In a stunning turn of honesty, Goldman's David Kostin does a 180 and renounces everything that the Fed wishes the gullible public would swallow hook line and sinker. But first the facts: while the strategist has no choice but to raise his 12 month S&P forecast (this is a new development for all the headline chasers) from 1,250 to 1,275, which is a token nothing compared to the recent 12 month gold price boost from $1,365 to 1,650. This merely reinforces the Zero Hedge view that gold has now become the natural, higher beta, and unlimited upside short hedge to stocks. Indeed, a 1% boost in the S&P PT, is meager compared to the 20% expected gold appreciation. And digging between the facts, we encounter this stunning admission, that would force all current and former Fed chairmen to spin in their graves, assuming a deceased state is attributed them all: "The economy is not the market and QE2 is not a panacea." Read that again, because this is only the first time in history a sellside advisor, especially one who works for Goldman Sachs, has said this truth so fundamental, that nobody actually dares to admit it, least of all the public or the Fed. Below, we present the latest strategy piece by David Kostin which is probably about the most bearish note released by the traditionally permabullish successor to Abby Cohen.
Some rather scary predictions out of Paul Farrell today: "It’s inevitable: Wall Street banks control the Federal Reserve system,
it’s their personal piggy bank. They’ve already done so much damage, yet
have more control than ever.Warning: That’s a set-up. They will eventually destroy capitalism,
democracy, and the dollar’s global reserve-currency status. They will
self-destruct before 2035 … maybe as early as 2012 … most likely by
2020. Last week we cheered the Tea Party for starting the countdown to the
Second American Revolution. Our timeline is crucial to understanding the
historic implications of Taleb’s prediction that the Fed is dying, that
it’s only a matter of time before a revolution triggers class warfare
forcing America to dump capitalism, eliminate our corrupt system of
lobbying, come up with a new workable form of government, and create a
new economy without a banking system ruled by Wall Street." And just like in the Hangover, where the guy is funny because he's fat, Farrell is scary cause he is spot on correct.
David Kostin, traditionally the most optimistic person in the world after A.Joseph Cohen warns clients that the best market performance September in 70 years may be a one-time event, and that in advance of another turn in economic indicators, it may be prudent to lock in profits. "Looking ahead we see the potential for US-MAP readings to again turn negative. Our US Economists expect the two MAP inputs with the highest relevance scores (US ISM and non-farm payrolls) to weaken into year-end. If realized that outlook would be negative for US equities and consistent with our more defensive sector weights." Nonetheless, it is pretty obvious that the apocalypse is now firmly priced in. And as we all know now, the only entity that everyone is frontrunning is the Fed, becase as Tepper so well put it, stock can only go up. That said, Zero Hedge Structured Finance, in collaboration with some very secret and anonymous hedge funds, has some Arizona-desert bridge backed CDOs to sell to Mr Tepper and everyone else buying that gobbledygook.
One can just smell the revulsion emanating from the pages of David Kostin's writings these days. While his predecessor, Joseph Cohen, can serve the crazy juice on CNBC on a daily basis, Goldman's strategist is forced to follow the grand master plan and telegraph to clients just how ugly the future seems. And with prop allegedly no longer a main revenue driver, and thus holder of securities, Goldman better hope volume makes up for the loss in directional bias - what better way to score volume than to incite some fear and loathing. As Kostin said: "We shifted to a more defensive sector allocation this week in anticipation of slowing economic growth indicators and downward revisions to consensus earnings and real GDP forecasts. These changes put us at odds with bottom-up consensus EPS and large cap core mutual funds, particularly in our Consumer Staples Overweight vs. Discretionary Underweight where mutual funds hold the opposite position." Goldman's 2011 earnings forecasts are most below consensus in growth-sensitive sectors such as Consumer Discretionary which is 23% below bottom-up consensus while both Energy and Materials stand 10% to 15% lower. Whether this means to buy every Consumer Discretionary share or sell, depends on just how quickly the Goldman prop roll off is proceeding. All this and all the other must see weekly charts included.
As our economy hurtles towards its meeting with destiny, the political class seeks to assign blame on their enemies for this Greater Depression. The Republicans would like you to believe that Bill Clinton, Robert Rubin, Chris Dodd, and Barney Frank and their Community Reinvest Act caused the collapse of our financial system. Democrats want you to believe that George Bush and his band of unregulated free market capitalists created a financial disaster of epic proportions. The truth is that America has been captured by a financial class that makes no distinction between parties. These barbarians have sucked the life out of a once productive nation by raping and pillaging with impunity while enriching only them. They live in 20,000 square foot $10 million mansions in Greenwich, CT and in $3 million dollar penthouses on Central Park West. These are the robber barons that represent the Age of Mammon
The SEC’s crackdown on the State of New Jersey this week for misrepresenting the condition of its pension funds has cities and states scrambling to make sure their pension disclosures are in order. Is this the tip of the iceberg?
Keynesian stimulus can’t be blamed for all our problems, but it would have been nice if our politicians hadn’t relied on it so blindly. Debt is debt is debt, after all. It doesn’t matter if it’s owed by governments or individuals. It weighs on the institutions that issue too much of it, and the ensuing consequences of paying off the interest costs severely hinders governments’ ability to function properly. It suffices to say that we need a new economic plan – a plan that doesn’t invite governments to print their way out of economic turmoil. Keynesian theory enjoyed a tremendous run, but is now for all intents and purposes dead… and now it’s time to pay for it. Literally. - Eric Sprott
Things in the middle east are back to normal (which means the usual deadly massacre), although with a twist. An earlier rocket attack on the Israel port city of Eliat missed its target completely, and instead slammed into Aqaba, in neighboring Jordan, located 6 miles away just over the border. Instead of firing the rockets from Israel and prompting immediate airborne retaliation, the launch point for today's attack was Egypt, which prevent Israel (or should that be Jordan) from retaliating. Sky News reports that the reason for the shelling is connected to a recent agreement that will see the Palestinian authorities talk face-to-face with the Israelis, and radical elements, who do not want that to happen, are escalating the violence as a means to stop it. It is unclear if Jordan will also escalate now that its own territory has been impacted in the ongoing conflict, and it is also to be seen how Egypt will react should it become perceived as a peripheral zone of cross-border attacks.
