Goldman's Key Charts To Kick Off 2011

Tyler Durden's picture

It has been a good year for Goldman's David Kostin: not only did the strategist make partner this year, but virtually all of his analysis is simplistically goal seeked based on what New York Fed favorite Jan Hatzius says is bound to happen (which one way or another, does), and the entire Wall Street herd of C-grade economists follows suit. Nonetheless, he, or rather his subordinates, sure create some pretty charts. Below are the main charts summarizing both the last week and year, and the cheatsheets for Goldman's outlook on 2011, as well as some other Easter eggs.

First, here is a summary of Goldman's milestones and targets for all asset classes in the next year. In a nutshell, everything but natgas and the dollar is going up. That said, with the Fed's marginal purchasing ending in 6 months (unless QE is extended of course, which will happen eventually), we fail to see where the incremental buying will come from.

Next is a summary of the firm's macroeconomic predictions for the next year:

Looking back, here is the best performing markets over the past year by geography. Curiously when looking at the BRICs it is precisely the growth dynamo, China, that has underperformed in 2010, while an increasingly more dictatorial Russia is the best performing BRIC.

On a shorter time horizon, these were the best and worst performing stocks of the past week:

Looking at valuations, it is no surprise that Goldman is now well in the consensus range for projected EPS.

Essentialy Goldman is expecting a 12% raise in EPS, based on the firm's sub-4% GDP growth estimate. The weakest link: Goldman, contrary to evidence from the numerous diffusion indices, is expecting another year of material growth in margins. Where this growth will come from when Price Paid and input costs across the board are surging, we have no idea. Also, GS is projecting a growth in sales despite Capex spend firmly hugging decade lows. Amusing margins and sales projections below:

If one assumes that the above projections are valid, this is how all the numbers pan out from a spread valuation standpoint:

A quick look at the chart above indicates that a long healthcare utilities/short tech bubble trade will very likely to outperform in 2011.

And some other notable odds and ends: after hitting all time highs late this summer, cross correlations have plunged to multi year lows. Absent validation from Lehman's Matt Rothman, we would not rush into believing this statistic.

Lastly, it bears highlighting the very dramatic divergence between AIG EPS revisions and stock performance in both the last month and year. Even with the stock's EPS getting revised lower by 74% in the last month, its stock has outperformed by 39%, confirming it is merely the latest low volume momo stock.

And speaking of HFT churn magnets, Netflix is it. If the momentum catches a downdraft, watch out below. Keep in mind HFTs make money churning on both the upside and downside.

Full report pdf.

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Caviar Emptor's picture

Interesting: Goldman predicts plunging core CPI through 2012, and also soaring oil, copper, gold, equities, imports, consumer spending and a plunging US $. That pattern can only happen under my Biflation scenario. Has Goldman been converted to the Biflation camp?? Note they also predict almost no change in unemployment for 2011. That follows our predicted path. Unmentioned is housing, but we can assume they see a floundering market. That's the only way that core CPI can stay near zero, since 40% of it is housing. It cancels out inflation. Keep in mind, under usual conditions, if all input costs are predicted to rise and S&P earnings are predicted to rise too, then business costs would have to be passed on to the consumer and core CPI would also rise, contrary to what they're predicting. Deflationary forces would have to be at work to cancel this effect.

So nothing changes: What you earn and own will deflate, while what you need inflates. And that scenario, over time, is not the path to a healthy economy. It's the road to perdition.

dcb's picture

100 percent corrent. in fact it will cause another recession as oil prices and staples go up, discretionary spending down, incomes for majority flat or down. the question will what will be the tipping point in the price of oil. I'd say you can safely short consumer discretionary as oil goes up and strapped people has less free income. High end will do well as rich get richer, also stocks in the low end of the spectrum. dollar general, wholesale places. You'd think wall mart, but they are already so big in the space I don't think there is room for growth, and they haven't been doing well.

dcb's picture

also in theory stocks should have a pe they can't go above, commodities no. I have been advocating DBC for a long time, and dba. both have long term futires so no roll over costs where the other funds eat you alive. I also firmly believe in global warming and regular crop disruptions dies to heavy storms, or lack or rain will also have effects long term.

as oil goes up, nat gas should see some play and it is the cheap alternative. I am not sure of the time frame, but I see this as the easy energy sounce for the future. it's just a matter of when oil gets too high.

