GS: another all time high: expect continued strength.

Financials after lagging the market since beginning of this year are now coming alive. Now I believe that they are poised to outperform the market in the near term as they play catch up game with the rest of the market.

Goldman Sachs (GS) set all time high level today by breaking above $220. I continue to believe that my target of $250 is not only reachable in 07, but it may turn out to be very conservative. I expect the equity market will have another stellar year in 07. The liquidity into the stock market remains still very favorable. The valuation of the stock market also remains reasonable. The bears continue to see economy in trouble as the housing and auto sectors will take the economy into recession. Also spillover effects from the sub-prime mortgage was claimed to severely affect the consumer buying power. However, so far earning reports from the industrial and financial companies reveal sub-prime effects are largely contained and spillover effects are negligible. Also in the face of favorable employment rate and wage growth trend, consumers are able to cope with rising energy cost as well as possible negative effects from tightening credit. Thus, the economy appears to be still in a good shape.

Because there are many shortsellers who betted on the market decline, the market is not awarding GS much multiple. Many expect GS cannot sustain the earning momentum in 07. EPS estimate have come down and PE multiple are at just above 10. I believe that the market is grossly underestimating the earning power of GS in 07. The private equity and M&A activities are rampant. Oversee markets especially in Pacific Rim where GS has a strong presence is exploding. The economies in Asian countries are outpacing the growth in the US and GS is seen to be primary beneficiary of rapid growth in the Asian nations such as China, India, Korea, Japan, Taiwan as well as Singapore.

I continue to believe that hot commodity and energy market coupled with boom in the private equity and M&A activities will help GS to beat the earning estimate by a wide margin. I see May estimate of roughly $4.8 can be beat easily by as much as 50 cents. I see the market finally awarding higher multiple for GS once this happens. If the market multiple expands to 12 from lowly 10 level. GS may trade to $270 based on $22.50 EPS estimate that I think is reasonable for the company in 07.

The news of GS underwriting $2.5 Billion TSMC ADR along with JP Morgan hit the news wire after the market close today. Last two months, I don't recall a day without hearing some news of M&A, underwriting, private equity, etc. This market has been nightmares for shortsellers. The fact that there are so much shortsellers out there and so much put buying may continue to fuel this market to the upside as the shortsellers scrambled to cover to minimize their loss.

For this reason, I see sustained short term rally and I especially like financials at this point. Among the brokerage names, I like GS the best and among the bank names, JP Morgan seems to be the one to have.

The current stocks in that I cover are: Filthy Rich Tech ideas (comprised of Openwave, Avid Technology, Tivo, IBM, and Research in Motion), Filthy Rich Biotech ideas (comprised of Amgen, Celgene, Genzyme, Isis pharmaceuticals, Alnylam pharmaceutical, and Protein Design Lab), Filthy Rich Financial ideas (JP Morgan and Goldman Sachs), Filthy Rich China ideas (Focus Media Holding and Ctrip.com), Filthy Rich Transportation ideas ( American Airline and Southwest Airline), and Filthy Rich Specialty Retail ideas (Peet's coffee)

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