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Goldman Sachs Admits The Truth: "The Economy Is Not The Market And QE2 Is Not A Panacea"

Tyler Durden's picture




 

In a stunning turn of honesty, Goldman's David Kostin does a 180 and renounces everything that the Fed wishes the gullible public would swallow hook line and sinker. But first the facts: while the strategist has no choice but to raise his 12 month S&P forecast (this is a new development for all the headline chasers) from 1,250 to 1,275, which is a token nothing compared to the recent 12 month gold price boost from $1,365 to 1,650. This merely reinforces the Zero Hedge view that gold has now become the natural, higher beta, and unlimited upside short hedge to stocks. Indeed, a 1% boost in the S&P PT, is meager compared to the 20% expected gold appreciation. And digging between the facts, we encounter this stunning admission, that would force all current and former Fed chairmen to spin in their graves, assuming a deceased state is attributed them all: "The economy is not the market and QE2 is not a panacea." Read that again, because this is only the first time in history a sellside advisor, especially one who works for Goldman Sachs, has said this truth so fundamental, that nobody actually dares to admit it, least of all the public or the Fed. Below, we present the latest strategy piece by David Kostin which is probably about the most bearish note released by the traditionally permabullish successor to Abby Cohen.

Key points from Kostin's price target update:

In our view, three unrelated items combined to push US share prices higher:

  • September’s batch of positive macroeconomic data surprised to the upside for the first time in five months. The Goldman Sachs aggregate monthly US-MAP score measuring the magnitude and relevance of economic data hit the highest level since June 2009;
  • Polls indicate the November 2nd mid-term Congressional elections will likely see Republicans gain control of the US House of Representatives and narrow the current Democratic majority in the US Senate. A divided government may reduce the policy and regulatory uncertainty that many business leaders claim has hindered capital spending decision-making; and
  • Comments from various Fed officials made it increasingly clear that the Fed intends to initiate a second round of quantitative easing (QE2) following the upcoming FOMC meeting on November 2nd and 3rd. Ten-year US Treasury yields have dropped 20 bp in four weeks to 2.57%. For context, yields peaked this year at 4.0% in early April.

Goldman's official 12 month price target:

We expect the S&P 500 will rise another 2% to reach our year-end 2010 target of 1200. We anticipate US equities will trade sideways during 1Q 2011 as economic uncertainty remains high. Our revised 12-month price target of 1275 (from 1250) reflects a potential price return of 9% from current levels. The cost of equity should decline slightly as 2011 progresses and investors turn their attention to the economic growth prospects for 2012.

And since Goldman has decided on what it deems a goldilock price target, the firm admits there are various risks both to the upside and downside. Although with this bizarro economy, any "risk" of good news would likely send the stock market plunging, and vice versa. Which is why we reiterate our call to REDI creators Spear, Leeds and Kellogg to invert the buy and sell orders to at least make bizarro "selling" on bad news some what intuitive:

Risks to our view include a jump in management confidence leading to acceleration in capital spending; a decision by individual investors or pension funds to re-allocate assets from bonds to domestic equities; a rise in trade protectionism; a US municipal finance crisis, another European sovereign credit market dislocation, and a protracted economic slowdown in emerging markets generally and China in particular.

A visual summary of Goldman's recent action:

Kostin highlights the key topics that will drive US equities over the next several months:

1. Earnings season (October 18th-November 5th). The crescendo of quarterly reporting season is upon us and 395 companies in the S&P 500 (78% of the equity cap) will report 3Q earnings results in the next three weeks (Oct 18th to Nov 5th). As we discussed in  our October 8th report, 3Q 2010 Earnings season preview: We expect positive EPS surprises, current bottom-up consensus expects 3Q earnings to be below 2Q actual results for the overall S&P 500 and for six of the 10 sectors (see Exhibit 4).

US economic activity during 3Q was positive, albeit below trend, making it unlikely that S&P 500 earnings will decline sequentially from 2Q to 3Q. Current consensus expects 3Q 2010 revenues (ex Financials and Utilities) will rise by 6% year/year while EPS for the same cohort of companies increases by 19% (30% for the entire S&P 500 including Financials and Utilities) (see Exhibit 5).

2. Mid-term elections (November 2nd). All elections have consequences, but the stakes seem especially high this cycle. Many portfolio managers view the prospect of a divided Congress as positive for equities in terms of reduced legislative uncertainty. Simply put, investors believe gridlock is good for equity markets.

A change of control election in the House and/or Senate has generally been associated with positive returns during the subsequent 12 months. The average gain in the S&P 500 during the 12 months following the six Congressional change of control elections since 1950 (including two Presidential election years) equals 11% with minimum and maximum returns of -4% and 33%, respectively (see Exhibit 6). Historically, the S&P 500 has generated positive 12-month returns following all 15 mid-term elections since 1949.Returns ranged from 3% to 33% with an average of 18%.

According to RealClearPolitics.com, an independent political web site that aggregates polling data, Republicans seem likely to gain control of the House of Representatives while Democrats appear likely to retain their majority in the US Senate.

Polls as of October 13, 2010 show 211 seats in the House of Representatives as safe or leaning Republican, 185 seats as safe or leaning Democratic, with 39 seats considered “toss- ups.” Majority in the 435-seat House requires 218 votes and 38 of the 39 toss-up seats are currently held by Democrats. RealClearPolitics.com shows 48 seats in the US Senate as safely Democratic or not up for election (including 2 independents who caucus with the Democrats), 46 seats as safely Republican or not up, with 6 seats considered “toss-ups.” All six “toss-up” seats are currently held by Democrats.

