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Weekly Chartology And Wishful Thinking From Goldman
David AJ Cohen replacement, DK, continues to be shocked, shocked, by the market's behavior: "Arguably the S&P 500’s recent 7% rise heading into earnings season largely discounted much of the earnings upside. But it is not a positive sign when firms such as the Industrial firm W.W. Grainger (GWW) posts strong results with June US organic sales up 12% year/year and July tracking in-line with June so far and the shares close essentially flat on the week." He explains this "inconsistency" as follows: "As noted, investors are intensely focused on the profit outlook for 2011. Investors are currently worried about the trajectory of US economic growth in 2H 2010 and the possibility of a double dip recession in 2011. Scrutiny is being directed to how various economic scenarios will affect 2011 EPS." At the end of the day Kostin tries to remain cool, calm and collected, and throws out the zinger that he sees nearly $100 EPS in 2011 in a time when even Goldman admits GDP growth getting us there would be 1.5% in H2 2010 and 2.5% in 2011. Good luck. Also included are the usual plethora of pretty charts.
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Too bad the FED does not publish M3 anymore--then there would be less confusion about what is happening right now...
http://www.shadowstats.com/imgs/sgs-m3.gif?hl=ad&t=1278730153
Very interesting to see M1 and M3 falling off a steep slope, yet M2 is expanding since late spring of this year.
Summary is "GO SHORT"! Contrarian indicator of epic proportions! I would really love to know whose butt they pull these expected EPS's with the global economy slowing again (like late 2007). Top line growth seems to still be anemic (except in cases where the anal-ysts lower expectations the week before). It is obvious that the economy is a three legged stool, and one of the legs keeps shriviling up. We have masses falling off of UI since the extension expired, credit markets still frozen, and now sovergin debt has finally hit the spot light. Thinking that the S&P should be in the 1000's is a pipe dream of Pixar. You know the end is neigh when Greenshart says to let the Bush tax cuts expire.
Bill "Kool Aid maker" Gross is out there telling everyone ("serving the Kool Aid") that Pimco had raised its holdings in US government debt, almost daily.... if you are going to keep buying something aggressively, would you do that???
He usually does this and then a couple of weeks later is out there saying that Pimco is light on US holdings. He did the same with German debt a couple of weeks ago.
The rich are running to money markets, and the money markets are rushing into short term bonds.
With all those pretty charts plus the "Goldman" name behind him (or maybe us!) how can he possibly be wrong?
I'm sold.
Zero Hedge was mentioned in Barron’s.
"WE'RE INDEBTED TO ZERO HEDGE for a P.S. to the above. It cites a recent piece in the South China Morning Post, in which an economist at the Chinese Academy of Social Sciences reports that, based on readings of electricity meters, there are 64.5 million empty apartments and houses in the country's urban areas.
That, declares Zero Hedge, is five times the roughly 12 million vacant habitations (including shadow inventory) in the U.S. In other words, Zero Hedge exclaims, "China is covertly funding and creating a housing bubble at least five times as big as" our own late and unlamented housing bubble before it burst and left both housing and the economy in tatters.
An incorrigible optimist, we reckon that the consequences of a bust may prove only twice as bad in China as they did here. But why doesn't that make us feel any better?"
http://online.barrons.com/article/SB500014240529702032960045753632905460...
ZH FTW
Annaly Capital Management posted this yesterday on the Salvos blog, (link to article with charts http://annaly.com/blog/2010/07/16/FridayDataDumpDisappointingDeflationaryDoubleDip.aspx ):
July 16, 2010There was a heavy economic data schedule in the back half of this week.
On Thursday we got Industrial Production (IP) and Capacity Utilization (Cap-U) for June, along with Philly Fed Business Conditions and Empire State manufacturing surveys for July. The Empire State survey dropped to around 5 from near 20 in June, and Philly Fed dropped to 5.1 from 8, both of these well below expectations. Although IP and Cap-U have been steadily improving during the prior year, both stalled in June. Given the correlation between IP and the Philly Fed survey, shown below with Industrial Production lagged 6 months, we expect headwinds for the manufacturing-led recovery in coming months.
It’s hard to imagine another plunge in Industrial Production like the one in 2008. Production is already back to levels first seen in 2000, a full decade with no advance in production, and inventories have already gone through the correction process (as evidenced by the sales/inventory ratio). But it seems obvious that recent growth rates are unsustainable, particularly in the absence of a real pickup in final sales.
This morning, consumer price data was released. The Consumer Price Index is rolling over, falling for 3 months in a row, and is now at roughly the same level as it was two years ago. The year-over-year growth rate looks to be heading back towards zero.
Maybe the 10yr at 3% isn’t so rich after all.
Friday morning also brought fresh weekly ECRI leading index data. The debate about a “double-dip” recession has been deafening, but according to this index, we seem to already be in back-to-back recessions that are worse than the 1980/1982 experience.
The ECRI data series only includes just over 40 years of data, the blink of an economic eye, but the recent behavior of this leading index is disconcerting.
