Goldman Downgrades China, Upgrades The Nikkei, As It Hikes Oil, And Other Non-Sequiturs

Tyler Durden's picture

Following its just announced flip flop on oil, Goldman's "sellsiders" go ahead and not only cut Chinese growth prospects, but raise the Nikkei. So let's get this straight: Goldman raises its prices forecast for oil, even as it downgrades the primary driver of demand - China, and somehow the Japanese market, which suddenly is overreliant on natural resources for energy creation in the aftermath of Fukushima, is supposed to surge. Was this script written in Bollywood?

Anyway, for those with a sense of humor, here is the gist on China: "Recent data have been worse than we expected. The growth slowdown has been even sharper than we forecast, especially evident in April industrial production (which mainly reflected tighter monetary and fiscal policy, although some specific industries have seen supply-side constraints). In addition, inflation is not coming down as rapidly as we hoped. We now cut our 2011 GDP growth forecast to 9.4% from 10.0%. This partly reflects the lower-than-expected 1Q2011 GDP print (9.2% qoq ann.), but we have also cut 2Q2011,3Q2011, and 4Q2011 growth to 8.0%, 9.0%, and 9.3% qoq ann. from 8.8%, 9.5%, and 9.7% respectively. This is only very slightly above the last official consensus, which came before the disappointing April data, and so we are likely to be above the true consensus now. We expect annual average inflation of 4.7% (up from 4.3%), with a peak in yoy terms of 5.6% in June. We also nudge down our 2012 GDP growth forecast to 9.2% from 9.5%, reflecting in part the impact of higher oil prices. Although we maintain our annual average inflation forecast of 3.0% in 2012, we have a slight acceleration within 2012 as higher oil prices eventually get passed on more fully." Yet while this conclusion in and of itself makes some sense, the following from Goldman's Kathy Matsui in the Nikkei, regarding the firm's outlook on the Japanese stock market, confirms that whoever is coordinating the Goldman sellside push may have crossed the Tropic of Thunder: "Contrary to popular opinion, we believe the disaster will accelerate - rather than delay - Japan's exit from deflation. We see reconstruction demand and exports driving gross domestic product growth to an above-trend pace of 2.5 per cent in 2012...Market participants have argued for some time that it will take a cataclysmic event to drive structural change in Japan; now the world is watching." Bottom line: China down, Japan up, and oil far, far away. Sigh.

More from Goldman on Japan:

More than two months have passed since the March 11 Tohoku earthquake and tsunami. Since then, Japanese stocks have fallen 10 per cent, while global markets have risen 1 per cent. While we see Japanese equities range-bound over the next 3-6 months, we project a 15-20 per cent rally on a 12-month view.

Our near-term caution stems from three reasons. First, due to our more subdued growth outlook for the US and Japan as well as persistent yen strength, consensus earnings expectations for the full-year 2011 appear optimistic. Although one-fifth of companies chose not to release any guidance, those that did expect flat profit growth, while we forecast earnings per share (EPS) to fall 5 per cent.

Second, while power shortages and supply chain disruptions have begun to alleviate in eastern Japan, the nationwide electricity outlook remains uncertain. Since Chubu Electric Power (located in western Japan) recently suspended operations at its Hamaoka nuclear plant due to safety concerns, fears have risen that if other nuclear plants currently offline for inspections are unable to restart due to safety issues, this could lead to renewed power constraints for the rest of the country as peak summer demand approaches.

Third, following a 27-week buying spree, foreigners have purchased nearly $60bn of Japanese equities, surpassing their last buying wave between December 2009 and April 2010. With foreigners now "longer" Japan, we think significant positive surprises will be necessary to trigger further buying near term.

On a medium-term view, however, we expect the Topix index to rally back to the pre-quake high of 970 within the next 12 months, driven by supportive valuations and a 22 per cent EPS rebound fuelled by reconstruction demand and exports.

