Typically, we prefer addressing a single issue in our blog entries.  But on some rare occasions, several thoughts cross our mind, and we’re not quite sure which idea deserves our focus.  In today’s blog, we’ll switch gears, as we have done on occasion, and consider some of today’s random thoughts. 


  • Goldman Sachs.  Goldman Sachs reported outstanding earnings yesterday.  While we own the stock and may be biased, the fact that the company has avoided the multi-billion dollar write downs of nearly every other player in the industry is so amazing that it begins to engender a degree of suspicion.  In many ways, Goldman is a giant hedge fund and while they have exposure to the same credit issues that all other investment banks do, they’ve successfully hedged their downside with various derivative instruments.  The fact that the stock is only trading at 7x earnings suggests that investors see current earnings as far beyond peak levels.

  • The Power of the Fed.  Goldman also mentioned that the last three weeks of November was very rough, with some on CNBC conjecturing that it may have been one of the worst months in Goldman’s history, putting a damper on what would have otherwise been one of their best quarters in history.  This three week period just happens to match the time period in which the Fed came out with their balanced assessment of risks statement, sending the markets lower.  To us, this clearly suggests that the Fed has a major and almost immediate influence on commercial and financial activity.  They can and should do more.

  • Financials Washed Out, for Now?  Financials stocks seem to have stopped going down in spite of the news of further write downs.  Today, at least at this time, Morgan Stanley’s stock is actually up even though they missed earnings last night by a wide margin and announced an additional $6 billion write down.  I don’t think we’ve seen the ultimate bottom yet, but it is encouraging to see such names holding in there, at least for now.

  • Trim Tabs Fund Flows Data.  U.S. equity fund holders yanked $18 billion from their domestic fund holdings over the last five days, bringing the month to date total to $20 billion, the highest level of activity since July 2002.  They don’t appear to be taking these funds to other areas of the market though.  Global and bond funds have seen only a slight trickle of these outflows, about a billion or so.  This suggests that folks are leaving things in money market funds.  The latest crack in some strong growth stocks, which we discussed yesterday, may also suggest that fund managers are tired of selling their losers like financials to fund the redemptions into year end and may have instead switched gears to harvesting some gains.  If we are correct about our forecast of a soft landing, these higher cash balances could be a powerful stimulus for growth stocks in 2008.

  • MIT Physics Professor Becomes Web Star, My Son Uses YouTube to Learn Guitar.   Today’s New York Times had a great article on a 71 year old MIT physics professor who has become a web star by posting his lectures online.  To read the article, click here.  I’ve noticed a similar phenomenon in my twelve year old son Pete, who supplements his weekly guitar lessons by watching instructional YouTube videos of various musicians playing whatever song he wants to learn at the time.   I’m not sure what this all means, but it likely points to an important trend down the road.  Tuition increases at our nation’s schools are both ridiculous and unsustainable.   And if many of these schools aren’t going to start using their huge endowments to ease the pain, perhaps enterprising professors like this one can pull something from their sleeves.  Heck, he might even want to get an agent. 

  • Spelling Mistakes.  A few readers have volunteered to proofread our blog entries for spelling mistakes before we publish them.   If some of our blog entries have arrived in your inbox with spelling mistakes or strange characters in them, we are aware of the issue and apologize.  I can assure you that our entries don’t go out that way.  According to Go Daddy, it is a technical issue associated with email readers and not related to a technical issue with our fingers.  Aggravating for sure, but hey, it’s only a blog.