We recognize that many investors believe a divided government is good for equity markets. However, clarity is needed in areas such as tax policy. The 2001- 2003 tax cuts will sunset on December 31, 2010 and capital gains, dividend and estate taxes will all increase sharply if Congress takes no action during the truncated lame duck session following the election. For additional details see US Economics Analyst: Thoughts on the Midterm Election (October 8, 2010).

3. Quantitative Easing (November 3rd). The widely held consensus view of both buy- and sell-side economists is that the Fed will initiate a second round of quantitative easing (QE2) following the November 2nd-3rd FOMC meeting. Various estimates exist regarding the specific size and form of the asset purchase program. Although it will probably start smaller, our US Economics Research group believes Fed purchases of US Treasuries will cumulate to $1.0 trillion or more.

The decision to begin QE2 represents an explicit acknowledgement by the Fed that US economic growth remains extremely weak and unemployment is likely to remain much higher than its policy mandate. Given public statements by Fed officials that inflation is also running below its target, the Fed’s upcoming QE2 initiative is a dramatic attempt to create inflation—or at least inflation expectations – and rouse the economy from its torpor.

Reflecting on the client meetings we have hosted during the past few weeks, most investors’ are optimistic regarding the market impact of the Fed’s actions. These investors believe the market will continue to rally even after the Fed’s announcement next month.

There is friction between macro and micro investors’ interpretation of the impact of QE on equities. In the broadest terms the affirmative macro case for QE2 rests on easier financial conditions and the goal of asset price inflation. The skeptical micro view is that additional easing is an acknowledgement of the weak US growth outlook and will not drive earnings meaningfully higher in the near-term. We discuss these views in more detail below.

Furthermore, on the topic of QE2, Kostin reaffirms what we noted last week was Hatzius' expectation that the bulk of QE2 has already been priced in:

Our rough estimate is that $1 trillion of QE2 could drive 8% to 10% of upside for US equities but that much of that move may have already occurred. Using the impact on financial conditions and asset prices of the first round of QE as a guide, our US Economics team estimates that an announcement of $1 trillion of QE2 could move the S&P 500 8% higher with additional upside to 10% in the ensuing month. They believe the market began anticipating QE2 in early August in response to FOMC announcements and media reports
at the time.

Over time we believe QE2 will be positive for US equities through reduced economic uncertainty and price support (multiple expansion and lower interest rates)
. However, a meaningful amount is already reflected in recent S&P 500 performance and our take on investor expectations. Moderately below consensus reported economic data could also offset security purchases.

And the biggest condemnation of QE2 from Goldman:

If QE2 won’t meaningfully boost earnings (although it should over time as GDP growth improves) then the transmission mechanism to higher stock prices must come via another route. The bullish argument that QE2 will raise the price of risky assets rests on the notion that lower interest rates will reduce the cost of equity and applying a lower discount rate in a DDM will raise the present value of future earnings and dividends and thereby boost the current fair value of stocks.

We agree with the theoretical argument above that a lower cost of equity raises the fair value of stocks. However, as a practical matter a lower cost of equity is simply another way of saying that stocks should trade at a higher P/E multiple.

Yet there is little to support a multiple expansion story at this point:

The link between QE and P/E: Money Flow

Positive money flow will be needed to expand S&P 500 P/E multiples above its current level of 13.4x, slightly above with its 35-year average. At a minimum a firm bid must exist from the marginal buyer such as hedge funds and retail investors. In our view, the lack of money flow into domestic equities represents the key obstacle to US stocks trading substantially above their long-term average following the 30% P/E multiple expansion in 2009. Exhibit 10 shows the ownership of US equities since 1952.

Individual investors own more than 50% of US stocks. Direct share ownership totals 33% and indirect ownership via mutual funds accounts for another 21%. In response to the dislocation in equity markets during the past two years individuals have consistently reduced their holdings of actively managed domestic equity mutual funds. Since the start of 2009, more than $1.0 trillion has been withdrawn from money market mutual funds.  None of the assets was re-directed to domestic equities. Instead, 60% was invested in bond mutual funds, with 6% allocated to international stocks. Additional proceeds may have been used to reduce debt or fund living expenses.

Looking ahead, money often follows performance. Therefore, a sustained uptrend in stocks could lead to net inflows. In terms of QE2, if the Fed pushes interest rates lower across the yield curve individual investors might shift their allocation again, this time moving from bonds to stocks. Given the assets involved, such a move could have dramatic impact on share prices. ETFs will likely continue to take market share.

We expect pension funds and government retirement funds are likely to at least maintain their roughly 17% ownership share of the domestic equity market. But given how significantly underfunded many pension plans are, a situation which is only exacerbated by QE2, these funds should arguably increase their equity exposure and reduce their bond allocation. In aggregate these organizations could have a dramatic impact on the overall index level should CIOs choose to adjust long-term asset allocation.

The third ownership category worth highlighting is companies themselves where total cash positions, cash/asset ratios, and free cash flow yields stand at or near alltime highs. Firms in the S&P 500 hold cash equivalent to roughly 12% of the equity cap of the market. Managements faced with the prospect of extremely low yields on their short to intermediate term cash, but reluctant to fund new capital spending projects, could decide to buyback shares. Although repurchase would have a positive impact on share prices, it would not drive economic growth.

 

Bottom line: if this is the most bullish Goldman's equity strategist can come up with, watch out. We still believe the simplest explanation for the parabolic ramp in stock is to simply create the highest possible selling point before tax selling commences in advance of January 1, and much higher capital gains taxes. Everything else is for the most part noise. Already sellers outpace buyers by 1,000 to 1. We expect within the next few weeks this ratio will hit five digits.

Full Kostin report pdf.

