HAUKE: Goldman effect creates buying opportunities

About 18 months ago, when the global financial system was melting away by the day, it seemed like one bank simply floated above the chaos and had all the answers. This firm strutted around with a sense of arrogance that went a long way to instilling confidence in its investors, but confused any outsiders.

In short order, this bank wielded so much influence with our government that people began calling it Goldman Sachs of America.

Of course, it made sense that Goldman Sachs was favored by the government over rivals Lehman Brothers and Bear Stearns. Our Treasury secretary at the time, Henry Paulson, is a former chairman of Goldman Sachs. He did everything in his power to save his friends, including providing a ticket to billions of taxpayer cash.

During the entire stock market crash of 2008, Goldman kept telling the public that the firm was doing fine. It protected itself from the housing downturn by taking positions that profit when mortgages fall, it said. (By the way, if they were so smart to see that problem coming, why did they get billions of bailout money?)

This strategy hit a little political snafu in mid-April when the Securities and Exchange Commission sued Goldman for shorting the mortgage market with one hand, and selling mortgages to investors with the other. To me, that feels like a conflict of interest, and we will soon see how the courts handle this. At the same time, this is not a life-threatening situation for Goldman.

As much as I disagree with corporate welfare and insider back-room dealings, the fact is that Goldman Sachs is one of the most powerful institutions in the world. Almost every major central bank in the modern world has at least one former Goldman executive sitting on its board. This suit from the SEC will harass it for a few months, but it will survive, and even begin to thrive in the eyes of investors before this year is out.

The SEC news didn’t stop at Goldman’s door, however. The effects spread like the ash cloud spitting out of that Icelandic volcano that is tormenting air travelers from one end of Europe to another. Not only did almost every finance-related stock fall, but markets all over the world suffered varying degrees of loss. Obviously, lots of investors took the news as a sign they should sell. I see this from a different angle, though. I think this weakness that has been triggered by the Goldman Sachs news will quickly create the second buying opportunity of 2010. The first chance was in early February when the world thought Greece was about to cause a cascade of defaults.

Regardless of whether the current bout of bad news takes the market down for another week or another month, I don’t think we have seen the highs of this bull market.

For the most part, bank stocks did pretty well off the February low, beating the market by about 10 percent. They have been ravaged since April 17, losing about 5 percent in two trading days. At the low, Goldman was down more than 15 percent. I don’t have any interest in owning Goldman because the stock has been lagging the market since last October. But there are a few bank stocks I might look at if they fall a little more in the next few weeks.

Check out American Express and Wells Fargo from the big crowd, and PNC, US Bank and BB&T from the mid-majors. I think these five stocks will continue to beat the market through the end of this year, at least.•

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Hauke is the CEO of Samex Capital Advisors, a locally based money manager. His column appears every other week. Views expressed here are the writer’s. Hauke can be reached at 203-3365 or at keenan@samexcapital.com.