Compared with the 1995 Kobe earthquake when price to earnings multiples traded at 77 times, the full-year 2012 p/e currently stands at a more globally comparable 13 times. In terms of reconstruction, the government has approved a $50bn supplementary budget, and a second budget totalling $125bn is expected this summer.

Since the earthquake, the Bank of Japan has conducted sizeable fund supply operations and expanded its asset purchase programme by 14 per cent to $500bn. The BoJ has stated that, if necessary, it will take further steps to ease policy.

Contrary to popular opinion, we believe the disaster will accelerate - rather than delay - Japan's exit from deflation. We see reconstruction demand and exports driving gross domestic product growth to an above-trend pace of 2.5 per cent in 2012.

Since above-trend growth should narrow Japan's output gap, this - along with our medium-term forecast of firm commodity prices - should allow core inflation to turn positive as early as the current (April-June) quarter.

Furthermore, the earthquake has triggered a surprising surge in loan demand as Japanese companies shift from "just-in-time" to "just-in-case" inventory management and diversification-driven capital spending. Regional bank lending started growing in March, and that of city banks will likely follow. Positive inflation and loan growth should drive 10-year Japanese government bond yields up to around 1.9 per cent by the second half of 2012, resulting in a steeper yield curve.

As for the yen, while post-earthquake G3 intervention allowed the yen to depreciate temporarily, the combination of softer US macro data, dovish Fed statements, and a rally in US Treasuries have caused the currency to return to the Y80 level against the dollar.

Although some expect more intervention to come, we are sceptical. The Japanese authorities' rationale for intervening after the earthquake was to curb excessive currency volatility as well as speculation regarding repatriation. This time, however, the yen's rise has been gradual and driven more by dollar weakness than yen fundamentals. We expect yen strength to persist near term, although wider US-Japan rate differentials should drive the yen lower towards Y86 on a 12-month view.

Most investors have little doubt about Japan's ability to heal post this disaster. The more difficult question is what happens after the recovery? In our view, the government urgently needs to construct a post-recovery vision. Before the earthquake, there was serious discussion about Japan pursuing free-trade agreements such as the Trans-Pacific Partnership (TPP) and much-needed pension and healthcare reforms. Will Japan use this crisis as an opportunity to accelerate reforms or as an excuse to delay them?

At the minimum, the private sector is unlikely to wait for the government. Since the disaster has exposed the danger of concentration risk, firms previously reluctant to shift production offshore are now likely to accelerate such plans. With the strong yen boosting purchasing power, outbound M&A should expand from here.

However, to offset the inevitable effects of hollowing out, the government needs to actively promote growth strategies such as commercialising its leading edge alternative energy technologies, deregulating healthcare, boosting labour participation of females and immigrants, and implementing incentives to attract inward foreign direct investment.

Market participants have argued for some time that it will take a cataclysmic event to drive structural change in Japan; now the world is watching.

And Goldman's hit job of China:

GS China Revised

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johnnynaps's picture

Upgrades Nikkei? I guess there is a shortage of nuclear products!

Ahmeexnal's picture

Or an abundancy of crack cocaine at the GS desks.

Fish Gone Bad's picture

The Fukushima reactors have people fiximg them, day and night.   That's right, you heard it here first.  They are fiximg the plants.  No, I didn't say they were fixing them, I said fiximg them!  In truth, nothing has been done and they are spewing out gamma ray emitting Xenon and Krypton gases.  Japan is going to a great big economic dead zone in a few years.

StychoKiller's picture

Has any Economist ever heard of the Broken Windows Fallacy?  Am I living in the Twilight Zone?

johnnynaps's picture

you haven't seen the last few years.......down is up

LaLiLuLeLo's picture

Japan's GDP contracted 3.7% in Q1. 3% expected in Q2. 

crack rocks abound

In Fed We Trust's picture

and with both parties advising default, NO downgrade on us bonds.