 

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Sat, 10/16/2010 - 14:24 | 655304 egdeh orez
egdeh orez's picture

David Kostin's getting fired in about a month's time

Sun, 10/17/2010 - 07:35 | 656256 Sugar Bear
Sugar Bear's picture

Eventually to be bailed out/saved by Berkshire Hathaway

Sat, 10/16/2010 - 14:28 | 655313 Mongo
Mongo's picture

Doing gods work?

Sat, 10/16/2010 - 14:32 | 655316 Mercury
Mercury's picture

"The economy is not the market and QE2 is not a panacea."

Eventually this will be obvious to everyone and a new "misery index" will emerge that best expresses the chronic economic and financial pain of average Americans.

Sat, 10/16/2010 - 16:52 | 655511 RockyRacoon
RockyRacoon's picture

The market is not the economy...

There, it's fixed now.

Sat, 10/16/2010 - 17:57 | 655572 AccreditedEYE
AccreditedEYE's picture

+1

Sat, 10/16/2010 - 20:46 | 655739 nmewn
nmewn's picture

+10

Sat, 10/16/2010 - 22:23 | 655835 Xedus129
Xedus129's picture

+100 Going Parabolic!

Sat, 10/16/2010 - 14:38 | 655326 French Frog
French Frog's picture

Anyone else is thinking that there has been too many articles recently from gs telling everybody that things aren't as good as they thought a little while back, like only a month ago lol ... isn't that a recipe for the market going higher and higher?

Sat, 10/16/2010 - 15:05 | 655372 doolittlegeorge
doolittlegeorge's picture

Goldman as a contrarian indicator.  I like you.

Sat, 10/16/2010 - 18:14 | 655586 deadhead
deadhead's picture

The really big, big money to be made is not from the SPX going from 1175 to 1225....the pot at the end of the rainbow is taking the SPX from 1175 down to 750 and then back up again.

 

 

Sat, 10/16/2010 - 20:54 | 655745 nmewn
nmewn's picture

If you are paid for your winnings in devalued currency what have you gained?

Sun, 10/17/2010 - 00:09 | 655945 jeff montanye
jeff montanye's picture

you bring up an interesting point.  on a related note, the u.s. stock market returned a real negative 75% from 1966 to 1983 but a fifteen year (nominal) put would have expired worthless.

Sun, 10/17/2010 - 11:17 | 656498 nmewn
nmewn's picture

And don't forget...you are taxed on your "winnings".

http://www.youtube.com/watch?v=Maz9ddxEQnM&feature=player_embedded#!

Sat, 10/16/2010 - 14:43 | 655337 deez nutz
deez nutz's picture

"The economy is not the market and QE2 is not a panacea."

we must be closer to the end than I thought

Sat, 10/16/2010 - 16:54 | 655514 hamster wheel
hamster wheel's picture

we must be closer to the end than I thought

 

 

Starting to think a little bit that way myself.

Sat, 10/16/2010 - 14:45 | 655339 JR
JR's picture

One of the major concerns of Wall Street is the Tea Party. There are at least 70 contests in midterm elections where there is a candidate who has Tea Party support with more than 30 who are close enough to be winners.  That includes both the House and Senate.

A major issue that they all have in common is opposition to stimulus bills passed in the future.   In addition, they are strong opponents of the health care legislation and almost universally want a smaller government.  And, of course, they are opposed to Obama, the banker in chief, as he was introduced early on by Bloomberg after he took office.

All this, of course, alarms the banks.

Sat, 10/16/2010 - 15:03 | 655369 mikla
mikla's picture

True.

Further, "big government" benefits "Large-Cap" (through regulations and standards that always favor the "big players", and which "keep out" the upstarts).

IMHO, they are doing everything they can to "hold it together" until after the Nov. 2 election, at which point it will "detonate".  The newly elected will be blamed (even though they don't even take office until January).

Neither party knows what it's doing, but these Tea Party candidates are not beholding to *either* party, so that scares (1) the elders in both parties, (2) the Federal government (e.g., Treasury), (3) the Fed (the audits may have legs), (4) big banks (which only exist through taxpayer largess), and (5) Large-cap (GE is screwed if they can't continue to cook their books).

Ben needs to write a check for about $20T to "fix" these kinds of problems, and a check that big can't be written.

Sat, 10/16/2010 - 17:16 | 655526 JR
JR's picture

Thanks, all excellent points.  I’m particularly impressed with the mention of tea partiers’ lack of loyalty to either party.  The current Congress has perhaps set a record for party line adherence to the leadership.  Nancy Pelosi’s iron clad command for every vote she needs has given Democrat opponents in this election an unbelievable attack line: “It makes no difference what a Democrat candidate for Congress says in the campaign or how he feels, he’s a Nancy Pelosi vote anytime she needs it.”

On the Republican side, Tea Party congressmen will no doubt be open challengers to the Republican Party leadership.

Sat, 10/16/2010 - 20:18 | 655716 puckles
puckles's picture

The Tea Party, at least in spirit, is Libertarian, and by that very definition has no adherence to either of the compromised parties.  However, most adherents appear to be rather clueless about US Political History (or any other variety thereof), or Austrian Economics; indeed, they seem to be a singularly inchoate, unaligned, and curiously apositive group, in the sense that they are against many things, but rarely in favor of much of anything.  

Most have already been suborned by the Republicans, whom they should avoid like the plague, as well as the Democrats.  This is a major problem; we need a viable third party capable of serious reform in this country, but these idiots appear to have given the game away already.  Perhaps they are merely the first sideshow; I certainly hope so.

Personally, I'd be more than happy to give it a go, but I live in a permablue corner of a nearly perennially blue state (Bethesda, MD), and I'm currently ineligible, as a civil servant in a primary U.S. Agency (one defined by the Constitution).