Mr T's picture


If you are being serious, words that do not exist in the english lanquage should not be used to describe an abstract concept unless you explain very concisely what you mean by "biflation".

If you mean some prices will go up and some will go down, there is no need to make up a word.


No disrespect intended.


Caviar Emptor's picture

Sorry. This is not '70s style 'Stagfation'. And yes, I am proposing a new economic term, hitherto not described, not conceived of or predicted. It's blowing their minds since it's not in their musty books and they have nothing to fight it in their arsenal.  Exactly how and why the term 'Stagflation' was originally conceived: because nothing in the old definitions could adequately describe what was happening in the economy. And it was considered a conundrum at that time.

Stagflation in the '70s was accompanied by 3.5-5.5% annualized GDP growth, something we'd be fortunate to have today and is not predicted by Goldman, the Fed or anyone. Demographics indicated a strongly expanding economy. And unemployment was nowhere near what we have today by any measure. 

A new and totally different scenario requires a different name and approach. A fresh perspective, just as Stagflation was 'revolutionary' in the '70s

Dismal Scientist's picture

I see you have been a member for some 39 weeks. Surely this is not the first time you have seen the term 'biflation' on this site ? Caviar is correct, what we face today is a new economic environment for which there is no easy historical parallel. Particularly since wages are not going up, the rising price of commodities is crushing consumer disposable income for the average person. This is clearly different from the 70's. An accompanying mountain of debt of unprecedented levels to go with this, creates a situation that demands a new term.

Biflation is the term. Stagflation is so, well, 70's.

Mr T's picture


I have not seen that and please don't call me surely its Mr T to you:>

I did a site search and there is an abundance of the term in the comments, and hey I would like to help promulgate the word if it could be Defined.

I agree with much of what you said however there are many things that appear unprecedented but are merely unique. 

In my opinion words must have meaning And recognition.

Why not octoflation? Quadflation?(derivatives)

Hexflation for the Zionist who have caused so much misery.

There, I have created a new word that bests describes the state of our economy Hexflation!

please tell your friends

knukles's picture

Get used to it, Surely.
Stagflation as properly utilized is a formal economic technical term (whereas Wikipedia or the referenced dictionary are comprised of either the most prolific aggregation of made up facts or non-technical terms) which merely denotes an environment of high inflation accompanied by low real rates of growth.  The formal technical term makes no reference implicit of explicit to a bifurcation of inflationary pressures amongst or across any group or groups of goods or services.

By the way, have you met Liberal Sodomy, yet?  Ya'll might get along just fine.

Mr T's picture

Hey knukles

I don't have to get used to anything you say.

implicit of explicit to a bifurcation of your puny walnut sized brain residing up your fatass. I haven't met your partner yet and i really don't want to. I'm qute sure it enjoys brain banging you. What ya'll do behind closed doors is your business mr knukles don't ask don't tell ;>

cartonero's picture

Quadflation!  I like it.

Caviar Emptor's picture

In the '70s, economists everywhere in the Western World were puzzled: they could not explain or understand how you could have inflation combined with stagnant levels of employment. This had never happened before and it didn't respond to the usual central bank techniques (most of which were still Keynesian). Welcome to the Monetarist Revolution. Milton Friedman and his disciples proposed a new approach to solve this crisis. The rest is just regurgitating history which most of us on this site are familiar with. What we now recognize as "Supply-side economics", "Reaganomics 1.0" (to paraphrase Larry Kudlow), and a host of other satellite terms are collectively the policies that were implemented in the 1980s to fight stagflation from the 1970s. 

What was brilliantly at that time was the ability to recognize a set of economic aberrations that were hitherto considered "impossible, contradictory" and unorthodox. That was the first step in being able to address the issues of the day. 