So it sounds like, bonds are going to be the next subprime, so go ahead Goldman , and recommend them,

Kyron95131's picture

same thing i was thinking... this transparent manipulation and bias is such a joke at this point...

silberblick's picture

Acclaimed Black social activist and university professor Cornel West calls out Obama as being a part of the oligarchy and challenges Americans to rise up like people in Europe and the Middle East are doing. Read here:

DosZap's picture

When the astute Mr.West get's the 94% of black Americans that voted for him, and the 80%+ that still approve of his work(must be golf/vacations/pissing off BiBi), out to protest, I'll join in.

km4's picture

The squid moves in funny ways


Tokyo Electric Power (Tepco) has confirmed that there have been extra partial meltdowns in fuel rods at its damaged Fukushima nuclear power plant.

Last week, the president of Tepco, Masataka Shimizu, resigned. He will be replaced by managing director Toshio Nishizawa. The announcement came on the same day the company reported an annual loss of 1.25tn yen ($15.3bn; £9.4bn). Tepco's loss is a record for a non-financial firm in Japan. The company's share price has fallen more than 80% since the earthquake.

Hedgetard55's picture

This is very BAD news for the hedgetard, who likes to fade Goldman more than Obama likes to .. well, never mind. I have some shekels in two Japan funds, which were doing well until the earthquake/tsunami. Now there is NO chance for them to recover.


OT, but there is a new Rapture date from Harold Camping. You sinners have until Oct. 21, 2011 to get right with God.

Manthong's picture

The jokes going to be on that old fart because the Elenin comet will have wiped us out a week before then.

DosZap's picture

OT, but there is a new Rapture date from Harold Camping. You sinners have until Oct. 21, 2011 to get right with God.


Poor Harold, at 89yrs old , one would think he had read the scriptures.

Drag Racer's picture

I had to check the calendar real quick to make sure it was not April 1st, what a joke.

DK Delta's picture

Off topic, but who remembers that scene from Saving Private Ryan where the German soldier stabs the American soldier while telling him to "shhhhhh..." ?

Remind you of anything?

Spastica Rex's picture

Let's have a war
So you can go and die!
Let's have a war! 
We could all use the money!
Let's have a war!
We need the space!
Let's have a war!
Clean out this place! 

Stuck on Zero's picture

Like all the Wall Street sharks Goldman is telling you what to buy so that you can take that junk off their hands before it implodes.  Do any of these reports ever pan out?  I visited the GS site recently to look at their success rate.  The result: If you want to make money do the opposite of what their analysts publish.

oogs66's picture

but they usually have 2 analysts going in the opposite direction, so whichever one turns out right, they parade around to all their best clients and earn even more money

Caviar Emptor's picture

Goldman, Like Emperor Caracalla to the Gladiators at the Coliseum: 

"I give you thumbs up!" 

"I give you thumbs down!" 


And the crowd goes wild.....

As my moniker suggests, I appreciate Roman glory that still lives 

A_MacLaren's picture

Yeah, yeah, whatever.

Lemmings, the land of milk and honey is just over the next rise. 

And if you see a cliff, pay no attention, its an optical illusion.

nathan1234's picture

If you believe Goldman Sachs you can believe in the Tooth Fairy. Goldman should have been wound up a long time ago and its head and partners behind bars for a life time ( and thats being kind to them).

Phillips Capital's picture

Why do you even post drivel from the Seducer? 

Phillips Capital's picture

every goldman release says one thing and one thing only: "Hey, we took some positions 10 nanoseconds before you, ...please go ahead and submit those orders. we would like some profits. also commissions."  

Tunga's picture

Freezing Carlyle gives the Chinese enough wiggle room to get a port in Pakistan which can take up the slack they lost with the "bin Ladin raid". 

 What secrets will the Emerald Isle reveal to it's long lost son? Unless he knows the meaning of the term "Stack bonding"; not too fucking much. 

 One love to free them all. <3

JW n FL's picture

Carlyle is not a name you should use in public..

StychoKiller's picture

Send him/her to Coventry...