 

Sat, 10/16/2010 - 21:34 | 655782 JR
JR's picture

I’m afraid you’re absolutely right about many Tea Party candidates having been co-opted by the Republicans, and the most frightening aspect of this is that in many cases it is coming from powerfully organized neoconservatives.  In this instance, the neocons’ primary issue is the “war on terror,” hoping to use the Tea Party candidates as a stronger wedge against Muslims.

Sarah Palin barely touched the tarmac after receiving the vice presidential nod from McCain when the neocons parachuted in from everywhere—even though her strong support for the Iraq War and Israel have been a stumbling block for many Republicans.

Neocon commentators such as Sean Hannity have tried every strategy they can muster to corral Tea Party candidates into the “we are at war” philosophy.  For candidates who profess support for limited government, of course, this is an oxymoron, because to support the use of unlimited resources to engage this fight all over the world is nothing short of  leviathan government—exactly where the Big Government “conservatives” such as Rush Limbaugh come down.

However, the Tea Party candidates are a result of widespread unhappiness in America with the direction of our government—under both Republican and Democrat leadership.  The real voices of the movement could be heard at the town hall meetings where citizens stood toe-to-toe with the lying, stealing, cheating incumbent U.S. Senators and Congressmen.

It was an America moment!  And yes, some of the candidates the movement has produced are less than hoped—but the force that brought them into politics, I believe, is only the beginning of an earthquake.

If Ron Paul should decide to seek the presidency again, finally, we will have an opportunity to dispense with the neocons and the neoliberals and put America’s foremost issues finally on the table—economic freedom and the reduction of government’s oppressive interference into our private lives and the affairs of the sovereign nations of the world.

Puckles, I remember you from previous postings that you have made—it is men of your caliber who eventually must answer the call to save this country.

Sat, 10/16/2010 - 21:50 | 655793 zaknick
zaknick's picture

Rand Paul, NO! sellout

 

Ron Paul, hell yes!!

Sun, 10/17/2010 - 00:25 | 655965 jeff montanye
jeff montanye's picture

that about sums it up.  how does ron paul obtain the republican nomination for president, the likeliest route to the office?  the u.s. didn't get a viable third party between lincoln and lbj/goldwater but the two survivors didn't look the same.

Sat, 10/16/2010 - 22:32 | 655847 Hulk
Hulk's picture

If memory serves, puckles is a wo man.

Sat, 10/16/2010 - 23:31 | 655901 JR
JR's picture

Oops! I remember puckles as the former CEO of a chemical company and, in that I know one or two, made an assumption unawares; the sentiment still stands, of course. :-)

Sun, 10/17/2010 - 01:51 | 656032 SheHunter
SheHunter's picture

"...the reduction of government’s oppressive interference into our private lives..."

exactly.  I left the Republican party the day Bush flew back to DC to ask the supreme court to barge into the Terry Schaivo case.  The Repubs love to spout off about the Dems being big gvernment.  True hypocrisy.  What is more invasive than big government dictating who we go to bed with; who we marry; what we do with our own bodies; and how and when we are allowed to die.?

Ron Paul recognizes separation of church and state.  He is not embraced by the current tea party right-wing Palin supporting masses.

Rand Paul stands with the party of NO; the party that believes not in separation of church and state but, instead, in their god-given right to dictate our personal lives.

The tea party is far too intertwined with the Limbaugh/Hannity neocons.  Ron Paul will not be supported by the tea party for this reason. 

Sun, 10/17/2010 - 03:59 | 656137 Conrad Murray
Conrad Murray's picture

The tea party is far too intertwined with the Limbaugh/Hannity neocons.

This is why we must, at every opportunity, point out to those who only know what the TV tells them, that there are two TEA Parties.  There is the original, libertarian version a la Ron Paul, and there is the neocon version spearheaded by that dumb cunt Palin. 

The Statists from both sides of the one party system have been very good at co-opting the movement.  The "liberals" bash the Palin "tea party" and by association the real one's reputation gets tarnished.  Then the neocons like that idiot Hannity pump up that bitch to some goddess level amongst their ignorant followers, and all of the sudden the real cause is lost.

This is a good link to email friends and post on websites: http://www.theadvocates.org/quiz

Sun, 10/17/2010 - 12:55 | 656673 JR
JR's picture

That’s it in a powerful nutshell, CM. 

One of the more extreme criticisms of the Tea Party that I’ve heard came from Democrat strategist Steve McMahon :

“The reason people walk into schools and open fire is because of rhetoric like this and because of attitudes like this.  The reason people walk into military bases and open fire is because of rhetoric like this and attitudes like this. Really, what they’re doing is not that much different than what Osama bin Laden is doing in recruiting people and encouraging them to hate America.”

And here we are between this guy and Sean Hannity. The grassroots movement called the Tea Party was a cry for freedom, and I believe that it is so strong that it can overcome the neoliberal, welfare-state socialists and the war-stained fingers of the neocons. With clear distinctions such as you have presented, constantly repeated, it can be done.

Sun, 10/17/2010 - 12:40 | 656647 JR
JR's picture

Unfortunately, there are public consequences to private sexual behavior. The cost of sexual behavior separated from marriage comes high.

The tax bill is $112 billion a year, costing taxpayers more than $1 trillion from 1998 to 2008, according to recent research from Georgia College & State University.

In fairness, then, it seems people who demand no interference with their bodies from government should not then demand that taxpayers pick up the tab for the consequences of what they do with their bodies…

the abortions, the AIDS and sexually transmitted diseases, the out-of-wedlock household survival expenses, the drug and alcohol substance abuse Social Security disability, the crime and dysfunctional children…

Virtually every advanced civilization, including the US, has had some form of prohibition against adultery. Similarly, most US states had laws against fornication, which criminalized sex between unmarried persons

But then, in 2003, the Georgia Supreme Court threw out historical standards and Chief Justice Norman Fletcher wrote, “The government may not reach into the bedroom of a private residence and criminalize the private, noncommercial, consensual sexual acts of two persons legally capable of consenting to those acts.”