We’re still early in earnings season, but several big banks reported earnings before the market open on Friday. Citigroup posted earnings of $2.7 billion (which contained $1.5 billion of loan loss reserve release, and around a $1 billion of positive asset markups) and Bank of America came in at $3.1 billion (including about a $1.1 billion pretax gain from asset sales, a $1.2 billion pretax gain related to Merrill Lynch structured notes, and enjoyed a benefit from having loss provisions trail charge-offs by about $1.5 billion). Despite beating expectations, these results failed to inspire investors, perhaps because of the earnings due to one-time, non-operating gains and reserve releases. When referring to his own company’s gains from reserve releases, JPM’s Jamie Dimon said “It’s just ink on paper. It means nothing.” These reserve releases are dependent on improving credit, which is dependent on a continued economic recovery. Bank of America CEO Brian Moynihan said “Our experts don’t believe there will be a double dip.”
The risk that these experts are wrong seems to be rising.
CPI is falling because credit binge items are seeing massive decline in demand, reflecting a near liquidation in effect on prices.
Essentials such as oil or gasoline, not. Premium still at or above $3/gal.
When the inventories are worked through, prices will reset higher and permanently. This is the way it is throughout the 3rd world.
The ONLY silver lining is that housing and land in a lot of these places is comparatively cheap. Locally produced food is also affordable but indexed to incomes, it's pretty much the same everywhere.
Trust me: supply AND production WILL come down to meet demand. We're on the backside of a production glut fed by a demand bubble. The "deflationist paradise" will not last forever.
"...and expect the S&P 500 will rise to 1250 (+14%) at year-end 2010."
the algos could push the S&P to 1250 next week. who knows anymore. well, i guess a few people know, but they aren't the 4 authors of this crap.
How can a guy who's company is responsible for HFT and tools ..."that may manipulate the market in unfair ways" be shocked by market behavior?
Becuase he is in reality "Jack's lack of surprise".
@carbon
it's time to free sergei from those gobermint controlling scum buckets. looks like his lawyer filed a new motion:
http://www.businessweek.com/news/2010-07-16/ex-goldman-programmer-wants-...
Totally!
This is probably the dumbest question ever asked, but how is it that ZH gets away with publishing, what is, presumably, propriety information from Goldman? Don't clients pay big bucks for this information? Is ZH a client, if so, does ZH have "express written consent" to publsh this? Why would GS allow this to go on?
Been reading ZH for months, and the amount of "research" from GS that gets published here is curious.
I can only guess at some factors at play, and perhaps even your question(s) were rhetorical:
1. Most of the research provided is relatively generic. The really important clients get strategy huddles in advance of wider dissemination. If you are reading this sort of stuff at the time of "publication" you aren't a very important client. You just get to talk about your "account at GS" at cocktail parties.
2. GS gets the most publication (guessing) because it's the most prestigious firm, but arguably provides the worst returns to clients. See Whitehall funds, Cap Partners funds, forex trades, etc. GS seems to really well for themselves (trading on early looks of order flow, against/in front of books of clients, etc.) but the "prowess" doesn't transfer to client accounts/advice.
3. GS is bullish - even rosy - in their outlook, arguably without discussing the macro risk to clients (even perhaps short selling while still being publicly bullish, see CDO's, CDS, Abacus, etc.), and at the very least has an outlook inconsistent w/the ZeroHedge consensus.
4. Since these are generic research pieces, it probably is better to allow ZH to post them than to fight the copyright/permission status. To fight something is sometimes to give it validity.
5. GS has argued with ZH on at least one matter lately (asking for a correction on something), but again it probably inflamed the matter as opposed to really settling it.
6. The revolving door between government and GS is well-known. Former GS staffers are wide-spread in Washington. Clearly, GS got bailed out by the government, with lots of shady dealings going on, but refuses to acknowledge they were bailout out (and constantly argues against this point). So, therefore GS is one of the firms that most represents all of the wrong-headed linkages between corporations and politicians, etc.
I might not have even addressed your question. Sorry for blabbing on...
trader, yeah..all plausible answers, I get the whole "vampire squid" meme.
I just can't help but question whether this isn't some crazy rope-a-dope, reverse phsycology thing going on here. ZH readers minds are being polluted with pure crap from GS, which leads to more F.U.D.
(This is just a hangover from lastnight, I saw Inception, great flick, but man the concept will f*ck with you.)
+10 on Inception
We got ideas for the sequel..
This stuff is sent to GS clients - ie every decent size hedge fund and prop desk on the street who express an interest. I have received it at previous points in my career. Nobody ever said "hey don't pass it on, this is secret, it's the good stuff". Individual pieces or research teams may get good reputations, but only if their ideas make money. Most don't. Thats probably a good thing to know when you read this stuff - mostly it isn't the good stuff. Its more like advertising for client business.
I hate to bother even commenting on this drivel, but:
1. They dated the report today, but discussed the market performance through Thursday, omitting the Friday reckoning.
2. I wouldn't use the word "generate" when revealing your negative alpha.
3. "late recovery phase" - did you get that from your super secret proprietary economic model?
4. Amazing that all of this time and effort goes into trying to convince the client that you know what you are talking about. Blizzard them with your crystal ball. The money management industrial complex. Yikes.
the lies are so blatant--good news is that America DOES have a gut to listen to and the thieves will not win!!!
Updated DOW chart:
http://stockmarket618.wordpress.com
anyone noticed that advertising/marketing has been down since the brief upturn in late 2009 according to: Google Advertising & Marketing Index
Anyone else hate Scribe?
I just want to click on the document and have it open - not have to jump through some other hoops to get it to open.
Would someone give Geithner some market research for cryin' out loud!
"Throw me a freakin' bone here!" -BS Bernanke