Goldman, Google only muddy the picture

Google's disappointing quarter and the Goldman Sachs settlement don't offer any clear guidance, except to stay on the sidelines.

By Jim Cramer Jul 16, 2010 8:54AM

jim cramerBy Jim Cramer, TheStreet


We get Goldman Sachs (GS) back but we lose Google (GOOG)? Or did we lose Google a while ago and get a whole bunch of financials back? Hard to puzzle through.


Last night confirmed what we've been wondering since last quarter: Google is not a monopoly. It is in competition with Facebook and Apple (AAPL), two formidable adversaries. Facebook can spend whatever it wants, as it is private and doesn't have to report to shareholders, and Apple can do whatever it wants and seems to do it right.


And to compete, Google, one of the most cash-rich companies on the globe, is raising capital! That's not what we want to hear from a company that missed estimates and is experiencing maturity at a lightning pace. Plus, it has ceded to China! You can never cede to China if you are a growth company. Only local, community banks don't dream of entering that market. I can't think of any other business that doesn't want to operate there or find a way to do so unfettered.


That's nasty. And it is negative.

Google can make the good news of other tech companies, like Intel (INTC) and Novellus (NVLS) (and it was good news), pale by comparison, even as the bloom left the rose last quarter.


As for Goldman? We have to see what the quarter is. But we know the worst is now off the table, and we simply have to give it a price-to-earnings ratio that somehow reflects vastly fluctuating earnings.

I got a caller last night asking me about it, and, frankly, I didn't know how to put a multiple on the darned thing. I have no doubt it will recover quickly from the $550 million settlement, which amounts to a couple of not-so-hot weeks' earnings.

But its earnings power is reduced by sloppy markets, and its basic method of operation -- the internal hedge fund setup -- may conceivably be regulated out of existence courtesy of the financial reform law.


Of course, it turns out that one of the biggest reportorial mistakes in the Goldman story was that the Securities and Exchange Commission turned the case over to the Justice Department. It so clearly didn't do that. But that story took the stock down 30 points, and there's no accountability whatsoever by the reporters and editors who let it through, even though at the time my Justice Department sources said it was fanciful.


All in all, it's a mixed picture, and not one that makes me want to jump up and down and say take Goldman Sachs up $15 or Google down $15.


It makes for more good reasons to stay on the sidelines, with the exception of growth companies that do lots of non-cyclical business in Europe. Ironically, with the euro so strong vs. the dollar, the earnings estimates are -- remarkably -- too low!


At the time of publication, Cramer was long Intel and Apple.


Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


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