Add to all this, "the highest rates of sexually transmitted disease among all other industrialized nations, the highest rates of teen pregnancies, the largest producing and consuming nation of pornography, the highest rape rates, and more than 45 million abortions since 1972,” and surely, one must be see that there are public consequences to private sexual behavior.

Sun, 10/17/2010 - 20:51 | 657409 SheHunter
SheHunter's picture

In fairness, then, it seems people who demand no interference with their bodies from government should not then demand that taxpayers pick up the tab for the consequences of what they do with their bodies…

Careful with that train of thought or we will have to include non-sexual disease such as smokers with lung cancer, drinkers with liver cancer, overweight people with weight related illness, surfers with skin cancer...these are all self-inflicted. where do we stop? 

Virtually every advanced civilization, including the US, has had some form of prohibition against adultery. Similarly, most US states had laws against fornication, which criminalized sex between unmarried persons.

I am missing your point.  Are you suggesting advanced civilization retreat back to the aforementioned prohibitions?  Or simply that every person diagnosed with a disease the court rules was in some way self-imposed should not be covered by health insurance, or not covered by government health insurance such as medicaid/medicare.  Interesting stats.  Where do you find it is single people responsible for the porn, rape and abortions?  Married people are addicted to porn more than singles- they need some outlet cause most are bored silly with their sex life.  Rape?  Again the majority of rapes are by married men.  Abortions?  Get real.  Married women also get abortions.  I firmly believe in separation of church and state and that government has no right to tell you JR that you have no right to choose a graceful death should you find yourself in advanced stages of a deadly, painful illness that has robbed you of your ability and dignity.

the best to you.

 

 

Sun, 10/17/2010 - 22:07 | 657534 JR
JR's picture

According to the Georgia study, the more than $1 trillion in taxpayer expense over the past decade is directly attributable to marital breakdown and out-of-wedlock births.

In the words of Ben Scafidi, Ph.D., one of the study’s authors and economics professor at Georgia College & State University: “These costs are due to increased taxpayer expenditures for anti-poverty, criminal justice and education programs, and through lower levels of taxes paid by individuals whose adult productivity has been negatively affected by increased childhood poverty caused by family fragmentation."

Americans' right to privacy has never extended to any and every consensual behavior.  For example, there is a conviction for possession and use of illegal drugs in the privacy of one’s home…

This study was not meant to denigrate out-of-wedlock families; it was to acknowledge that by all objective standards the two-parent family is the best possible arrangement.

Am I “suggesting advanced civilization retreat back to the aforementioned prohibitions,” back more than five decades before Alfred Kinsey advanced the belief that there are no public consequences to private sexual behavior?  Yes.  We are not our brother’s keeper.  If a man wants to engage in irresponsible behavior, such as obesity or smoking or sex with multiple partners, let that man be responsible enough to pay for his own health insurance. 

The trend that allows people to act without personal responsibility is accompanied by the trend that any consequences of that behavior are to be paid out of the public treasury.  The latest? The fashion magazines' newest degeneracy is tattoos, but, now. the taxpayers are being asked to remove the tattoos so some of these poor people can get a job.

Lenin said, “A lie told often enough becomes the truth!” But, of course, it doesn't; it destroys.

“We have no government armed with power capable of contending with human passions unbridled by morality and religion. Avarice, ambition, revenge, or gallantry, would break the strongest cords of our Constitution as a whale goes through a net. Our Constitution was made only for a moral and religious people.  It is wholly inadequate to the government of any other.”  John Adams, October 11, 1798.

Thanks for the confab. :-)

Sun, 10/17/2010 - 22:58 | 657607 SheHunter
SheHunter's picture

the more than $1 trillion in taxpayer expense over the past decade is directly attributable to marital breakdown and out-of-wedlock births...this reinforces my staid belief that our society pushes people into cultural boxes (marriage)and then innundates these same people with expansive images of  supposed freedom- images that contradict the confines of traditional marriage.  You then have divorce, broken homes and children without the solid family support so vital to becoming ingrained within a particular society.   So far as out-of-wedlock births.  The day this country turns its back on the pseudo-religious masses who prefer to live in the black hole of beliefs that young people will practice abstinence and that sex will not happen if they close their eyes and prey...the day these fools allow us to teach kids about safe sex, birth control and especially the morning-after pill...that is the day the number of unwed mothers will happily decline.  I agree two parent families are the best scenario.  I also believe our children must not be taught to assume they need to marry and to assume they need to bear children.  THAT my friend is one large reason we have divorces, unwed mothers, homeless chilren and the resulting crime, poverty, welfare et al.  Your post is thoughtful and interesting.  I agree with many of your points and am aware of others such as the drugs illegal in our homes.  By the way, I also believe Big Brother has no right to tell you gin is fine but other drugs are taboo.

Our Constitution was made only for a moral and religious people.  It is wholly inadequate to the government of any other.”  John Adams, October 11, 1798.  Yes.  A great quote.  One I have seen before.  best back at you.

Sat, 10/16/2010 - 15:08 | 655374 doolittlegeorge
doolittlegeorge's picture

at least 2 will become US Senators and that does not include "the conversions."  Democrats predictably are "going all in on government handouts while issuing orders to obliterate all active duty military personnel."

Sat, 10/16/2010 - 17:25 | 655536 JR
JR's picture

I agree. As you say, one issue for the midterm elections seems to have a partisan flavor and at the moment the story is developing legs.  Active duty service men normally vote for more Republican candidates than Democrats, and the Republican politicians here are making a big issue of a number of counties around the country, particularly in Illinois, that have missed their federal deadlines in mailing out ballots to service personnel overseas. Hmmm...

