Goldman's Jump Due to Fed, Not Earnings

Goldman Sachs' move up yesterday coincided with its earnings report but had much more to do with the Fed's rate cut.
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Will someone please get a large polo mallet and put The Business Press Maven out of his considerable misery?

Goldman Sachs

(GS) - Get Report

has, historically, been a hard company to measure against expectations because of the vagaries of its proprietary trading business. Most serious investors don't get overly caught up in its performance vs. expectations -- and boy, were there expectations this time.

But first, to jog your memory: Remember yesterday when the

Federal Reserve

cut the fed funds rate to ribbons? Wall Street banks reacted well, and Goldman Sachs,

Citigroup

(C) - Get Report

and

JPMorgan

(JPM) - Get Report

were all up.

JPMorgan was up $3.72 for a nearly 13% gain. Even troubled Citigroup was up more than 11%. And Goldman was up a measure more, just north of 14%.

Goldman also reported yesterday, but we know not to attribute too much of the stock's performance to its expectations, right? For one, there is that history. Setting Goldman's expectations is difficult. For this quarter, it has been like catching a moonbeam in a jar. The average forecast by the time yesterday rolled around was $3.73, but that number had been slashed and burned over the last few weeks alone. It meant little to nothing at this point. Just a few weeks ago, Wall Street had losses pegged at less than 30 cents a share. Yesterday, some ridiculous outliers were at a loss of about $6 a share.

Most important when it comes to Goldman's stock movement yesterday, of course, was the fact that Goldman, Citigroup and JPMorgan were all goosed by basically the same amount, thanks to the Fed's free-money giveaway.

The business media know that the large fund managers who move stocks don't get their trousers caught in the Goldman expectations game, especially not this go-round. Right? And they took into account that the financials went up by a similar amount, right?

Wrong you are. Pass the polo mallet.

Look at this

Barron's

article, whose headline included the phrase "

Triumph of Lowered Expectations

." The lead is about as overdone as any you will see, and wrong to boot:

"Sometimes success comes as a result of the triumph of the unexpected. Think of the '65 Mustang. The cabernets of a couple years ago. The United States Olympic hockey team in 1980. Sometimes success comes as a result of managing expectations. The Red Sox any of the two years they've accomplished anything of note, for example. The later scribblings of Truman Capote. The Bush Administration's occasional economic achievements. Put the fourth-quarter results of Goldman Sachs in the former camp."

Soon,

Barron's

is giving credence, actual voice, to those ridiculous predictions on the outer end of the range: "All this goes up against a context of dismal expectations. Forecasts had suggested Goldman could have lost as much as $6 a share."

Look, savvy investor, the reason you use an average in anything is to avoid the errors inherent in trafficking in radically wrong guesses on either side of the continuum. Use them as any basis of comparison and you'll always live in a state of utter surprise. And be wrong as rain.

Here is the

Associated Press

, which

neglects to mention

that interest rate cuts were being anticipated and then celebrated all day:

"Analysts attributed the strong stock performance Tuesday to investors finding the few bright spots among the gloomy results, noting that while fourth-quarter losses were big, they were not well beyond expectations."

Same with CNNMoney.com, which in its second paragraph said: "

Still, the stock soared on the news as investors, fearing the worst, were soothed by the fact that the loss wasn't even bigger.

"

The Wall Street Journal

, mercifully, did not offer a pat reason for the stock's movement. It took the

big-picture approach

, avoiding a misleading misdiagnosis of one day's fleeting stock price move. It also, mercifully, did not traffic in the expectations game by throwing around figures like $6. All it said was that losses came in at 2.1 billion and that analysts had expected Goldman to report a loss in the $2 billion range.

When it comes to Goldman, as many investors know though the business media apparently don't, that's already too much. And when it comes to Goldman's stock movement yesterday, it was mostly the Fed, stupid.

At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.

Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven? column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;

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