Tunga's picture

Is that where they keep the carbonite copy of Neil Bush?

williambanzai7's picture

Isn't Goldman Tokyo the place where a huge internal argument broke out when all the expats wanted to leave Dodge city two Fukushiman months ago?

DK Delta's picture

Yup, and execs from up above said "though shall die for the ideology"

NewThor's picture


Can you please do a thread on what a horrible, lieing piece of shit of a movie

'Too Big to Fail' on HBO is? OMG. They out right mother fucking lie again and again.

It's a sympathetic portrait of Bernanke, Geithner and Paulson as fucking

superheroes who really want to save America.

They even go as far as to say there IS no conflict of interest with

Paulson and Goldman Sachs, they even say "He sold all his stock in Goldman"

which was not true, he had his 444,000 shares in a blind trust.




NewThor's picture

Elenin can't get here fast enough.

I am a Man I am Forty's picture

parsons still pulling the strings over there i see, no surprise there

Cdad's picture

The criminal syndicate known as Wall Street, and its lackeys in the press, sure are having a hard time maintaining a coherent thesis for buying this ridiculous market.  Earlier this evening, I was treated to some "brilliant" technical analysis of the S&P chart by none other than Carter Worth of Oppenheimer.

During this analysis, he ticked off three technical failures on the chart [failure to make a new high, failure of the short term trend, and failure of the medium term trend line], and then noted the importance of the 1313 level.  Now one might think that if the S&P violated yet another technical point on the chart, the fall would be dramatic.  Nope...says the wunderkind of Oppenheimer.  In his words, "If the market falls a bit more, it will just increase the size of the bounce back rally."  Huh?

Now that is some sound thinking there.  I'm sure Carter is worth is six figure bonus.

Additionally, Steve Liesman simply cannot make even a single cogent  point anymore as the fundamentals of purchasing and manufacturing utterly fall apart, and leading indicators roll over.  Tonight on Kudlow, Brian Wesbury, chief economist at First Trust, was literally incomprehensible.

And now Goldman throws its "insight" onto the bonfire of the Ponzi rally.

We must be very near the end now as economists scratch their heads in wonder that the $5 trillion that DC threw away trying to "save the economy" has already lost its effectiveness.

And to think...another half percent up on the Dixie...and the wheels would almost certainly fly off this rickety wagon.

This is the wasteland that Ben Bernanke, M. Shapiro, J. Dimon, L. Blanfein, J. Paulson, etc...have made for us.  Isn't it great to be an investor here in these modern times?

Commence the revolution of the closed wallet.  Quit spending money on fashion and burritos, quit buying stocks, quit buying iPhones...and watch the criminal syndicate known as Wall Street atrophy.  

JW n FL's picture

Guns, Ammo.. Ammo (yes I said it twice on purpose), Gold / Silver.. Food, Medicine.. and some land with a water source that you control. Solar / Wind Power for that Land.. sit back and enjoy the show! do some reading so that when the time comes you can be extra useful to re-build this once Great Country!

Antipodeus's picture

I'm sure the people who work in the factories which make the pilotless drones and their  missiles will be looked after, so I hope your property has a nice deep CAVE.  And don't forget a good short-wave radio with a plentiful supply of expendable remote transceiver aerials,  And ...

"SkypeNet became operational on ..."  ;=((



steve.stuart's picture

just do the opposite of what Goldman says ... but wait for the china stocks to fall first another 15% even though they are trading only at PE of 3 - 6 anyway now .....

slvrizgold's picture

I second that, MOTHERFUCK HBO, Time Warner, Viacom, Disney, Gannett, all the FUCKING LIARS that make up our "media."   They only know lies, spin, misdirection, deceit.   ALL of their marching orders come from the Zionist NWO Central Banksters on high...   Not only do they want to steal all your savings and investments, they want to kill your sons in their wars, kill you with their toxic food and pharmaceuticals, steal your rights and destroy the land you grew up in.   These bastards want your children injected with mercury when they are smallest and most vulnerable.  They want to supress and keep hidden all the energy and medical breakthroughs so they can make money off your sickness and pollution.   THERE ALREADY ARE CURES FOR CANCER.   They have known that concentrated cannabinoids KILL CANCER for a long time.   Yeah, that plant they imprison 1 million people a year for.   Oh yeah, it would make a better fuel than oil or corn ethanol too.  Among many other things.

bankonzhongguo's picture

Fuck Goldman Sachs and every wannabe fake "banker" that yearns to join the lying Borg hive of disinformation and indebtedness.