Sat, 10/16/2010 - 20:02 | 655681 tip e. canoe
tip e. canoe's picture

cloudy crystal ball says that someone's gonna get caught with their hands in the cookie jar this election go around and it ain't gonna be the pubs.   if so, that's what those fuckers get for not calling a spade a spade when they had the chance.

Sat, 10/16/2010 - 21:49 | 655792 JR
JR's picture

Hi, tip.  Insightful, that! Dirty politics; and so what's new? LOL.

Sat, 10/16/2010 - 14:45 | 655340 gnomon
gnomon's picture

"QE2 is not a panacea".

It is a pock-faced whore spreading monetary syphilis.

Madness awaits all who dip their quill in her red ink.

Sat, 10/16/2010 - 14:46 | 655342 AGORACOM
AGORACOM's picture

The fact that corporations are sitting at all-time high cash levels, while interest rates are at all-time lows, tells us everything we need to know.  Specifically, corporations are hoarding cash to take advantage of anticipated fire sales coming down the road.

Why else would profit maximizing entities accept next-to-nil ROI on their cash?

Regards,

George ... The Greek .... From Canada

 

 

Sat, 10/16/2010 - 15:09 | 655375 doolittlegeorge
doolittlegeorge's picture

you mean "unlike CNBC they watch government policy too"?

Sat, 10/16/2010 - 18:32 | 655603 JR
JR's picture

“On October 29, 1929, the stock market crashed.  Thousands of investors were wiped out in a single day. The insiders who were forewarned [by Paul Warburg), a partner with Kuhn, Loeb & Co., which maintained a list of preferred customers] had converted their stocks into cash while prices were still high. They now became buyers.  Some of the greatest fortunes in America were made in that fashion…

“John D. Rockefeller, J.P. Morgan, Joseph P. Kennedy, Bernard Baruch, Henry Morganthau, Douglas Dillon—the biographies of all the Wall Street giants at that time boast that these men were ‘wise’ enough to get out of the stock market just before the Crash.  And it is true.  Virtually all of the inner club was rescued.  There is no record of any member of the interlocking directorate between the Federal Reserve, the major New York banks, and their prime customers having been caught by surprise.  Wisdom, apparently, was greatly affected by whose list one was on.” – G. Edward Griffin, The Creature from Jekyll Island, pp. 497-503.

How many, I wonder, besides me and thee are experiencing this niggling sense of deja-vu?

Sat, 10/16/2010 - 21:55 | 655798 zaknick
zaknick's picture

They have 1.2 million private contractors (mercenaries) on their payroll. Half are foreigners.

 

Watch out.

 

http://www.youtube.com/watch?v=hRe2rcGlTHU

Sat, 10/16/2010 - 22:28 | 655842 Xedus129
Xedus129's picture

Dammit you ruined it for me I'm only on page 185

Sun, 10/17/2010 - 02:00 | 656036 SheHunter
SheHunter's picture

chortle, chortle  that was funny X129!

Sun, 10/17/2010 - 13:10 | 656694 JR
JR's picture

LOL. And, believe it or not, this popular book has been not only a business bestseller of late, it has been reprinted in Japanese, 2005, and German, 2006. The time for Griffin’s 1994 book has come!  The latest extensive references to G. Edward Griffin can be seen on Wikipedia:

http://en.wikipedia.org/wiki/G._Edward_Griffin

Sun, 10/17/2010 - 00:33 | 655976 jeff montanye
jeff montanye's picture

doesn't look like they were as dextrous in their escape from financial ruin this time.  no magic sleight of hand.  and the girl sawn in half is bleeding badly.

Sat, 10/16/2010 - 14:55 | 655354 Species8472
Species8472's picture

"None of the assets was re-directed to domestic equities. Instead, 60% was invested in bond mutual funds,"

 

So, what did the people who sold the bonds to the new investors do with the money??

Sat, 10/16/2010 - 14:56 | 655359 fuu
fuu's picture

Goldman gets honest on the day Mandelbrot passes? Strange.

 

http://kottke.org/10/10/benoit-mandelbrot-rip

Sat, 10/16/2010 - 15:02 | 655368 jm
jm's picture

What a great man.  God bless, Benoit.  

Sat, 10/16/2010 - 15:00 | 655366 Azannoth
Sat, 10/16/2010 - 15:11 | 655383 Pillage
Pillage's picture

Make this the headline and be done with writing for the year.

 

We still believe the simplest explanation for the parabolic ramp in stock is to simply create the highest possible selling point before tax selling commences in advance of January 1, and highest capital gains taxes. Everything else is for the most part noise.

Sat, 10/16/2010 - 15:18 | 655392 Sudden Debt
Sudden Debt's picture

If you look to the stock market and subtract the banks, the stock at a all time high.

Imagine the banks jumping back this month, and the market will be up 150points!

Sat, 10/16/2010 - 15:18 | 655393 doolittlegeorge
doolittlegeorge's picture

buy shares with all that money?  they're buying companies and doing LBO's now!  IPO's cannot be far behind now.  with the likes of Google popping and natural gas staying "unusually and certainly low" now you all know "where all that QE has gone" at the corporate level.  How any of this helps government let alone you and me is beyond me let alone "big banks" save for HSBC which has a presence in North America that is de-minimus but "looking to grow."  Talk about profit machine potential!  Oh, yeah...and then there's that "war thingy."  Should be an interesting Monday opening.

Sat, 10/16/2010 - 15:29 | 655411 Fazzie
Fazzie's picture

  Great article except for the words "Goldman", "admits", and "truth" occupying the same phrase.

