The speed with which the financial sector imploded last fall may be rivaled only by the speed of its recovery this spring. Between the positive preannouncements made by Citigroup and Wells Fargo and the outstanding earnings report by Goldman Sachs, it now appears likely that the financial sector is rapidly returning to health.
Goldman Sachs reported quarterly earnings of $1.66 billion or $3.39 a share, a major improvement over the loss late in 2008. Total revenues in the quarter were $9.43 billion led by record revenues of $6.56 billion in its fixed income, currency and commodities unit, the same unit that took the big mortgage-related losses last year.
Today's New York Times and Wall Street Journal both had lengthy articles describing the new offering of common share being prepared by Goldman Sachs.The primary objective of the offering is to get out from under the U.S. Treasury's Trouble Asset Relief Program (TARP) and all the political strings that are attached. One of the most onerous provisions of the TARP is the limit it places on executive compensation. For example, in the year before the TARP, Goldman Sachs paid out bonuses in excess of $1 million to more than 960 employees. Under TARP those kinds of payouts are prohibited. You can see why the Goldman executives are working so hard to pay the money back.
What does this mean to you?
With the financial sector clearly on the rebound, we have to anticipate that the rest of the economy is not far behind. It is still "early days" in this recovery, but it is becoming increasingly clear that the worst of the recession is behind us. We will probably not experience the doomsday depression scenario that had so many TV talking heads spinning for the last six months, but mark my words...it won't be long before they start fretting about a coming tsunami of inflation. Take their fear with a grain of salt and hold to your long-term strategy.