Goldman: "QE 3 Optimism Is Excessive"

Tyler Durden's picture

As has been repeated on Zero Hedge many times, with the stock market just 15% off its post-Jackson Hole surge highs, the market continues to be irrationally exuberant that QE3 will come come hell or high water. No. That will not happen until all the mutual funds who have been holding for 2+ years realize that in order to get another heroin hit, some will have to be wiped out (thank near-record margin debt and record low cash holdings) before QE3 does arrive. The latest to confirm this is Goldman Sachs, which via a note just released by Dominic Wilson confirms our speculation that "QE3 optimism is excessive." Ironically, the only thing that will guarantee QE3 is a fresh round of significant pains which retraces the entire QE2 move higher. Nobody in the long-only community wants to hear it. Alas, it is the truth. As usual: he who sells first, will have a job tomorrow...

From Goldman:

Part of the reason for speculating that QE3 optimism is excessive is that many investors believe that equity markets have been strangely resilient. We have ourselves pointed out that US equity indices have been vulnerable to the growth downgrade that their own rotations out of cyclical sectors imply, and some of that “gap” has recently closed. But it is also true that the current pattern of asset markets is broadly consistent with the way mid-cycle slowdowns are often priced. Cyclical assets underperform broad equity indices, bonds rally as the market adjusts its views of policy and that dynamic in turn partially cushions the hit to risk assets overall. As Themos Fiotakis described in a recent Daily, a weakening dollar is not uncommon in an environment where the global cycle is showing positive but declining growth. So the critical question again comes back to how persistent and how significant the underlying growth slowdown turns out to be. Amid all this is a reminder that the simplest US slowdown trade – mid-cycle or otherwise – is generally to be long US fixed income.

And some more observations:

While the market has been quick to price easier policy in the US in response to the growth slowdown, it has been slower to relax about EM tightening risk. At one level, that makes sense given tighter capacity and more intense inflation pressures in many of the large EM markets. But we think a US slowdown – up to a point at least – is probably more helpful to EM than to DM markets. This is simply the reverse of our argument in late 2010 that an accelerating US recovery would add to EM policy dilemmas by pushing commodity prices higher and providing a tailwind to local demand. While persistently slower US growth would be more troubling for the large developed economies that are still trying to make inroads into spare capacity, it would also create more “room” for EM economies to grow without hitting global constraints so hard. That was the rationale for our long EM Top Trade recommendation in April. The timing of our shift has clearly been premature. But we are less puzzled that EM equities have been outperforming again recently in this environment than we were by their underperformance in the first half of May. Our latest tactical FX trade recommendation to be short MXN/CLP, based on Robin Brooks’ and Alberto Ramos’s recent work on cyclical momentum in Latam, has a similar flavour.

One potential lesson of the last few months is that the global economy finds itself in uncomfortable places when US growth accelerates alongside robust growth in other parts of the world. Our latest round of forecast revisions in May were to a large extent about acknowledging that the energy constraint is more binding than we expected going into the year. The silver lining of a US slowdown could thus be that it takes the sharpest edge off some of the commodity-related inflation worries. Our own new forecasts look for higher commodity prices over the coming 18 months, but not for the kind of rapid acceleration that we started to see in the first quarter of this year in energy markets. Those forecast revisions do reinforce our preference for commodity exposures – having taken a break in April and early May – and Jeff Currie and team added fresh long recommendations in oil, copper and zinc two weeks ago. With that shift and an expectation of more USD weakness, we added a short $/NOK Top Trade recommendation (our eighth) at the same time, which is off to a good start.

Translation: prepare for much more selling (including precious metals which will likely see at least one or two rounds of margin call satisfying liquidation), before the time to front run the Fed comes again.

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Waffen's picture

Disapointing.. I hate the delay of the inevitable. 

redpill's picture

To make matters worse, now ZH is getting hit with Obama 2012 sidebar ads.  I'm not sure if that's better or worse than Cramer.


flacon's picture

Can anyone speculate what will happen to the mining stocks - or metals price?

cara leaf's picture

Tell me about Southern Copper yielding 6%.

I am a Man I am Forty's picture

SCCO has been getting crushed on the elections in peru, it's hard to tell what the impact is, for me anyway

DoChenRollingBearing's picture

It is still hard for my Peruvian in-laws to get info on what Ollanta Humala will do.

Will he be as bad as Chavez?  His team sez no.

He becomes President on July 28, so we will see before too long.

GeneMarchbanks's picture

I was about to post something obscene. Just buy puts on your miners and sell me your physical. I've got incredibly undervalued euros for you. You game?

tiger7905's picture

So GS says QE talk is excessive and Sinclair calls for "the Blackhole of Calcutta" for equites if it's stopped...

citta vritti's picture

see last lines above:

Translation: prepare for much more selling (including precious metals which will likely see at least one or two rounds of margin call satisfying liquidation), before the time to front run the Fed comes again.

THE DORK OF CORK's picture

Its a very dollar centric view - many of us are poor short term speculators and hold Euros that are in a very precarious postion....

If the dollar goes ballistic from here the euro might crash and euro distress is the real driver of Gold in my opinion.

Its still Dollars Bitches Vs Gold Bitches

AGoldhamster's picture

down they go into end of July

Silver more than Gold

kito's picture

the ads are tailored to your interests....oops.....

lizzy36's picture

I don't know about that, i get, something about guns, and University of Liverpool MBA programs.

I am a canadian hetro women, who has no interest in nor ever used a gun, with a couple of degrees already.

disabledvet's picture

they call it "hacking."  at least to the authorities.  "true crime" actually--with a bad sense of humor to boot.  apparently someone thinks it sells because ZH isn't ginning up the t-shirt sales wagon anymore.