 

   Kinda sends up the ol red flags.

Sat, 10/16/2010 - 16:51 | 655509 RockyRacoon
RockyRacoon's picture

Graph shows "households" own 33% of equities....  Hmmm.  Where have I heard that "households" term before.   Oh, yeah!  From the Fed.  Wonder if those are the same "households"??

Sat, 10/16/2010 - 17:59 | 655575 JR
JR's picture

Exactly! A household is a household is a household, not. Whose households and how much per?  How much of that 33% share is stashed in households such as the 250 or so condos at 15 Central Park West where the Lloyd Blankfeins and friends live—those condos “that set the standard for the NYC condominium market”?

According to “Wealth, Income, and Power” by G. William Domhoff, “The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.”

According to the Wolff (2010) “Wealth distribution by type of asset chart, 2007”: the bottom 90 percent on America’s economic ladder hold only 18.8% of stocks and mutual funds; 6.7% of business equity; 1.5% of financial securities; 20.6% of trusts; and 23.1% of non-home real estate for a TOTAL in investment assets of 12.2%.

Let’s face it, Bernanke is hitting the economy where it hurts most; in the paycheck.

Sat, 10/16/2010 - 18:06 | 655579 BostonTettierOwner
BostonTettierOwner's picture

Fed will buy all mortgage related debt , ULTIMATE QUANTITATIVE EASING

 All this debt is someone's  asset or liability appearing on the balance sheet , fed will buy all paper from the institutions holding it , its like buying bonds . In my irrelevant opinion this will cause no inflation because the extra $$$ will flow into paying off non mortgage related debt , credit card debt for example. Furthermore such a move will cause some social tensions due to the fact that big chunk of the population will simply feel cheated , busting their asses for ages paying   mortgage and seeing irresponsible neighbors gettin a free lunch. I think it has been a plan for a while already , MSM launched the case recently to prepare the public. Deflation wont be stopped and society will be shaken in its fundations.

Lose , lose situation

Sat, 10/16/2010 - 20:37 | 655723 plocequ1
plocequ1's picture

The economy is not the market. Any fucking idiot can see this. Im just angry at all the Old time, Old man Economists who keep talking about the economy like it matters. The new economy is GOOG, APPL and AMZN. Live with it. the economy is what HAL the HFT monolith says it is. Its sad, But true. My advice.. Buy stocks and party like its 1999 until the game is over. When its game over, The Abyss will show its ugly head and swallow us all.

Sat, 10/16/2010 - 21:59 | 655802 zaknick
zaknick's picture

I guess that explains why you're an actor.

Sat, 10/16/2010 - 20:47 | 655736 Bob
Bob's picture

I think what we've been seeing from Sachs is an unannounced rollout of a major image overhaul.  Now they just start sounding like the voice of reason with those oh-so-sincere tones of deep concern.

They want to have something to point to  for plausible denial of responsibility when the next Meltdown (they have already paved the road to) actually happens.  And they very much need somebody else for the public to point to as the cause. 

Gotta love it.  I know they contracted a very major PR firm to handle their image makeover, but it looks like it's coming for free.  All they have to do is start sounding more sane week-by-week and everybody publishes their PR for free. 

Who says Squids are stupid?

Sun, 10/17/2010 - 00:48 | 655988 jeff montanye
jeff montanye's picture

they and the octopuses are the brightest of the invertebrates (and smarter than quite a few chordata, some in suits).

Sat, 10/16/2010 - 22:09 | 655814 JR
JR's picture

The above article brought this one to mind again:

In background, third level, Rothschilds?

World's Stocks Controlled by Select Few by Lauren Schenkman | Global Research  08.30.09

WASHINGTON-- A recent analysis of the 2007 financial markets of 48 countries has revealed that the world's finances are in the hands of just a few mutual funds, banks, and corporations. This is the first clear picture of the global concentration of financial power, and point out the worldwide financial system's vulnerability as it stood on the brink of the current economic crisis.

A pair of physicists at the Swiss Federal Institute of Technology in Zurich did a physics-based analysis of the world economy as it looked in early 2007. Stefano Battiston and James Glattfelder extracted the information from the tangled yarn that links 24,877 stocks and 106,141 shareholding entities in 48 countries, revealing what they called the "backbone" of each country's financial market. These backbones represented the owners of 80 percent of a country's market capital, yet consisted of remarkably few shareholders.

"You start off with these huge national networks that are really big, quite dense," Glattfelder said. “From that you're able to ... unveil the important structure in this original big network. You then realize most of the network isn't at all important."

The most pared-down backbones exist in Anglo-Saxon countries, including the U.S., Australia, and the U.K. Paradoxically; these same countries are considered by economists to have the most widely-held stocks in the world, with ownership of companies tending to be spread out among many investors. But while each American company may link to many owners, Glattfelder and Battiston's analysis found that the owners varied little from stock to stock, meaning that comparatively few hands are holding the reins of the entire market.

“If you would look at this locally, it's always distributed,” Glattfelder said. “If you then look at who is at the end of these links, you find that it's the same guys, [which] is not something you'd expect from the local view.”

Matthew Jackson, an economist from Stanford University in Calif. who studies social and economic networks, said that Glattfelder and Battiston's approach could be used to answer more pointed questions about corporate control and how companies interact.

"It's clear, looking at financial contagion and recent crises, that understanding interrelations between companies and holdings is very important in the future,” he said. "Certainly people have some understanding of how large some of these financial institutions in the world are, there's some feeling of how intertwined they are, but there's a big difference between having an impression and actually having ... more explicit numbers to put behind it."

