – The most famous of which is “never get involved in a land war in Asia” – but only slightly less well-known is this: “Never go against Goldman when money is on the line”!" LOL, The Princess Bride is awesome! This admission won in my book only slightly over an all-time Seinfeld classic: "Was that wrong? Should I not have done that? I tell you, I gotta plead ignorance on this thing, because if anyone had said anything to me at all when I first started here that that sort of thing is frowned upon… you know, cause I’ve worked in a lot of offices, and I tell you, people do that all the time."

Markets Quiet Ahead of Blankfein, FOMC

The markets are opening lower today, an odd occurrence. Today we will watch a battle on Capital Hill as legislators tear into Goldman CEO, Lloyd Blankfein, about the bank's role in the subprime collapse. I'd expect a politically-charged debate filled with plenty of grandstanding. The FOMC begins its two-day meeting today as well; their policy statement will be released tomorrow at 2:15. Friday we will see the BEA Q1 2010 advance GDP release.

Have you seen the new General Motors commercial? New GM CEO, Ed Whitacre, walks a victory lap around the floor of a GM plant claiming the company has repaid its debt obligations to the government well ahead of the 5 years ahead of time. Seriously, Ed? Yes, they paid back the $8 billion in TARP obligations but somehow forgot to mention that the US government still owns 70% of the company's common equity valued at $45 billion. Taxpayers currently have no discernible prospect of getting its money back yet. As Wade W. Slome calls it: "General Motor's Amazing Debt Trick".

Guys over at Keefe, Bruyette & Woods downgraded AIG today slapping a $6 price target on shares. They offer compelling fundamental arguments for their call standing up to the momo crowd that has loved riding the ridiculous wave higher with shares jumping from $25 to $45 from just the beginning of March. KBW sees normalized EBI of $2.8 billion while owing $4.1 billion in annual interest on its preferred debt. Even assuming a wildly successful conversion of debt and further raising of equity, AIG would trade at significant discounts to peers in the P/B and P/E categories. Both estimates offer a $6 target. Breaking up the company, with optimistic assumptions on sale prices, would yield $79 billion against $141 billion in outstanding debt. Clearly, KBW believes the momo crowd better be quick to jump off the bandwagon before the party ends.

Here's some ridiculous stuff from the Elliott Wave crowd:

Bracing for dark times head
John Richardson
Esquire.com

Factories are humming, consumers have resumed spending, and the Dow Jones industrial average is again above 11,000, said John Richardson. America is back, right? Not according to the Elliott Wave theorists, “a cult of chart obsessives who try to predict the stock market by following trends in social mood.” Known for correlating stock prices to everything from skirt lengths to the popularity of horror movies, the Elliott Wave folks believe that “the intuitive popular idea that economic conditions generate moods is exactly wrong.”

Changes in the national mood, say the theorists, precede changes in the economy. Under this theory, today’s national mood, with its “increased feelings of anger, fear, and polarization,” presages a second, cataclysmic dip in the stock market. That, in turn, could usher in a dark period in American history, in which “the pressure of gloom gets so big that violent and secessionist impulses can break out of control.” Civil war, they say, is “a distinct possibility.” Sure, the predictions of the Elliott Wave crowd have been wrong before. But they do have a point about the national mood, no? (The Week)

Will someone tell these guys to go home? I'm not sure I could have less respect for a particular stock market interpretation than I do for Elliott Wave theorists. If they really believe in their nonsense predictions they should be buying gold bars and holing themselves up in the North Arctic for the next couple decades.

Whitney Sees GS Support in $120s

The Dow gained a point today, actually less than a point, after being up 50 points early in the day. A pretty uneventful day but rather frustrating for anyone trying to extract gains intraday actively. Goldman Sachs (GS) continued to feel selling pressure dropping another 5 points today (-3.4%) ahead of tomorrow's testimony by CEO, Lloyd Blankfein on Capital Hill.

Meredith Whitney appeared on CNBC's Closing Bell with Maria Bartiromo today and had some interesting thoughts on Goldman Sachs:

Maria: "Do I want to sell shares in Goldman Sachs if I'm an investor right now?"

Meredith: "I think Goldman's support is right at book value which is in the $120s. It's a good franchise and they'll continue to do well. People never assume that they're going to make money. If they make a low-teens ROE, that's twice what the banks are making. That's stil a pretty good return. But, it's going to very difficult for them to catch momentum. Since last summer when the stock did so well, there hasn't been momentum around any of the businesses and so I think the momentum has clearly been taken away from Goldman."

Very interesting stuff from Whitney. She suggests that GS shares will be worth looking at with another 20% haircut bringing them down to book value. And, I assume she would say investors will need to have patience in order to see the possibility of out-sized returns given the "lack of momentum" surrounding their primary businesses.

Republicans successfully filibustered the banking reform bill in the Senate today. Ahh, politics.