Today we face a new set of 'baffling' economic contradictions: why are parts of the economy inflating while others a deflating? It's our contention here on ZH that we're facing issues that are presently unaddressed by existing central bank policy. And until recognized, there can be no solutions, remedies or tools to contend with these issues. Unfortunately, our leaders seem perplexed and doomed to simply use old solutions to new problems. 

The genie is out. It's just a question of time before Biflation is officially recognized on campuses across the country. When I was at Wharton, that's how the Monetarist revolution began. 

Mr T's picture


excuse me I would like to participate in this discussion and debate, can we all agree to just stick to facts please when you state:

"It's our contention here on ZH that we're facing issues that are presently unaddressed by existing central bank policy."

its very disconcerting, are you zerohedge?

I have been coming here for much longer then my sign up perhaps much longer than you. You do not speak for me and many other posters that I have read.

Perhaps the issues being addressed by the Central Bank are the issues They deem important, not you or zerohedge or any of us ?

Perhaps in your demand to reinvent the wheel you are missing out on a more important point?

This is the way TPTB want it.

Hexflation or bust, Controlled chaos,

Orly's picture

I think Mr. T is correct.  There have been ample opportunities even in this thread to specifically describe the term "biflation" and all I have heard are references to what it is not and nothing as to what it is.

And no, you're not ZeroHedge, as I, for one, don't associate myself with your words- mainly because they aren't saying anything.


TonyV's picture

 Caviar Emptor,

Based on what you just said, Ben Bernake must love Biflation. By pumping money into the system, he can punish China or other countries where food and gas counts for a much bigger part of a family budget, while keeping inflation somewhat in check here in the US. Sounds like a dangerous game but it has worked for him so far.

Neo-zero's picture

A very dangerous game.  How long will these other nations allow themselves to be taken advantage of by Bernake and company!  How long would you let your family starve before you did something about it.


I read somewhere that the Chinese (the peasants at least) at nothing but rice for 6 months to pay back their debts after WWII.  With willpower like that not exactly the kinda people you wanna stiff.  Once Bernake is done destroying the dollar and ruining our reputation across the world the one card we will have left to play is that the world still needs our food production capacity.  

Caviar Emptor's picture

Yes. There's a geopolitical aspect, but it can cut both ways: China and US are tangled in 'mutually assured financial destruction'. Fed is hoping there's an easy solution and that China can 'pull the US out of recession'. Unfortunately, there are too many asymmetries for that simplistic solution. 

Caviar Emptor's picture

Exactly, Dismal. Wage deflation (in real terms) is a distinguishing feature from '70s Stagflation, and a defining feature of Biflation

Neo-zero's picture

Caviar have you read Harry S Dent's the great depression ahead, you might find it interesting.  He talks about demographics as the reason for the boom bust cycle's.  He tracks the spending cycle of baby booms and it matches up pretty nicely even though his predictions are mixed at best.

Beatscape's picture

Mr. T is getting mohawk in a wad over semantics... Call it biflation, duoflation, tooflation, or middle class in a visegrip.  It consists of wage deflation, in great part due to globalization wage equalization, a housing double-dip and large flat screen TVs.  On the inflation side, you have a rise in utilities (gas, gasoline, electricity, water) a rise in health care costs, college tuition and local tax rates.  The cost of living has gone up, while wages have dropped.

Dismal Scientist's picture

Excellent, thank you JohnG. Biflation it is.

Bearster's picture

I think conventional economics has a good reason to make people think of "inflation" in terms of rising prices.  It distracts attention from inflation, and its ruinous effects (such as the boom and bust cycle, malinvestment, capital decumulation, etc.)

Inflation is an expansion of credit in a fiat money system, deflation is the opposite.

Obviously some prices will rise and others will fall, that has always been true.  Take a look at the PC, and tell me prices haven't been falling for decades.

One can certainly do the analysis and look at credit contraction and its likely impact on prices (particularly assets).  And one can look at out-of-control money printing and its likely impact on consumer goods, particularly food, energy, and clothing.

