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Economic Outlook: Controlling optimism

Posted on: Tuesday, 14 April 2009, 05:59 CDT

New York financial giant Goldman Sachs said its fortunes had turned and it was ready to take the bold step of wriggling out from under the government's thumb.

In the first major surprise of the corporate reporting season, Goldman said its quarter-to-quarter turnaround was strong enough to contemplate paying back the government the $10 billion it has received in from the Troubled Asset Relief Program, plus warrants that must be valued by an independent firm, The New York Times reported Tuesday.

Goldman earned profits of $1.66 billion in the first quarter after losing more than $2 billion in the final quarter of 2008.

Consequently, Goldman said it would raise $5 billion with a sale of common stock to begin paying back the government. But, Goldman said it would allow the U.S. Treasury to complete its stress test first before deciding how to proceed.

Although banks are chaffing at the compensation restrictions that come with government assistance, clearly optimism has become a public concern, just as pessimism was when the chips were down. Last week, Goldman's Chief Executive Officer Lloyd Blankfein met with U.S. Treasury Secretary Timothy Geithner to discuss how Goldman could become the first large bank to return TARP funds.

The issue is really, will the government give Goldman special dispensation to get out first? Brad Hintz, an analyst at Sanford C. Bernstein, told the Times. Goldman can walk the halls of Congress waving a check but is it in the best interest of the marketplace for them to pay it back?

U.S. markets were shaky Monday but financial firms that led the market into a yearlong tailspin appear to be shouldering the return to higher ground. The Dow Jones industrial average, still down on the year, gained 22.5 percent in a four-week stretch in March, while the S&P 500 gained 24.5 percent.

In Asia, the Hang Seng index played catch-up after a two-day holiday and gained 4.55 percent Tuesday. The Nikkei 225 dropped 0.9 percent to 8,842.68, while the Singapore Straits Times index gained 1.08 percent. The S&P/ASX in Australia gained 2.21 percent. The Kospi index in South Korea rose 0.3 percent.

In China, the Shanghai Composite gained 0.5 percent.

At midday, major European markets made gains across the board with the FTSE 100 in Britain up 1.37 percent, the DAX 30 in Germany up 1.81 percent and the CAC 40 in France up 1.81 percent. The broader DJStoxx 600 was up 2.28 percent.

Investors will look at a retail figures Tuesday and a New York state manufacturing report due Wednesday. The U.S. Labor Department releases the consumer price index report on Wednesday.

Source: United Press International

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