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Weekly Chartology And Why Goldman's Clients Are "Confused" By The "Weimar Rally"
The just announced cut to both Q1 and H2 GDP by Goldman, as had been anticipated, has so far not dented the enthusiasm of chief equity strategist David Kostin, who just paradoxically keeps his 2011 yer end S&P estimate at 1,500 (and 12 month estimate at 1,525). Obviously, the economy no longer serves as the object "lead indicated" by the stock market, now that H2 GDP will eventually be cut to below "stall speed" in effect becoming a triple dip which will be rescued merely by one more episode of QE. And as Kostin points out, "confusion" is the key word prevailing among Goldman's clients who for two years now are unable to reconcile the ever weaker economy (absent monetary and fiscal stimulus) and the stock market. Actually, we will save Goldman's client lots of money in soft dollars and commission by calling it like it is: the Weimar Rally. From Kostin: "Investors are understandably perplexed regarding how to position portfolios given the cross currents of information. GDP growth during 1Q registered a lackluster 1.8% while sales, margins and earnings results positively surprised across most S&P 500 sectors. Analysts subsequently boosted EPS estimates for 2Q, 3Q and 4Q but the ISM manufacturing index appears to have peaked in February and is now decelerating. A high level of ISM growth favors cyclical parts of the equity market while a slowing rate of change signals investors should shift to more defensive sectors, although timing the rotation is not urgent."
More from Kostin's latest chartology:
“Confused” is the word that best describes the investing mindset of every portfolio manager we met during the past week. Hedge fund managers and long-only investors were perplexed about how to position portfolios given the severe cross-currents in the financial markets.
How does one invest when weak 1Q 2011 GDP growth of 1.8% occurs concurrently with a stellar 1Q reporting season punctuated by positive sales and EPS surprises across nearly all S&P 500 sectors? During the past few weeks ten-year US Treasury yields fell by 40 bp to a YTD low of 3.15%. A bond rally usually reflects deteriorating business conditions, but at the same time analysts raised 2Q, 3Q and 4Q revenue and profit forecasts to reflect a continued positive corporate earnings growth outlook.
Five days ago the S&P 500 had risen by 8% YTD to reach a 2011 high of 1363. This week US equities slipped by 2% with small caps down twice as much. Last week oil prices were similarly perched at a YTD high following a 25% surge in WTI and a torrid 33% climb in Brent since the start of 2011. Both oil markets plunged by 12% this week. Energy stocks fell by 7%.
ISM has remained above 50 (indicating expansion) for 20 straight months and above 60 for the past four months. However, the index may have peaked at 61.4 in February and is essentially unchanged over the past year so the business cycle signals are mixed. S&P 500 and most sectors pause around the ISM peak allowing time for investors to confirm a transition is underway and re-allocate portfolios into later cycle parts of the market. Around previous peaks S&P 500 has consolidated gains for about three months before resuming median positive returns of 13% as ISM falls from peak to 50. Every cycle is unique and return distributions are wide.
Today, our colleagues in US Economics research modestly lowered the trajectory of their GDP forecast for the next several quarters and also slightly boosted their inflation outlook for 2011. The quarterly GDP forecast changes trim the average annual 2011 GDP growth to 2.7% (from 2.9%) and to 3.2% (from 3.8%) for 2012. The revised Goldman Sachs Economic forecasts compare with consensus expectations of 2.9% and 3.2%, respectively.
We are maintaining both our current 2011 and 2012 EPS estimates of $96 and $106 and our year-end 2011 price target of 1500. Incorporating the lower GDP forecast into our sales and margin models has a roughly $1 per share negative impact on our 2011 earnings estimate that is offset by a higher EPS starting point following the strong 1Q EPS operating results that were $0.67 per share above consensus expectations ($22.08 on April 8th vs. $22.75 on May 5th). The historical seasonality of earnings means $23 of EPS in 1Q should translate into full-year EPS of $96. Bottom-up consensus EPS for 2011 has risen to nearly $100.
A 50 bp reduction in 2012 annual average GDP growth would trim 2012 EPS by roughly $2. For context, a 25 bp swing in profit margin also impacts EPS by $2. Our 2012 EPS estimate of $106 compares with consensus of $113.
The S&P 500 has been flat during the past month but significant internal rotation has occurred with the traditionally defensive sectors of Consumer Staples and Health Care outperforming. In our April 13th US Equity Views report New 3-, 6-, and 12-month targets reflect 5%, 8%, and 16% returns we shifted away from a purely pro-cyclical bias (lowering Financials to Neutral) and moved closer to benchmark (reducing the size of our Underweight in Health Care). We currently remain Overweight Energy and Information Technology, so we still have a preference for growth particularly via foreign sales. A business cycle transition would support a shift in our stance.
In terms of sector baskets we are closing our long Cyclicals/short Defensives pair trade. Since initiation on December 1, 2010 the trade has returned 190 bp (12.5% vs. 10.6%) vs. 11.5% for S&P 500). The trade has lost 530 bp in five weeks with Cyclicals falling 1.3% and Defensives rallying 4.0%.
