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Goldman Issues Top Trade #9 For 2013: Go Long UK Equities

Tyler Durden's picture




 

While we all eagerly await for the final 80 pips in EURUSD to trickle down before Stolper's latest "long EURUSD" masterpiece is stop lossed out in under a week and precisely in line with expectations, here comes Goldman with its latest fade reco, this time in the form of a "Top Trade for 2013" (supposedly this means an epic muppet steamrolling instead of just the occasional Kermit speed bump), namely to go long UK equities (the FTSE 100 Dec 13 futures) with a target of 7100 and a stop loss below 5950 (or 6% lower). If Stolper is any guide, this should be the easiest 6% imaginable. Of course, the hypocrisy of Goldman upgrading the UK market following its tentacle being appointed to run UK monetary policy, and the Bank Of England, with the sole purpose of boosting the UK "wealth effect" (and Goldman bonuses), does not escape us...

From Goldman:

Trade Update: Top Trade Recommendation No. 9: Long UK Equities (FTSE 100 Dec 13 Future)

 

We are recommending going long UK equities via the FTSE 100 Dec 13 Future for a target of 7100 (approximately +12%) and a stop on a close below 5950 (approximately 6% below the current level). We noted the strong arguments in favour of UK equities for the second half of the year in our recent Global Economics Weekly, and we now follow up with a trade recommendation. Three primary reasons drive this recommendation.

 

First, the UK economy looks to be on an upswing. The manufacturing PMI surveys have now improved for four successive months, while the services PMI survey has improved for six consecutive months and has reached its highest level since March 2011. Mortgage approvals have also risen in recent months as effective interest rates have fallen, and the latest quarterly credit survey for Q2 indicates a further easing in household and corporate credit availability, as well as an increase in demand for lending.

 

Second, monetary policy looks likely to ease further. In a fairly dovish statement on Thursday, the Bank of England, led by new Governor Mark Carney, indicated that despite the improvements in the domestic economic dataset the implied increase in the future path of market interest rates was unwarranted. In addition, as also indicated in the statement, the BoE is to consider more explicit forward guidance at its next meeting in August, and our UK economists expect some form of economic ‘state-contingent guidance’ to be adopted. This trend towards providing greater accommodation as the economic data improve is a clear difference from the US, which is likely to embark on a process of withdrawing accommodation in the coming months.

 

Environments of improving growth and easing monetary policy tend to be equity-friendly, and we would also highlight that in past episodes of unconventional easing of this type, both in the US and the UK, the longest-lasting and clearest impact has tended to be on equity markets, with the FX and bond yield impact tending to be shorter-lived.

 

Third, our forecasts also envisage a gradual stabilisation in Euro area growth in the second half of the year. As one of the UK’s largest trading partners, the gradual improvement in growth here should also be a tailwind for the UK economy and UK markets.

 

The risks to this trade are, to a degree, the reverse of these arguments. Economic improvement in the UK may stall (as it has done in recent years), the high expectations of monetary easing from the BoE may be disappointed, and the risk of fresh political crises in the Euro area is still present, as we have seen in the past week, and may increase after the German elections in September.

 

Another risk relates to whether the FTSE 100 is the best way to gain exposure to the better UK economic story. The FTSE 100 is an international index with significant weight in EM-exposed commodity sectors, which we would otherwise seek to avoid. In this sense, the FTSE 250 would be a cleaner implementation of some of the themes discussed here. But, as Sharon Bell pointed out in her Strategy Espresso “UK: Strong data, New Governor, Equities Flat”, the international exposure of the FTSE 100 is also, in part, to the Euro area and the US, where we expect economic data to improve. Moreover, in the recent sell-off the FTSE 100 underperformed its typical beta, so we believe there may be more room to catch up.

 

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Fri, 07/05/2013 - 06:47 | 3722934 achmachat
achmachat's picture

Did we figure out who exactly still volunteers for muppet duty?

Fri, 07/05/2013 - 06:48 | 3722936 CPL
CPL's picture

Suckers and chumps mainly.

Fri, 07/05/2013 - 07:13 | 3722946 GetZeeGold
GetZeeGold's picture

 

 

UK what?

 

Like do it on purpose?

 

A game of Russian roulette seems a little saner.

Fri, 07/05/2013 - 07:31 | 3722968 PT
PT's picture

achmachat asks, "Did we figure out who exactly still volunteers for muppet duty?"

On this side of the sphere we have this thing called, "Compulsory Superannuation".  I guess that would answer your question somehow, but I could be wrong.  I really don't know.  Anyone know of any super funds working via Goldman and Co?

Recently the givemint increased our compulsory contributions from 9 to 12 percent.  I'm still trying to figure out what kind of hole they were trying to plug up ...

... and how long it'll be before they need to plug up another one ...

I don't know where to start.  Any hints?