When things get really bad there will be no quarter for you and the natives on your island hideaways are going to eat you.

JW n FL's picture

Buy China..

Short Oil and Japan!

Make Money! Buy Gold and Silver!

PulauHantu29's picture

Buy oil, gold and silver....

Be Happy!

Piranhanoia's picture

The credibility was gone long ago. To say Japan will recover from several nuclear disasters by using the provincial name rather than the popular one indicates they know of more they know of more than the Fukushima 4.  What kind of human shit would go long on disaster that will kill most of the country?  How many besides the Sendai/Fukushima complex scrammed?  Just how many scrammed reactors are there beyond the ones we know about because we have pictures of explosions?

The region is now dead, soon the island, the nation, the other neighbours, the sky, the sea and every last one of us.  Time to cold shutdown every damn one of them. This is the last age of humanity folks.  There is no future in fission.

slewie the pi-rat's picture

"Since the disaster has exposed the danger of concentration risk, firms previously reluctant to shift production offshore are now likely to accelerate such plans."


timing is everything.  even harold camping is revising his forecasts, this week.  even THE END may take longer than forecast.

look at this map:  Japan Wind Map

where would you like to live and work today?  green shoots, eh?  let's get ann coulter on this!  the ww.enonom is facing strong headwinds almost everywhere, it seems.  very hard to find too much good news around, anywhere.  if you're gonna pull a rabbit outa the hat, why not just go full bullwinkle and go with japan?  it's down a dime. 


TumblingDice's picture

WTF just happenned with treasury futures? Is that a think or swim data feed error, switch to the sept contract or just a ridiculous gap down?

ivana's picture

tink that GS should start up sister company GS1 and than they can upgrade eachother to infinity

Zer0henge's picture

Pakistan Turns to ChiCom For Military Protection:

China Warns US, “Any Future Attacks on Pakistan Will Be Construed as an Attack on China”…

Remind me again, how many billions are we going to send to Pakistan this year?

(PTI) — In the wake of the US raid in Abbottabad that killed Osama bin Laden, China has “warned in unequivocal terms that any attack on Pakistan would be construed as an attack on China”, a media report claimed today. The warning was formally conveyed by the Chinese foreign minister at last week’s China-US strategic dialogue and economic talks in Washington, The News daily quoted diplomatic sources as saying. China also advised the USa to “respect Pakistan’s sovereignty and solidarity”, the report said. Chinese Premier Mr Wen Jiabao informed his Pakistani counterpart Mr Yousuf Raza Gilani about the matters taken up with the US during their formal talks at the Great Hall of the People yesterday. The report said China “warned in unequivocal terms that any attack on Pakistan would be construed as an attack on China”. The two premiers held a 45-minute one-on-one meeting before beginning talks with their delegations. The Chinese leadership was “extremely forthcoming in assuring its unprecedented support to Pakistan for its national cause and security” and discussed all subjects of mutual interest with Mr Gilani, the report said. Mr Gilani described Pakistan-China relations and friendship as “unique”.

Antipodeus's picture

Oh, I don't know ... the U.S. has been telling the same thing to the PROC for years concerning Taiwan.  Fair's fair.


Yen Cross's picture

 Non -Sequiturs/ Don't those Guys test expensive RED sports cars? Berlosconi style.

The Heart's picture

Watch this!

Raw Video: Obama's Limo Gets Stuck

I bet that scared the doo-doo out of the usurper!