Based on their analysis, Glattfelder and Battiston identified the ten investment entities who are “big fish” in the most countries. The biggest fish was the Capital Group Companies, with major stakes in 36 of the 48 countries studied. In identifying these major players, the physicists accounted for secondary ownership -- owning stock in companies who then owned stock in another company -- in an attempt to quantify the potential control a given agent might have in a market...

Glattfelder added that the internationalism of these powerful companies makes it difficult to gauge their economic influence. "[With] new company structures which are so big and spanning the globe, it's hard to see what they're up to and what they're doing,” he said. Large, sparse networks dominated by a few major companies could also be more vulnerable, he said. "In network speak, if those nodes fail, that has a big effect on the network."

The results will be published in an upcoming issue of the journal Physical Review E.

http://globalresearch.ca/index.php?context=va&aid=14934

Sun, 10/17/2010 - 06:52 | 656228 jesus_quintana
jesus_quintana's picture

Anybody out there know who actually owns the 90%+ of Capital Group the Lovelace family doesn't own? They seem to have done incredibly well at avoiding/ profiting from every market crash since 1929.

Should be an easy question, but I'm drawing a blank here.

Sat, 10/16/2010 - 23:17 | 655886 buzzsaw99
buzzsaw99's picture

teh squid is wise.

Sun, 10/17/2010 - 04:39 | 656171 Grand Supercycle
Grand Supercycle's picture

GOLD updated chart showing parabolic move.

http://stockmarket618.wordpress.com

Sun, 10/17/2010 - 06:11 | 656221 Snidley Whipsnae
Snidley Whipsnae's picture

" But first the facts: while the strategist has no choice but to raise his 12 month S&P forecast (this is a new development for all the headline chasers) from 1,250 to 1,275, which is a token nothing compared to the recent 12 month gold price boost from $1,365 to 1,650. This merely reinforces the Zero Hedge view that gold has now become the natural, higher beta, and unlimited upside short hedge to stocks. Indeed, a 1% boost in the S&P PT, is meager compared to the 20% expected gold appreciation."

All paper is a short on gold. The only way to avoid the coming FUBAR economy and tanking fiat currencies is gold, silver, and other commodities. Paper will be trashed...and, who can trust any form of real estate unless it has a long history of unencumbered ownership?

The Fed/treasury/GSEs/et al,...have not only screwed the pooch...they are the screwed pooch.

Hold gold...sleep well.

Sun, 10/17/2010 - 09:37 | 656371 SheHunter
SheHunter's picture

With all respect, I listen to everyone embrace owning gold and cannot quite join the fervor.  Sure, some gold is fine but I would rather own my own deeply rural property, the tools, equipment, and supplies needed to survive and a close circle of friends with skills and knowledge that compliment one another.  Where are you going to pawn this gold if/when our structure crumbles to the point of chaos in the streets?  Would you have wanted to be a German in the 30's carrying gold down a street crowded with starving people pushing wheelbarrows of worthless coins?  Yes?  Then you are braver than I. 

Sun, 10/17/2010 - 12:26 | 656617 Its the Vatican...
Its the Vatican Stupid's picture

Crack open your tenth-grade history textbook, Cowgirl. Those Krauts weren't pushing wheelbarrows full of GOLD! Those were wheelbarrows full of PAPER.

 

Agreed, however-- livin' in the bush WILL probably the EASIEST way to survive the upcoming storm, but let's get real-- the only scenario where gold doesn't have any more value is complete and utter armageddon-- and you'll be livin out in the bush without any refined oil if that's the case. Good luck with that.

 

All things considered, after the deluge, I'd still rather live in the city and pay my electric bill with bullion, than have to live in Jonestown with people like you and your bushwhackin' buddies.

 

 

Sun, 10/17/2010 - 21:08 | 657432 SheHunter
SheHunter's picture

I said "starving people pushing wheelbarrows of worthless coins."  Not pushing wheelbarrows of gold.

As for my being a Johnstown bushwacker (whatever that is)...stop by my place and that of my friend's and you'll find calloused hands have nothing whatsoever to do with intellect and worldliness.  The guy down the road is a ex-navy pilot who designed and is building an aerodynamic wonder of a fixed-wing; a friend further up the road and way down a dirt drive is an options guru in the morning; splits wood and welds custom gates in the afternoon. I won't bother to provide you a resume but I am where I am now solely by choice.  Careful of steroetypes.  Cow (horse/mules and terriers) girl yes and backwoods no.

cheers.

Sun, 10/17/2010 - 21:27 | 657457 SheHunter
SheHunter's picture

And by the way- what size boot do you wear?  We have a swap sale up here once a month over at the community center and I'll pick up a pair of insulated lave-up Schnees for you so when your civilized pretty-people society falls apart, is rife with violence and you come running into the Northern Rockies for safety you'll have a pair of boots to keep your feet warm and dry.

oops-gotta run.  The airedales are barking at that darn griz who likes to sneak up to raid the bird feeders.

Sun, 10/17/2010 - 10:26 | 656417 99er
99er's picture

Chart: RUT

The market is not retarded.

http://99ercharts.blogspot.com/2010/10/rut_17.html

Sun, 10/17/2010 - 12:05 | 656575 dcb
dcb's picture

Ahh

b\iut taking goldmans view we should be investing to do the opposite. after all we know the trading desk does the opposite of what the analysts say!!!

Mon, 10/18/2010 - 08:00 | 657885 Downtoolong
Downtoolong's picture

In a stunning turn of honesty, Goldman's David Kostin does a 180 and renounces everything that the Fed wishes the gullible public would swallow hook line and sinker.

 

So, Goldman is short the market now. Damn, apparently I’ve been selling with them, but, I wanted to be selling in front of them.

Tue, 11/16/2010 - 10:11 | 730443 daniel
daniel's picture

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