Is Goldman Starting To Offload Prop Positions?

Tyler Durden's picture

Abby Joseph Cohen must have threatened with retirement and David Kostin is here to pick up the Olympic torch. Goldman Sachs just raised its 2009 year end S&P target to 1060, "13% above the current level" meaning Goldman prop positions are full and the great offloading to marginal buyers has begun. The justification: "After trading in a 10% band for the past three months, our “Pop, Stall, & Sustained recovery” framework, sequential improvement in ex-Financials EPS, stabilization in profit margins, and higher forward EPS guidance all point to a rising market through 2009." More specifically, 85 Broad is raising its 2009 EPS to $52 from $40, and 2010 EPS to a patently absurd $75 from $63, a 45% increase in bottom line earnings, and almost 100% from the old $40 estimate. And just so it seems more credible, "measured on a pre-provision and pre-write-down basis our estimates are $69 and $81. S&P 500 trades at 12.5x our 2010 operating and 11.6x our pre-provision EPS." In other words, pure rose-colored glasses halcyon.

As Q1 and Q2 earnings "beats" have demonstrated, all bottom line upside surprises have come from companies trimming the fat and mass firing employees left and right: alas for the most part revenues have been flat if not materially lower to expectations - just look at GE's recent results for a good recap of what is happening wth the economy theme. Arguably, there is no more SG&A extraction available to the vast majority of US corporations, meaning Goldman is expecting an unprecedented pick up in revenues. And with the US consumer completely tapped out and unable or unwilling to borrow, this implies that foreign countries will have to pick up the pace in bailing out our top line: so look for much more weakness in the dollar to even remotely justify Goldman's prediction. This will put Bernanke's claim of pursuing a strong dollar policy to the biggest test, as well as Europe's resolve to continue playing in this highly rigged version of F/X "game theory."

But back to Goldman - up until this point the firm has been at least slightly sensitive about catching marginal end buyers. Now the guns are blazing, and as all Wall Street professionals tongue-in-cheekly know all too well, a forceful upgrade is when any firm (Goldman most definitely included) starts to sell into a call (in this case its own). So buyers please beware: you are now implicitly buying the shares that Goldman and other brokers have been accumulating over the past 4 months.

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Anonymous's picture

Just like when GS said oil was going to $200... it was thetop last year! And then when they said it was going to fall further it was the bottom!

Lets_Eat_Amen's picture

the prediction range was originally $150-$200, thus stopping at $147.  They were also one of the only firms to forecast oil over $100/barrel.  I wouldn't scoff off their forecasts, despite how leary we may become of them as a bank of mal intent.


Is it me, or did these math questions get harder to answer?

John Self's picture

Well the VaR exemption doesn't last forever, you know.  A poor ole bank holding company's got to make a buck somehow!

MsCreant's picture

Goldman = The Fleece Train

Goldman = The Pied Piper of Gamblin'

barracuda's picture

Dedicated to Goldman Sachs & Co.

Humans are Dead: Robot Song

Highly relevant to current market condition...




Anonymous's picture

I thought I had read where the earnings increases GS was using were not EPS but operating earnings. Making the 1060 a nice 20x multiple and the year out 14x. Just curious if it was EPS or operating they were using. If it is operating - well that will just make the P/E on the SPX laughable. No news there though...

Anonymous's picture

33% pay/perks increase wasn't enuf....Abbey needs a new pair a shoes and a 50% increase

hey...these math problems to post a comment are to darn hard for an American public school boy...dumb it down a bit. OK?

mattco's picture

She needs more poocha shells to distract viewers from her mug.

Anonymous's picture


Please look at the velocity of unemployment...actual vs. concesus. You will see that the velocity increased so rapidly that if your company DIDN'T BEAT EARNINGS you are f^&king crazy.

Further more I expect more positive numbers to come as "consumer collapse" to prop up GDP oil glut and not buying chinese crap hand over fist....

This could last several quarters...

Also what are the borrow rates on shares now a days...alot higher than Fed Funds rates so the big banks are taking the other side of your shorts folks along with interest until they squeeze every last penny outta yea....