As the world focuses its attention on Europe where tomorrow at 4pm GMT (the idea of an earlier release was scrapped) the results of Stress Test version Europe will be released, there are two types of pundits: those who know the tests are weak and have been designed by the very banking system they are presumably supposed to test, yet due to billions of dollars in vested interest are preparing to put on a cheerleading show that would leave the Laker girls green with envy; then, there are those who know the tests are weak and have been designed by the very banking system they are presumably supposed to test, and as a result refuse to even look at them due to advance knowledge they are nothing but a systematic farce which should achieve nothing, yet will likely provide a sufficient excuse for those who lift every offer regardless of cost to send the market to A. Joseph Cohen giddyness levels (at least if our own experience with stress testikng is any indication). Needless to say, we fall in the latter category, and would be more than happy to deconstruct these tests, if only the criteria were publicly known in advance! So for those who actually do pretend to care, here is a Q&A with Goldman Nick Kojucharov in which the Goldman analyst discusses the ins and outs of the Stess Test. And since it has been leaked that the only bank which will fail is Germany's permabankrupt Hypo (even as the Cajas, Landesbanks and Greek aluminum shacks with a backyard vault and a repo line to the ECB, all pass), the only part of the Goldman report that caught our eye was the following: "There is obviously the risk that if too many banks pass and do so with a comfortable margin, the test may be judged as too easy to have actually been informative about the strength of the banking system, and markets may not draw any new comfort or optimism from the exercise."
John Hussman Asks Why Michael Darda Shaved Off His Beard, Explains Why NIPA Profits Are Completely IrrelevantSubmitted by Tyler Durden on 07/19/2010 14:03 -0400
Two weeks ago John Hussman appeared on CNBC in a segment in which he had the (dis)pleasure of deconstructing Michael Darda's permabullish argument, which has been virtually unchanged and cosmetically rehashed ever since Darda went John Holmes in 2007 at the very peak of the market (Hussman also sparred against James Altucher, but that was pure torture under any iteration of the Geneva Convention or the Basel Treaty, and we will spare our readers the result - masochists can see the clip here). 30% lower and nothing has changed. Which is why in his daily letter, Hussman has some much needed qualifiers to debunk the Darda argument which is as wrong now as it has always been. Tangentially, Hussman has a question for Darda: "just before the market plunged by more than half, [Darda] asserted "the fundamental underpinnings of stocks are superb." He later appeared on CNBC in January 2008 sporting a beard, asserting that all of the recession talk was overblown, and telling a reporter at TheStreet that he would not shave the beard "until the recession talk ends or housing recovers, whichever comes first." As of a couple of weeks ago, he had no beard, which was perplexing." Hopefully Larry Kudlow can ask this question of Darda (and AJ Cohen) next time he has his favorite permabullish cheerleader brigade on deck. The full clip of Hussman's unfortunate encounter with a very clean shaven, and oddly smug, Darda can be seen here.
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.
From next January increases in UK's private pensions will be linked to the Consumer Price Index (CPI) instead of the Retail Prices Index (RPI). Ministers insist the switch in the way annual pension increases are calculated was a technical change that would have little impact on incomes. But a backlash is spreading among pensioners, savers and experts who say it's another covert raid on the savings of Middle Britain.
In what is surely one of the more unusual approaches to a pensions shortfall, Diageo, the drinks group, has offered up a veritable lake of its whisky as collateral for the growing shortfall in its benefits scheme. In my opinion, this is a bad idea. If pensions want to drink themselves silly, they should be focusing on the liquidity tsunami driving risk assets higher.
On March 13, David Kostin boldy went where A. Joseph Cohen has gone so many times before, by becoming the best contrarian indicator around. To wit: "Investors we met this week remain bullish in both outlook and
positioning, consistent with our view. We expect S&P 500 to
rise to 1300 by mid-year (+13%), before ending 2010 at 1250 (+9%)." Kostin missed his target by 30% in 3 months. We are not sure if even his equally capable predecessor, AJ Cohen, was as skilled at so wholesomely raping and pillaging the P&L of the firm's few clients who still are terrified to utter a squeek of disapproval against the monopolist for fear of losing those oh so precious trading axes, formerly rightfully belonging to GS archrivals Lehman and Bear Stearns. Luckily, we have Christine Varney keeping an eye on such market monopolistic behavior.
Another Day, Another Loss For Goldman Sachs Clients: Latest GS FX Reco Stopped Out With 0.8% Loss In Just 3 DaysSubmitted by Tyler Durden on 06/23/2010 21:50 -0400
Goldman's Thomas Stolper is not having a good year. Or rather, Thomas Stolper is having a blockbuster year, Goldman clients who listened to Tom Stolper are scraping the bottom of the GoM. Pretty much every single trade conceived by the Goldman FX team ends up stopping out with clients ending up on the losing end. Tonight is just such an example: "$/PHP closed London at 46.10, above our stop and leading to a potential loss of 0.8%." The trade was initiated on Monday. 0.8% in 3 days. Annualized that's just under a 100% loss. Clients 0 - Goldman + ∞.