RF's picture

I don't get ads. I use Firefox (not everyone's favorite browser) which has a number of neat add-ins, one of which is Adblock Plus. Eliminates ads altogether. Another is Flashkiller, which eliminates banner ads. I make up for it here by periodically sending a contribution.

Best regards,


Pegasus Muse's picture

lol.  i'm getting ads for for t-shirts, Citi credit cards, hunting gear from Cabelas.  Cableas makes sense. The others, go figure. 

Problem Is's picture

Yeah, I get Russian mail order brides and Trade with Cramer ads...

Like I would trade with Cramer the Clown...

Who wants to be a ranting, bug eyed, sweaty bald guy?

bigdawg's picture

Yeah, WTF??  I get as an ad.  My wife's a Filipino but how do "they" know that.

DaveyJones's picture

all my banners say Night Train and MD 20/20?

cgbspender's picture

Weird, all I see is Cisco and Wild Irish Rose.

XenoFrog's picture

That would explain why I only get advertising for renfaire supplies and personal lubricant.

Problem Is's picture

"To make matters worse, now ZH is getting hit with Obama 2012 sidebar ads.  I'm not sure if that's better or worse than Cramer."

I'll take Cramer the Clown ads over CREEP (Committee to RE-Elect the President) ads any day...

Unlike Barry Soetoro... Deep down, Clown knows he is a douche...

TruthInSunshine's picture

QE3, in whatever form, by whatever name, and in whatever amount, may or may not come.

The important thing, and really, the only important thing to bear in mind is - it can't and thus won't be an effective medicine or procedure to cure or effectively treat the disease that ails.

Even its 'transitory' analgesic effects, should it arrive in bucket loads, must be questioned at this point.

Heroin addicts overdose and die with regularity.

lizzy36's picture

Nobody here (at least as far as i understand it) think QE solves/cures anything.

The only thing QE does, is force traders/investors/gamblers into risk assets. Period.

We also know the only thing that Bernanke can target is "wealth effect" his 3rd mandate.

So the issue becomes, at what level in the S&P does Bernanke start to look at another round of QE. I think around 950, definitely 900. The 2nd thing worth thinking about is what form QE3 takes. What does Bernanke buy this time around?

TruthInSunshine's picture

I agree with everything you said, but emphasize that what you described (i.e. forcing/encouraging the risk asset trade) is what QE did.

As the wreckage of the carnage that QE wrought becomes more visible and harder to hide, it's at least worthwhile, and I'd argue essential for survival, to ask: What will further QE do?

The Profit Prophet's picture

Printing money is the last vestige of a dying economic system....the World is now printing money.....the world economic system is dying....what more is there to speculate about? Are we really trying to profit before the collapse?  Profit no longer matters.....I know.....because I'm the Profit Prophet..

T.E.I.N. everyone!

Vampyroteuthis infernalis's picture

Profit you are right about the world economy dying. The big boys need to stay on top though. Too many of ehhh, those unwashed masses, making ehhhh money in their markets. Flush small hedge funds and the new rich first followed with a strong rebound like last time. The rich continue to get richer.

QE 3 will be in late Sept or Oct.

SheepDog-One's picture

Further QE makes the dollar go critical and melt thru its containment vessel, PM's go up 25% from here.

DaveyJones's picture

"QE 3 Optimism Is Excessive" 

I agree with everything except the first three letters

Yen Cross's picture

 WHO CARES? I live in the United States of America!

flacon's picture






Portray an image of power and security
Foundations crumble at the base
Inner turmoil reflection read externally
Veil of lies attempts to hide our face


Molten masses in their image we are a formed
Art of deception mastered skillfully
Decay of value stifled cry of the unborn
With open eyes we still refuse to see

Respond arise nation divided

Selfish syringe draining lifeblood from our veins
Pallid skin displays condition true
Struggling on oblivious to our own pain
Contented smile as we continue to descend

Roaming Uranus Looking For Klingons's picture

Yen, a little selfish dont you think? 

Yen Cross's picture

  Have fun with the passive aggressive on your Friends.

slaughterer's picture

Whoever this "Tyler" is, I like "him" the best: he is astute, compact, and cynical as all hell.  He reads between the lines with a keen eye, and know what is to come.  He ven knows how to parse the intralineal in a highly technical Goldman Sachs trade rec.  We love this "Tyler."  Keep him on, and pay him more!

YesWeKahn's picture

If you like him, and make money, donate.

Problem Is's picture

Yes, there is "Sarcastic" Tyler, "Cynical" Tyler, and "Monologue" Tyler, among others...

BTW: "Monologue" Tyler can be recognized by his 3 column inch, paragraph long rambling, multi-clause sentences...

DoChenRollingBearing's picture

"As usual: he who sells first, will have a job tomorrow..."

That's the quote, the meat, the heart of the post.  Since we do not know how this will down, best be diversified.  

If you do not own physical gold, then you better get started.

BigDuke6's picture

Aye lad, fine words.

i haven't bought physical for about 4 months now.

And i suspect the best buying opportunity for a long time is coming right up.

while the market digests the 'end' of QE i'll be BTFD.

CrashisOptimistic's picture

There are no filling stations that will take gold in return for oil.

And that is all that matters.

Devore's picture

None that take stocks or bonds either. All that matters is how many FRNs you can get.

Yancey Ward's picture

By predicting 2nd half strength, Bernanke has telegraphed no QEIII rest of this year.

oogs66's picture

I think the market went from about 80% believing we would get QE3 in some form, to about 60% after his speach.  Still a long way to go!

bbq on whitehouse lawn's picture

QE3 or no bid.

Its not about value its about any bid at all.

Yes they will get their bid via Qe3,4...n or nothing will get a bid. Ever, ever, ever again.

All this jawboning nonsense is just talking book.

The market will wait untill July 10 no money by then and no bid for the market.