Obama just delay a budget update IE THINGS ARE WORSE and the ramp will continue higher 100% guaranteed....

Lets_Eat_Amen's picture

yeah, due to how the GDP is calculated, since the trade deficit has declined, we'll pull off a positive GDP number eventually.  This is of course despite the real indication that less goods and services are being demanded.  Eventually this will create that double dip effect i imagine; we'll have positive GDP, and then when China's stimulus runs out they'll want less from us, thus creating a relapse in the GDP rating.

braintrust's picture

Never bet against China. They can pull any shit out of the bag they want. You'll be amazed.

hat tip :good finance articles

and away we go.....

yellow submariner's picture

A S&P500 Level at the end of the year slightly above 1000 is IMHO very likely, if no really shocking development (=severe bankruptcies) takes place. However the amplitude of oszillations will depend on the news and will keep S&P500 not necessarily above 800.

Here in Germany tax income of cities drops up to 40%.
However everybody in the stock market seems to be confident *grin*.

Anonymous's picture

If I valued a stock at much lower levels, why would I buy it at much higher prices?

Do I need to buy more than you need to sell?

That seems to be the struggle.

Anonymous's picture

A bunch of caravel barkers at a rigged game.


Anonymous's picture

i don't think S&P at 1060 is much less likely than S&P at 700.... I don't really understand people's incredulity at this... markets overshoot on the upside and the downside

last time the market was at 1060, most people would have scoffed at 667

Anonymous's picture

Have to dump the accumulated shares somehow

Anonymous's picture

everyone knows the macro is f***ed. That isn't the point. It will be eventually, but right now it isn't. A market that can go up on bad news, well, you know the jingle.

Eduardo's picture

well if about 13% is all I can loose according to the second bulliest analysts in town I think I will keep my shorts

Anonymous's picture

VIX is up today in this rally. This time so is VXX, so no OPEX explanation?

Gilgamesh's picture

After logging in, let me follow-up on that comment.  VIX is shooting up, but VXX is now in the red.  Hmm...

Anonymous's picture

Ran Squawk
News Article Summary
Rochdale Securities' Richard Bove says buy the big US banks; hold off on the regionals

Gilgamesh's picture

Seems some people are finally paying attention to the actual facts, instead of the talking heads.  BAC and C are down for the 3rd day in a row.  Good regionals in the past that bankrupted themselves on bubble loans are down big again (ala MI).

quant-this's picture

That is such BS. I was out at a very casual function on Saturday where several of us who run large small businesses (20-50m in sales) got together for some boating and frank business discussion. Most of the businesses are serviced based dealing with much larger companies; it seems that everyone I spoke to is already locked in with crappy contracts for 2010 and now looking to 2011 for things to change. The big fear, and this is shared by the larger companies they service, is that margins have been improved as much as possible and unless things do pick up by end of 2010 then there will be another contraction round that will most likely be more painful. Obviously 2011 is far away and things seem to have stabilized for now but everyone was fearly negative which means no expansion. Flat seems to be the better case scenario.



Anonymous's picture

if things are going to get worse maybe those "crappy contracts" look ok ?

quant-this's picture

Hopefully yes; but it's all fun and games until they try to change service contracts mid-year. No one was painting a picture of desperation; I think the general theme was that the contraction was a lot quicker and harder than even the most conservative had anticipated but things were at least not crashing and on life support. The problem there is that business spending and investment is not going to pick up any time soon since everyone is very focused on not spending on anything not necessary and not really expanding. Everyone is playing defense. This is the end is positive for companies as they will be much more profitable when they grow; but the profitability will come from savings instead of expanded sales. This is the other side of the coin of the consumer picture, where savings is also going up. What it doesnt get you is excess spending at the same levels as before. So the guy making $250k or the company making $2.5m will not be spending the same as they did at those levels previously. This in the end is healthy and it's nice to see that the system is actually healing naturally but along with that comes anemic growth and probably not starting until 2011. That was the view and I have to say I agree.


Just my .02

mdtrader's picture

Don't forget that a week ago the Nasdaq 100 traded 1400 or so, now everybody wants to buy at 1540. Jesus where do these people come from?

dnarby's picture

Do a search on High Frequency Trading (HFT) on this site, also watch this


HFT is probably responsible for over 50% of the volume, maybe up to 70%.


