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G-Forces: Greece, Goldman and Google !

Looks like there are various G-forces holding down the market from taking off beyond 11000. First of all, blame it on PGS (Portugal, Greece and Spain) of "PIIGS" club for bringing down markets due to rating cut. But let's look at these G-forces which are in work:
  • Greece: It has been in news for last 4-5 months and due to structure of EU, there is no quick closure on this. Now that it has only 2 weeks left, Europe better hurry up to help Greece avoid default which may lead to end of Euro as we know it. If Greece defaults, contagion would very quickly spread to other nations in PIIGS and many other nations outside Europe. This could be repeat of 2008 with difference that this time it would be nations defaulting (instead of corporates). Europe needs to have its own TARP for it's member nations and that too very quickly !
  • Goldman: Since SEC filed civil suit of fraud 2 weeks back, Goldman cannot catch a break. After senate hearings, now there are talks of criminal suit. With stock down nearly 20%, it has lost close to $20 billion in market cap. Someone in Goldman got carried away in their arrogance and decided not to settle with SEC when they received "Wells" notice last July. It's not a coincidence that GS stock is at it's July 2009 level and going down possibly below 140 unless it starts discussing settlement
  • Google: Google is in G-club not due to fraud or debt overload. But because of it's business decision of pulling out of China. While it was a great moral and ethical decision, it was a wrong business decision giving away largest Internet market to Baidu. Due to this decision, GOOG is down by 15% YTD while BIDU is up by 67% YTD. Google's other problem is it still does not have any money-making product other than "search" gold-mine. Now that big numbers are catching up, unless Google gets another blockbuster product which can compensate for it's loss of business in China and also keep up with growth, GOOG stock would be stuck below $600
So overall there are quite a few forces working against markets taking off for another run to DOW 12000. Volatility has definitely increased with VIX going up and down by 10-30%. It's good for selling "call options" against your existing holdings. Last week was great for some of the commercial holding companies. One of my recommendation iStar Financial (SFI, SFI-D) did pretty good. Now that it's losses has come down, most likely it would reach break-even by end of year and resume it's dividends in 2011. With that in mind, at $6.50, it offers potential upside of 50% in next 12-18 months.

Have a great weekend !

/Shyam

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