But one interesting data point.  In the supermarket yesterday, I bought "individual serving" carrot cake, with fancy carrot designs on the icing, for $1.  I put "individual" in quotes because it was enough for 2-3 people.  Put that in your "prices are rising" pipe and smoke it...

Quixotic_Not's picture

Bankster Gangsters are doing their damnest to tread water using a *failed* model and MUST loot the Global Economy *until* Ponzi *debt* creation collapses and *stacked* gaming theory ceases to trick - Then, and only then will the *sovereign* emperors be *finally* seen as the craven and depraved inglorious basterds they *always* were.

Squeezing the last bit of ill-gotten profit has become a desperate addiction for the  perp skool bandits, and led by their King Ponzi Monkey, Ben the Bernank, they have *successfully* looted the U$ Treasury in broad daylight....

At some point *GAME OVER*, and The 'MeriKan Sheeple will become fully spooked upon realization that Pastures of Ignorant Bliss shall never 'gain be grazed upon, and they'll realize they missed da boat to self-actualization through duplicity, graft and brazent *taking*, having been upstaged by the Bankster Gangsters and their politikal lap-pets, the (D) & (R) Kleptocrats.

Let the wild-eyed stampede begin!

themosmitsos's picture

Frankly, I'm alarmed, because I agree with the 12mth outlook! :O!

Quixotic_Not's picture

No reason to be alarmed, 2011 will for all practical appearances lull the uninitiated into a state of calm, as the Ponzi debt game brings a false sense of *recovery*.

Let the games begin!

TexDenim's picture

I agree with Kostin also. We dump on GS all the time, but much of their analysis is dead on. They may be aggressive bastards, but they're not dumb.

Quixotic_Not's picture

True dat...they'd sell their Mama for a nickel bonus!

LeBalance's picture

From a marketing perspective charts going forward and rose colored glasses mean zip.  What I would want to see is every single prediction these folks have made for the past ten years (at least) and why (as a result) they think it is a good idea to invest with them.

But we already know GS's rep for raping their clients.

They are certainly oblivious to any need for PR or rep repair.  Strange.

Very strange.  Do they expect just to coast along?

As far as I can see they are a dead vehicle without a great rep.  (Besides the inside track of ownership that is.)

Nice charts though.

Though the use of the word "Exhibit" is odd, I usually use the word "Table."

Are they so paranoid as to know these "Exhibits" are going to be material to the case?


TheGreatPonzi's picture

I've never understood why Goldman continues to issue predictions, and why people read them. They have been plain wrong 100% of the time. Why this time would be different?


LeBalance's picture

Fishing for suckers!

"It is a crime to leave any money with the sucker." - W. C. Fields

TruthInSunshine's picture

Because they're still in the tulip & bullshit business, thanks to taxpayer bankroll.



Exactly, this will be the most useful dynamic to keep in mind for the first four months of 2011----after which another crunch.

knukles's picture

"They have been plain wrong 100% of the time."

Although it does depend upon the moment one observes the forecast, for it is ever moving, morphing, changing.  My actual experience, trying to pin them down, is somewhat akin to the Heisenberg Uncertainty Principle.  One neither knows where the froecast rests, where it has been nor how quickly it has or shall change for one is simply overwhelmed with all the rubbish accompanying the smartest people in the world.  

theprofromdover's picture

The Squid's navel-gazers, same old same-old. They poke about the embers of last night's fire, and try and predict tomorrow. But remember, all they are trying to do in the first place is to confuse their customers and steal the money.

To paraphrase the great Sunny Sue, 'if you only ever look in the rear view mirror, you won't see it coming'. Goldman to come a cropper in 2011; greed and stupidity, a decisive combination.

watmann's picture

Why would anyone expect anything different? GS is a marketing and sales company. They are no different that anyother consumer based company. They are suppose tp put fprth this sort of platform. What they do is no different than what every politician does. They tell you what you want to hear and then try to figure out how to kick the can forward.


