Goldman Sachs: "The Margins Are Not What They Seem"

Tyler Durden's picture

And for today's exercise in surreality, in your best Agent Cooper voice repeat after us: "The margins are not what they seem." Why? Because in his latest Weekly Kickstart, the next incarnation of A Joseph Cohen, David Kostin appears to be channelling David Lynch when he says: "Company-level margins can fall while aggregate margins for the market continue to rise. If high margin stocks grow sales faster than low margin stocks, the index-level margin still expands." We won't even parse the logic of the first sentence. As for the big "if", so that's what Goldman bets its FYE 2011 S&P 1,500 target on - now we know. "The apparent fallacy of composition may be explained by the simple fact that revenue growth matters." See, David, that's why you get paid the big bucks. But it does not end there: "Analysts expect 66% of S&P 500 ex Financials and Utilities stocks will expand margins in 2011." Now that with Brent at nearly $130 makes absolute sense. In other news, we now know who killed Laura Palmer.

Here is how Goldman resolutely refuses to change its margin forecast for 2011-2012 despite crude now 30% higher than where it was when this chart was first conceived. To be honest, we haven't flipped to the risk factors but we assume the first one would read: "Goldman may and will, in addition to trading against its clients, make the assumption that said clients are all bloody idiots."

And in some news actually based on a Euclidean reality, here is something that is oddly enough factual: the Earnings Calendar as earnings month is now upon us.

The complete and unabridged attempt by one David to channel another:

Kostin Chartology 4.9

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unwashedmass's picture


talk about jumpin' da shark. they are going all in now to pack the seats as tight as possible on the Titanic, aren't they?
longorshort's picture

This guy is a $#*#*# spammer block is crap.  Cock block him.

Ancona's picture

Too funny by three. These "experts" never seem to run out of bullshit, do they?

thames222's picture

No, the "experts" are not what they  spoon-feeding horseshit to the public day in and day out.


AAPL_Short's picture

Me likes no vampire squid.

bob_dabolina's picture

Twin Peaks brings me back to the days of Eaglebrook

strenue's picture

+100 Twin Peaks reference.

bob_dabolina's picture

I had a teacher there who did his own type of series based on Twin Peaks. I recall it being pretty good.

Alterity's picture

The Goldman Sach is a sack full of excrement. 

Careless Whisper's picture

oh, you are so mistaken. goldmansachs is a good hedgefund, always doing good things for society. just look at this full page ad they took out in the nytimes and wsj this week:



A Man without Qualities's picture

Operating earnings will be before exceptional items such as "the shit that cost us more" - after all, inflation expectations remain firmly anchored, so anything that went up must be exceptional.  Or maybe they move to "earnings before everything"

chinaboy's picture

Goldman is not it seems.

Goldman can dictate the market as long as it can. It will lost control someday. Its dictatorship is based on raw liquidity under its control, not on logic or science.

plocequ1's picture

This is too fucking complicated for this " Gringo " to understand. I think i will sit in my room with a bottle of Tequila, An old Freddy Fender album playing Wasted days and wasted nights and wait for the evil Leprechaun to take me to my local holding facility.

Mr.Really.Fed.Up's picture

"If high margin stocks grow sales faster than low margin stocks, the index-level margin still expands."

I actually chuckled a bit upon reading that.

Is that not funny? does anybody else find that amusing?


MayIMommaDogFace2theBananaPatch's picture

The Margins are not what they SEAM

There, fixed it...

tawdzilla's picture

mar·gin/?märj?n/  - (noun) was a corporate accounting term used in the old paradigm of free market capitalism, back when the government did not pick winners or losers, back when the only way to improve a balance sheet was with profit which had to be earned in a competitive marketplace devoid of loopholes, kickbacks, or carveouts from politicians.  Margins were eventually scrapped altogether as it was later determined that crony capitalism, infinite liquidity, and bailouts were a much more effective and less risky means of improving one's balance sheet. 

falak pema's picture

The banker from the Squid is like the guy whose got his wife a Botox face cum silicone boobs job; so that she looks creaseless and bombastic up front...and for good measure a penis enhancement for his own 'true and holy'; ole reliable, cool hand Luke, Duke of all longhorns this side of the Pecos. Now as the muscles melt and the fat accumulates liposuction is like Fukushima hose watering. But the damage is done and the rod is in derelict, spontaneous, incandescent, effusion to its inner core as it yells for "encores" and suffers 'boos' galore from unforgiving, impenitent audience, who doesn't give a rat's ass about his diminished bank balance in sustaining lost cause. Like Lear on the Heath he's programmed for planned obsolescence. His margin of maneuver is like the vanishing West in the face of the derelict concrete, fractured, chemical jungle of schist gas multiple orgasmic quest. Brave new world that wants to get out of the mortal vice of ME oil dependence and sells it soul to the inflation spiral to cheat its surrogate serfs, now fast becoming arrogant creditors.

KickIce's picture

These are not the margins you're looking for.

Buckaroo Banzai's picture

Goldman Sachs. You will never find a more wretched hive of scum and villainy. We must be cautious.

Hephasteus's picture

If a guys full of shit enough to use an insanity defense. I guess he's full of shit enough to use an insanity OFFENSE.

string's picture

I carry a log - yes. Is it funny to you? It is not to me. Behind all things are reasons. Reasons can even explain the absurd. Do we have the time to learn the reasons behind the human being's varied behavior? I think not. Some take the time. Are they called detectives? Watch - and see what life teaches.

Barb Dwire's picture

It's the new math. Remind me again how these guys pull down 7 figures?

Pez's picture

Step 1) Steal your dirty underpants

Step 2) ??????