 

Fri, 07/05/2013 - 06:52 | 3722939 jubber
jubber's picture

with Irish banks finally coming under scrutiny four years after the event and getting a fair bit of press at last, (hats off to reggie Middleton}, it is very likely that this is likely to blow up in the coming months, the caveat here is that good ole RBS &  Barclays , etc are up to their necks in this shite, so i would tread carefully if detonation is looming...also don't forget the small case of £9 + Trillion debt NO ONE EVER mentions

Fri, 07/05/2013 - 06:59 | 3722942 CPL
CPL's picture

It's because Europeans still know what a trillion means after being given so very little for what they've paid in taxes all this time.

Fri, 07/05/2013 - 07:15 | 3722954 Ghordius
Ghordius's picture

don't get me started on taxes, in europe. family members in America sometimes faint when I tell them how much we pay

btw, you know that in most of the continent those words like billion and trillion mean something different? Here, Long and Short Scales

Fri, 07/05/2013 - 07:01 | 3722943 eddiebe
eddiebe's picture

A bit of support for their boy Carney, he needs it.

Fri, 07/05/2013 - 07:03 | 3722944 mayhem_korner
mayhem_korner's picture

 

 

The UK economy is on the upswing and more monetary easing is expected

Apparently, blind faith consumers of Goldman's rest-your-head-on-this-guillotine advice have not passed Things that Don't Go Together 101 at muppet skool.

Here's what this really says: 

WE control the UK equities market.  WE are going to allow it to rise over the next couple weeks to create a frothy environment to sucker all you momentum-chasing sheep into the slaughter pen.  Then WE are going to pull the plug and cash in on all the FTSE shorts and puts WE are placing under the false summit to transfer your wealth and maximize OUR year-end bonuses. 

Questions?

[Edit - Drone just hovered by...had a Lloyd '16 bumper sticker on the tail]

Fri, 07/05/2013 - 07:06 | 3722948 spanish inquisition
spanish inquisition's picture

Right now he's kind of like the anti blue horseshoe, where you bet against what he loves. When his usefulness plays out, because too many people are following him and his antitrade profitability goes down, he will start making accurate predictions. Almost seems like a long Fx con (in addition to the obvious fiat one). 

Fri, 07/05/2013 - 07:51 | 3722994 spanish inquisition
spanish inquisition's picture

@achmachat - Excellent question. Everyone on the planet is the muppet. Who would you design the Stolper con above for? I don't care about Mrs. Wantanabe, I would be targeting Governments and Pensions. I wouldn't be suprised if the big trade would be designed as to trigger derivitives.

Fri, 07/05/2013 - 07:07 | 3722949 EclecticParrot
EclecticParrot's picture

Oh, yes indeed we know, people will find a way to grow

No matter what Goldman said

And gold is fine, for all we know, for all we know our gold will grow

That's what Goldman said (or did they?)

So won't you listen to what The Man said ?

He said:  blah blah blah, blah blah blah blah

Fri, 07/05/2013 - 07:41 | 3722957 SillySalesmanQu...
SillySalesmanQuestion's picture

Who's the leader of the club, that is only made for us!

M U P P E T - H O U S E!

Muppet House,(Goldman Sachs!), Muppet House,(Goldman Sachs!)

Forever let us slay you till you're broke! (broke! broke! broke!)

Come along and sing the song and join the massacre

M U P P E T - H O U S E!

 

Fri, 07/05/2013 - 07:25 | 3722964 Jones79
Jones79's picture

is there a ftse 100 etf traded in the usa?

Fri, 07/05/2013 - 07:50 | 3722992 pkrstr9
pkrstr9's picture

" with the sole purpose of boosting the UK "wealth effect" (and Goldman bonuses), does not escape us..." So is this good to short or not...? Sometimes I wish Tyler wouldn't be so cryptic.

Fri, 07/05/2013 - 08:00 | 3723006 Jones79
Jones79's picture

go short with "a stop loss below 5950 (or 6% lower). If Stolper is any guide, this should be the easiest 6% imaginable."

Fri, 07/05/2013 - 08:05 | 3723015 edb5s
edb5s's picture

Their long EUR/USD reco is about to get stopped out.  Stop was $1.28, now at $1.2891.

Fri, 07/05/2013 - 08:27 | 3723064 adonisdemilo
adonisdemilo's picture

If there is anybody out there who takes any action following Goldman  Sucks advice I can only assume that they have an endless supply of funds as well as being extremely stupid.

Fri, 07/05/2013 - 08:39 | 3723107 Poor Grogman
Poor Grogman's picture

"Wealth Effect". (previous definition, see "Inflation")

Definition:

A means of creating "Wealth" for banksters.

When a bankster creates currency for the Government to spend, the "wealth effect" is also often observed as an increase in unproductive work carried out by government personnel.

The "wealth effect" also paradoxically creates a reduction in other peoples "wealth" however as this happens steadily over time, it is ignored for simplicity.

Fri, 07/05/2013 - 08:59 | 3723197 EmileLargo
EmileLargo's picture

BWAHAHAHAHAHAHA

Fri, 07/05/2013 - 09:08 | 3723232 orangegeek
orangegeek's picture

Another Goldman Sachs bagholders report.

 

EURUSD bagholders did a fine job clearing GS existing longs and setting up future GS shorts.

 

Thanks bagholders.

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