This is no different than every other game we play. Wise up

TexDenim's picture

Much as I can't stand GS, Kostin predicted ES 1250 by year-end and he got 1257. Not bad. I admire the technical skills in the GS shop, it's the arrogance and Atilla-the-Hun recklessness that I could do without.

mtremus's picture

any thoughts on the metal Palladium's performance in 2011?

Tense INDIAN's picture

are the Chinese behind the SILVER MANIPULATION:::

TruthInSunshine's picture

So The JP Morgue is propagating that myth, now, huh?

Blythe desperation?

gwar5's picture

Yeah I saw that previously on Butler's site

He lives and breathes that stuff so I would not doubt it

Butler says it's even worse if China is helping JPM manipulate silver, JPM not off the hook

JPM would be a traitor committing fraud with a hostile nation against the nations interests

max2205's picture

Only one chart matters. Hold spx over 4 week ema. Sell below. Get with the program!

buzzsaw99's picture

When everyone, the squid, the msm, eCONomists, the politicos, even bill gross try to scare everyone out of bonds you know that the usa equities market is hanging by a fed spun string. If even the squid says the s&p is only going up to 1450 then I can afford to sit this "rally" out. nice try squid-men, time to trot out abby-baby. It's a man baby:

Kristian's picture

No mention of the silver or other pm manipulation. Are they still capable of putting pressure on the pm's, or was December the last month for that?

Doesn't seem to be an option that can be repeated ad inf. too.


CrashisOptimistic's picture

They threw in a crude price number because it can no longer be ignored, but I am curious about the sophisitication of the model of its effect on all the other parameters.

The US imported about 12 million barrels of oil per day in 2010.  US oil production peaked several decades ago so domestic production won't reduce that.

The point is this.  If GS calls for a $10/barrel increase, a decrease in unemployment (more commuters) and overall GDP growth (even more oil consumption) then with just a 1% consumption increase we have 12.1 mbpd consumption in 2011 X $10 =

121 million dollars/day MORE sent elsewhere or $3.6 billion MORE (than 2010) per month drained from the US economy.  

This is not a huge number, but it is a substantial number.  One wonders if it's in their model.  For six months it is $21.8 billion.  They call for an additional $10/barrel increase by EOY so that will be an additional $21.8 billion for a year's total of 

$21.8B + $43.6B or $65 billion dollars additional vs 2010 drained from the US in 2011 if the price hits those 6 month targets early in the 6 month segments.

The overall drain, of course, is $100 X 12.1 mbpd.  $442 billion/yr.

CrashisOptimistic's picture

Replying to myself in a curiosity tidbit.

To what extent will a $20 increase in crude prices wipe out the 2% decrease in Social Security taxes?

Avg American income $34,000ish/yr.  Times 2% = $680.  US total of employed workers: 

239 million

So 239million people X $680/person = $162 billion.

So an oil price increase of $20 will wipe out 40% of the 2% SS stimulus.

Note that the 34K number is influenced by a big chunk of workforce earning beyond the $SS contrib cap.  Note also that a significant chunk of the workforce (state govt teacher types etc) do not pay into Soc Sec.  So the 40% number is likely quite a bit low.

IOW, a $20 crude jack could negate most or all of the 2% stimulus.  I wonder if these models have that in them.

Ferg .'s picture

GBP/USD up around 1.8000 by the end of 2011 ? EUR/USD at 1.5000 ? I wonder if anyone here has a link to some of the past FX predictions from Goldman . I seem to have a recollection that they missed the mark to a considerable degree . I've given up on most longer term forecasts for FX . Back in November , when EUR/USD was trading above 1.4000 , I was reading articles from various analysts ( not referring to those at Goldman in this instance ) with predictions of the pair trading between 1.4500 - 1.5500 . In June/July , I recall outlooks that suggested a price anywhere from 1.1000 right down to parity .

ZeroPower's picture

Yes, FX guidance is among the hardest for research desks to provide. If i remember correctly it was GS themselves who called a 1.10 EURUSD when it hit 1.20 last summer...and just as quickly they changed it to 1.50 when it came back up to 1.40. Seems theyre still keeping the same reco from a few months ago..