Leading to a whole lot of 'nothin underneath there...

Anonymous's picture

Can anyone tell me who is buying all this stock? Why for now the 6th day people are still jamming the craps tables 88 deep. Look at the earnings this am. They were a disaster and yet the stocks are run up like there are no more. My prediction 7 OUT LINE AWAY.

Anonymous's picture

Glad then, that I am on the Don't Pass Bar and willing to be very patient.

Anonymous's picture

If you were selling a story, but nobody bought it, what would happen to your business? To be continued.....

My cognitive dissonance's picture

That's it for me. I am now a collapsitarian.

Anonymous's picture

Reminds me of a quote by the magnificent orator, Joe Biden: "We Have to Go Spend Money to Keep From Going Bankrupt".

Anonymous's picture

First, some useful info. If you go to the S&P site at
there are spreadsheets at the bottom of the page that teach about As Reported (GAAP, no item exclusion allowed) and Operating (special items included or excluded as desired) Earnings. Not all special items are absurd. Some events are not going to happen again and do not reflect normal future business processes. Regardless, the key here is Q1's numbers were a disaster and multiplying them X4 to get full year for the P/E calculation gives P/E, even operating earnings, up around 75. So as earnings come in this week (and last, JNJ's were DOWN from Q1) forget expectations and even Y-Y data. It is Q-Q that counts because only massive Q2 improvement over Q1 can affect that X4 calculation to get P/Es reasonable.

Anonymous's picture

/Sarcasm Forget expectations!? And violate the broadcaster-viewer relationship that me and CNBC have developed? You see, we agreed that they would construct an "EARNINGS CENTRAL", so I could know in an instant what to focus on this quarter. Not sure if anyone else knows about this great new feature, but I hope it lasts. /End sarcasm

Anonymous's picture

Another point I didn't make in the Q-Q issues. Note that over the next 3 quarters, S&P earnings do not just have to go up from Q1, they have to double -- in order to get to P/E 12-15ish. Q1's earnings were $7.65 As Reported and $10.11 Operating. A X4 of the higher one is $40.44. At S&P 94that is a P/E of 23. For As Reported (the historical norm) that is 30. To cut those P/E numbers in half requires a double in Q2-Q4. PG, GE, JNJ, just the entire gamut of mature companies populating the S&P are simply not going to come close to a double Q2-Q4. Now, some companies will go loss to gain which amplifies their increase, but each one that does not drags it down. For example, today HAL's Q2 was lowr than Q1. That hugely increases the burden on other companies to do more than double.

Milton's picture

Abby is sooo nice. She reminds me of someone's grandma that just baked some chocolate chip cookies. She's so, ummmm, sweet and cuddly, and never raises her voice, and just wants to help us.

Anonymous's picture

What's in those chocolate chip cookies? And how much am I, the US taxpayer, paying for grannie to bake those cookies?

Anonymous's picture

There's so much dumb money that came back into equities last week, giving the basis to what will help deliver the next, last leg down on a scale "immeasurable" (to use the words of those CIT bailout hopers).

Anonymous's picture

Believing in Estimates Means 20% Advance for S&P 500
Nov. 10 (2008) (Bloomberg)

...Kostin, Trennert and Lee are among the most pessimistic of Wall Street strategists with year-end estimates tracked by Bloomberg. The three expect the benchmark for American equities to end 2008 at an average of 1,075, up 15 percent from its closing level last week. ....

Still, Kostin expects the S&P 500 to hit bottom this month and rebound as investors buy shares that are inexpensive compared with companies' forecast profit.

Hondo's picture

GS is a whore.....they have know idea what earnings or at what level the market will be at year's end (just like they predicted the current environment..right?).  They simply exist to gull you in and rape you while you're in a fog.  Anyone who invest money based on what GS says deserves to lose their money.  The market is right back to where it was in the mid '90's....did they predict that?  NO....because they can't!

braintrust's picture

They also predicted  $200 oil and $30 oil; both were wrong.

dnarby's picture

...But great contra-indicators.