Step 3) PROFIT!

blindman's picture

isabella rosselini puts a sock in it for him.

Dennis Hopper

.  ...warning ....

offensive video clip above.  not more offensive than

the status quo, yet offensive enough.

ivars's picture

I did some more predictions on USA crashing its debt by returning to gold standard. The value of gold, if this is done in 2014, came out around 5400-6000 USD/ounce.

I was wondering who will get the haircut. It seems it will be those mony instruments that form M2 and M3 above M1 and M0. Is that feasible? That would be a major upset as it involves domestic deposits as well as foreign and domestic short term debt.

I may have got a bit confused, but definitely debt holders will suffer. Short or long term, or both?

But it will happen in some form, the correction ( reduction) of USA debt no later than in 2014.



blindman's picture

in the future, somehow, some huge debtor will

wash their sins away

with the "inflated" price of precious metal.

i'm way fuzzy on the details but this seems

a precious and overwhelmingly seductive

strategy.  there will be gnashing of teeth,

as always.  and stomach ulcers

I_am_always_right's picture

Ok, so, who killed Laura Palmer then?

I used to like Zero hedge .... sniff...

Mal's picture


We lose money on every widget we sell but we make up for it in volume.



Reese Bobby's picture

The whole piece is remarkably stupid but my favorite calculation is the left hand chart on page #3:

Margin Growth, % of total from Energy = 80%.  If they mean 24 bps/29 bps it is comedy.

If my 8th grade algebra is not failing me, the correct percentage of margin growth from Energy is 33%.


In any case, the S&P 500 ex-Fin & Util is a dumb representation of the overall stock market or the condition of the average U.S. company.  Spin-away you mortgage levered Squid...



tomster0126's picture

my parents used to tell me how evil Goldman Sachs was when I was growing up.  I never understood their vendetta against them until recent years.  What a joke...

XPolemic's picture

I know it is considered gauche on ZH to actually RTFA, but lets have a look at what our friend at The Goldman Sachs is trying to say.

The top 20 companies in the index appear to be growing sales, even on collapsing margins, with a net effect of 8bp growth. Of the top 20 companies in the index, only 6 managed a net growth (i.e. their sales grew faster than their margins collapsed). They are:

XOM - Exxon Mobile - 50bp of Index

CVX - Chevron Corp. - 31

AAPL - Apple Computer Corp. - 28

GE - General Electric - 18

COP - Connoco Phillips - 14

GOOG - Google - 11

The other 14 in the top 20 range between break even and disaster on their sales vs margins.

These 6 companies make up 152bp of the index, or 16% (Ex. Financials and Utilities). Hard to imagine them carrying the whole index if there was a wholesale margin collapse in 2011, not to mention a sales collapse due to a drop in discretionary income.

I guess if you are an overpaid analyst at a thieving investment bank, you dont really feel any change in discretionary income when the price of food and gas doubles.


paratrooper325's picture

These are not the margins you are looking for....

FIAT_FixItAgainTony's picture

exactly.  now move along.  the ol jedi mind trick again?  i just never fall for them anymore.

plocequ1's picture

I agree with GS.. Margins? Thats a bullshit word, A pure illusion. Just pass it on to us " Gringo" Taxpayers.

Robslob's picture

If they are all experts:

1) why didn't they forecast the crash

2) why did they need bailout money or need money at all

3) why the constant suck on taxpayer tit

They have learned nothing and worse are repeating mistakes of Crashmas Past...the beauty is this time they will have cried wolf too much and no one will care.

Congressmen and women may be spineless carcusses but they won't vote themselves out of office by letting Wall Street crash America again...

PulauHantu29's picture

"Earnings" don't matter since all the banks need is lots of POMO and REPO.

Urban Redneck's picture

While not a Euclidean set, the subset below  begs the question of whether the correlation is causal.  I think the easiest way to disprove it would be to replace Turbo Tax Timmy with a non-banker.

During the tenure of last three FED Chairmen, almost every time Wall Street receives a bailout or handout from Washington, there is a convenient banker occupying the office of US Treasury Secretary to provide said bailout.  When there is not a banker occupying the Secretary's office, which is almost half the time, the other bankers rarely receive their coveted taxpayer handouts.

The distribution 11 Secretaries, 32 years (53% with a banker in office), 17 bailouts/handouts (debatable number),  

Miller: 1979-1981, Previous Experience: FED, Bailout(s): Chrysler
: 1981-1985, Previous Experience: Merrill Lynch, FED, Bailout(s): Continental Illinois NBT
: 1985-1988, Previous Experience: Lawyer, Bailout(s):
Brady: 1988-1993, Previous Experience: Senator, Bailout(s): S&L Industry
: 1993-1994, Previous Experience: Senator, Bailout(s):
Rubin: 1995-1999, Previous Experience: Goldman Sachs, Bailout(s): Mexico, LTCM  
: 1999-2001, Previous Experience: Harvard & World Bank, Bailout(s): Glass-Stegall Repeal
: 2001-2002, Previous Experience: Alcoa, Bailout(s):
Snow: 2003-2006, , Previous Experience: CSX, Bailout(s):
Paulson: 2006-2009, Previous Experience: Goldman Sachs, Bailout(s): Goldman/AIG, Citi, Fannie/Freddy, TARP, GM, Chrysler
: 2009- , Previous Experience: FED, IMF , Bailout(s): ARRA, Dodd-Frank, POMO, QE1, QE2

Grand Supercycle's picture

Many chart trends reflect uncertainty and lack of consensus by market participants but one chart pattern has remained constant:

Monthly S&P500 ~