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.