Full note:
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Goldman should be ecstatic- "confused" fund managers pay top dollar for guidance. Of course the same "confused" fund managers could come to ZH and pay a similar tribute to that they give to Goldman and be far better off for it, but alas they are "confused."
http://fofoa.blogspot.com/2011/05/costatas-silver-open-forum.html
Costata's Silver Open Forum
Worth the long read if you favor silver over gold
Wow, that's a lot of info to present to come to the conclusion (IMHO) that trading paper is dangerous.
I'll stay physical and "trade" the swings in the GSR, et al.
I'm using the casino's chips at this point and diversifying to other asset classes (mostly positive cash flow RE) with a % of the profits. Core metal position keeps growing so I can help some of those who won't listen get through when there's a collapse.
Long - for sure.
He brings up some interesting thoughts and after pondering them it seems to me that yes, the notional value of Ag is highly volatile, manipulated, and out at the fringes here we are only bozo's on this bus. We may be Blythe's bitches in flow but it all comes down to the fact that TPTB are conjuring up thousands of notes that are accelerating to worthlessness for every ounce of silver and gold that has ever been and will ever be extracted from the earth or the near asteroids in my lifetime.
"Notes that are accelerating to worthlessness" - sounds just like all unbacked currencies to me. If you see my nick's face on the $500 bill again it's a sure sign that the change in acceleration (jerk?) is increasing.
It's all bullocks!
Who at this point gives a flying fuck to what conclusions this myriad off fudged numbers lead to. It's a total and utter waste off time and effort.
LMAO
I don't give a shit, a fuck and a rat's ass on top of it !!!
Darn.
careful, _stein! it's mother's day, here.
hi, mom! he didn't mean it about us, ok?
Was GS right in 2008? Did they correctly call the Big Drop in that year?
That's all I want to know...Did they call the big drop in 2008? Or did they, in 2008, sound similar to the way they sound now....just curious in case someone happens to know.
Clearly Goldman's "Clients" are not clients by choice. Else, what is not clearl about whose good the relationship works for?
If they are client's by choice, they deserve their losses.
Interestingly, all the macro factors of the US situation are already becoming visible in India, but the press is not talking about it to much, yet. All the factors. But we are nto old enough as a nation to really question the deep issues, stuck as we are in minutae.
ORI
http://aadivaahan.wordpress.com/2011/05/06/movement-water-radioactivity-etc/
Goldman Sachs should understand that the Federal Reserve Note is nearing its life expectancy being apart of the ponzi scheme. I am looking for a new currency push in the next two years, as the news and acceleration of the rejection of the Federal Reserve Note seems to be picking up.
http://thehardrightedge.com/endofdollar/
Audit the Fed, Support HR 459.
Ron Paul 2012
Boy that Timberwolf was one shazitty deal.
LOL. You just love rubbing that in don't ya. :))
Whenever Bernanke has a major speech, you can count on the gremlins in the basement of the Fed to goose the indices with Zimbabwe Dollars. That rally the week he did his news conference was totally engineered by Bernanke and his henchmen. And it was totally bullshit.
"GDP growth during 1Q registered a lackluster 1.8% while sales, margins and earnings results positively surprised across most S&P 500 sectors."
Banquo's Ghost at this festive banquet must be our fair cousin, Revenues, whose buxom figure is sorely missed.
Eat my pants, I'm short your house.
Winning !
Here's a hilarious animation exhorting folks to get even against the banksters and government: http://thesilvergoldhedge.blogspot.com/2011/05/join-sla-to-get-even-and-regain-your.html
he writes that his "colleagues in Economics research modestly lowered the trajectory of their GDP forecast for the next several quarters and also slightly boosted their inflation outlook for 2011."
then, he goes into their adjusted growth figures, and not one word about inflation.
isn't this exactly the same kinda inflation-caused multiple/valuation "confusion" that sean carrigan's piece postulates?
why tf is he still beating the GDP^^^ drum and getting into counter-cyclical definsive positions? i'll bet they're not shorting the 10 & 30 like gross!
adjust the projected GDP "growth" for inflation. ouch!
better to "adjust" it via deflation for 6-18 months, but, of course, the FED knows better & best, and they have that invention...
and tyler: 2H GDP est's to soon be cut below "stall speed" is fabulous: +++!
extra becquerels for tyler!!!
Disturbing.
Changing the Q1 forecast.
"cross current" of confusing data?? There's no confusion; at least not for those who see things clearly, as this animation featured on MaxKeiser.com makes clear:
http://thesilvergoldhedge.blogspot.com/2011/05/join-sla-to-get-even-and-...
I love statistics..the easiest way to lie with some truth. Governments and charlitans use them to no end. It all depends on who draws the lines and who determines the outliers.
http://www.silverbearcafe.com/private/05.11/destiny.html
The clown author of the link provided above makes no reference to the manipulation of the market (margin increases), only a statistical farcical analyticalism suggesticism, wilber be damned, just a bunch of i got a degree charlotte's web.
Here's what turd has to say...
http://tfmetalsreport.blogspot.com/2011/05/readers-idea.html
Charts are what we make of them, and some are more altruistic than others.