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Goldman Head Of Equity Strategy David Kostin Sets Stage For FYE 2011 S&P Downgrade

Tyler Durden's picture




 

Yesterday we wrote: "In good old
"he who defects first" fashion, we predict that it will be Goldman once again to
be the first desk to downgrade both Q2, H2, and FYE GDP, to be promptly
followed by David Kostin cutting his S&P 2011 forecast from 1,500
to 1,300
. After all the time to set the stage for QE3 is fast
approaching and who better to load up on commodities in advance than the
world' second largest hedge fund (the largest of course being the
Federal Reserve)." We were right. Here, in a note released literally seconds ago, is David Kostin setting the stage for the S&P downgrade. Why? Because the S&P needs to be at or below 1,100 for QE3 to become politically viable. Quote Kostin: "The risk-reward balance is more mixed for US equities than in December (1) our US Economics team sees downside risks to their 2011 US forecasts; (2) the risk of higher interest rates has grown as inflation expectations have risen; and (3) the potential for near-term oil price volatility is up. These risks have implications for earnings, index returns and sector allocation."

US Sector Views: Shift sector weights closer to benchmark on balanced risk-reward

The risk-reward of our equity outlook is less uniformly positive than in December 2010 and we accordingly move our recommended sector weights closer to benchmark. Uncertainty from slower economic growth, rising inflation, and high oil prices have created crosscurrents to our base-case cyclical outlook. We lower Financials to Neutral from Overweight and reduce our Underweight recommendation in Health Care. We remain Overweight Energy and Info Tech and Underweight Consumer Staples and Utilities.

Risk-reward balance has become less uniformly positive

The risk-reward balance is more mixed for US equities than in December (1) our US Economics team sees downside risks to their 2011 US forecasts; (2) the risk of higher interest rates has grown as inflation expectations have risen; and (3) the potential for near-term oil price volatility is up. These risks have implications for earnings, index returns and sector allocation.

Lower Financials to Neutral from 200 bp Overweight

The passage of key catalysts, notably the Fed’s approval of dividend and share buyback plans for some banks, has shifted the risk-reward to neutral for S&P Financials. Potential tailwinds from loan demand growth, credit reserve releases and attractive valuation are now balanced by regulatory overhang, smaller balance sheets and a challenging rate environment.

Reduce size of Health Care Underweight to 100 bp from 300 bp

We have recommended an Underweight position in Health Care since May 2009. However, negative EPS revisions have stabilized and positive reaction to acquisition and restructuring may also signal a turning point for the sector. Government austerity and patent expiry remain headwinds.

And yes, next up is a downgrade to Kostin's S&P target, but first Jan Hatzius will trim his H2 GDP forecast from 4.00% to 3.00% (and ultimately 1.25%).

 

Kostin 4.14

 

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Thu, 04/14/2011 - 16:09 | 1170074 oogs66
oogs66's picture

Great, but Abby Joseph Cohen is probably still calling for 1,600

Thu, 04/14/2011 - 16:10 | 1170088 LawsofPhysics
LawsofPhysics's picture

Watch the "consumer staples" explode into a bubble.  Someone actually gets paid to make this shit up?

Thu, 04/14/2011 - 22:52 | 1171238 rocker
rocker's picture

+10    Thanks, never say this one before.

Thu, 04/14/2011 - 16:14 | 1170098 ZeroPower
ZeroPower's picture

At least they're removing the overweight C, BAC, JPM et al. trade from their reco's. All it took was JPMs earnings, no biggie.

Thu, 04/14/2011 - 16:16 | 1170117 slaughterer
slaughterer's picture

Wouldn't we agree, that it is the perfect time for GS to announce their gold/silver downgrade? 

Thu, 04/14/2011 - 16:20 | 1170133 gwar5
gwar5's picture

The market has been surreal, living off fumes anyway.

What's Robottrader say?

Thu, 04/14/2011 - 16:36 | 1170204 chinaboy
chinaboy's picture

The hard part is that you cannot figure out if it is buy or sell. I guess Goldman should change their format. Just tell us the TRADES they are doing so we don't stand in their way.

Thu, 04/14/2011 - 16:44 | 1170248 Canucklehead
Canucklehead's picture

QE3 is guaranteed.

There is no need to sell it by driving the S&P down.  Look, both parties are attempting to sell a $350 million budget cut as a $38 BILLION budget cut.  I expect they will succeed.  That action will show there is no need to "package" QE3.  They will just lay it out there in the late summer (same as last year) and buy all the votes they can get for 2012.

Wait one month then BTFD.

Thu, 04/14/2011 - 16:47 | 1170266 Logans_Run
Logans_Run's picture

Someone should do a study to figure out how much Goldman steals from each American family with all of their various prop strategies. Could it be said that GS profitability represents 70% of the inflation we are all experiencing?

Thu, 04/14/2011 - 16:50 | 1170275 Your Mama
Your Mama's picture

Can I short now that I have

Goldmans blessing....

Thu, 04/14/2011 - 21:11 | 1170983 NOTW777
NOTW777's picture

their oil call lasted 2 days

Thu, 04/14/2011 - 17:07 | 1170352 chunga
chunga's picture

Is this the same Goldman Sachs?

Greed, Lies and MBS: “There’s No Question Goldman Did Exactly What Sen. Levin Said,” Cohan Says

The Lloyd committing perjury? Betting against their own "shitty deals?" I can't believe it's true.

Hell..we might as well foreclose on the whole country.

Fun video at link...

Thu, 04/14/2011 - 17:15 | 1170371 doubleplusgood
doubleplusgood's picture

gold and silver (and the USDX) already know what's coming. I guess everything else will come down, so we can learn to love our leader (Bernanke) while they print with love. Love Big Brother. I enjoy watching the telescreens at the Victory Cafe. I keep up on the fighting on the Libyian front.

It's doubleplusgood.

 

Thu, 04/14/2011 - 18:06 | 1170561 MX_DOGG
MX_DOGG's picture

So just BTFD then??

Thu, 04/14/2011 - 19:23 | 1170774 long juan silver
long juan silver's picture

Going south of 1100 is not a dip, it's a face plant.

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