Despair, Hope, Growth, Optimism

Tyler Durden's picture

With a title like "Are we nearly there yet?: A macro roadmap from Hope to Growth", the "analysis" could only come from Goldman Sachs. Then again, one can see why 5 years of Fed balance sheet expansionist, central-planning, leading to record stock market highs and virtually no pick up in the economy, would be considered Hope for the 99%, even if the tiny balance of the population, such as Goldman's CEO, uses the "Hope" period to get in line for multi-million condos in Miami.

This period, which is now running on its fourth year in the US, is called "reality" by those who are the happy recipients of leverageable $2.5 trillion in excess reserves/deposits, which can then be used to circumvent all prop trading rules and ramp risk higher. And yes, 4 years of "Hope" would be enough to make even the most staunch defender of central-planning ask themselves just what is going on? It would, however, explain why virtually all the growth in the past several years has been on the back of multiple expansion, and as the "Despair, Hope, Growth, Optimism" chart below summarizes, the US economy better roll over into growth or very soon someone, somewhere may finally realize what we have been saying since 2009: the Fed has broken the business cycle.

The corollary - after the hope phase, the centrally-planned economy may skip growth and optimism and proceed straight to Despair...

But back to the report, where according to Goldman, we are still in the Hope phase, where we have been for the past 4 years, even though the average length of duration in this part of the cycle is traditionally 10 months. That's some serious hope going on.

We believe that the equity market is currently transitioning from a multiple expansion driven Hope phase, where the market pays for the anticipation of future improvements to a Growth phase, where these improvements materialize and earnings become the driver of returns at the index level.


Whereas the phases can be identified quite clearly when looking at long term histories they are much harder to identify in real time. Here we outline the signs we are seeing of this transition taking place and its investment implications.


Our market forecasts for the coming years are consistent with the transition from Hope to Growth. We forecast both 14% earnings growth and 14% price return from current levels for 2014. When we look at our longer term forecasts we expect earnings growth to outpace the price return for the market in both 2015 and 2016, consistent with our view that the current growth phase is likely to be substantially longer than the historical average of 33 months, due to the slow pace of economic recovery.


We also expect valuation to hold up better than what is typically the case in the Growth phase. We expect the valuation to be supported by still very high risk premia in equities in an environment where growth improves, yields are low and macro risks are likely to be lower than what we saw in 2011 and 2012. Indeed, we see upside risk that valuation could end up exceeding our forecasts given these factors and limited return opportunities in other asset classes. In the US we have seen the multiple expand in the last couple of years alongside growing earnings.

In other words, valuation currently is not supported by reality, but there is hope this will change soon. And if not, Goldman can just run this "analysis" again in 1 year, when the hope phase will be 1 year longer, and the S&P will be at 2100 or wherever the Fed's balance sheet is at that moment..

And to really cement it is a Goldman report, the following sentence slams it shut:

Assuming that we do move into the Growth phase, what would history suggest in terms of the macro environment and the performance of assets?

As an aside, if we don't move in the growth phase, that would be perfectly acceptable for Goldman: that's where the bulk of equity returns continue to be made.

And the full Goldman investment matrix:

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GetZeeGold's picture



Hope is a hell of a drug.

BandGap's picture

This is like a drug. It is out in the open, people see it, talk about it and then convince themselves that it fits into some sort of "normalcy" based on past history. Collective hypnotism.

I read somewhere that it could never be divulged that alien life exists because people would not be able to break out of the mindset that we are the decendents of Eden.

We are openly lied to, the data is set before us by those that rob us and we just assume it is anything but stealing/lying because no one would ever do that on this scale, out in the open.


falak pema's picture

If you could prove alien life exists then you'll have advanced humanity from out of its delusional state. 

"Unbelievable" would have a different meaning then, as would "lies".

Shad_ow's picture

But this times really is different, we have false hope. 

And even that is a lie.

RSloane's picture

What happens if, in a few years time, we have another recession as is so often a part of economic cycles? If people are still not working, or are underemployed, or are still wage suppressed, what kinds of "bold new initiatives" can we look forward to? Hopium is just not going to cut it.

Eeyores Enigma's picture

"Hope is a hell of a drug."

They need to put it in the water.

blindman's picture

OpEdNews Op Eds 12/9/2013 at 10:49:10
Shooting the Messenger
By Chris Hedges

..."We live in a state where those who commit crimes are the persecutors and those who expose them are the persecuted. This is the nature of all totalitarian states. Manning, Assange, Snowden and Hammond, whatever their differences, function as our prophets. They are the voices crying out in the wilderness. And they are the ones the state intends to martyr. Just as the differences between Jeremiah and Amos in the Hebrew Bible did not diminish their courage and their voices, the differences among Snowden, Manning, Assange and Hammond should not be permitted to diminish the vital importance of all their acts." c.h.

BandGap's picture

Because the state sets the status quo. Because the state supplies a living to many in the helpless masses. It is benevolent, it has a history of rightousness and it has a propaganda machine to perpetuate the lies.

All hell is going to break loose when a lot of people wake up all at once.

blindman's picture

and the state has a monopoly and hides behind it's authority,
or some people in it do, and it joins forces with another
financial monopoly to ...... rule the world at the expense of
the natives etc ....
a bankrupt world view of clowns with no vision! insane

yogibear's picture

The Fed's using the same accounting techniques as it's member banksters. Mark to fantasy.

It switches from buying 30% to buying 50% plus US debt until a loss in the confidence of the US dollar occurs.

The Fed's Zimbabwe economics. Game has been already decided, a game of more and more debt purchases while bluffing about cutting back (tapering).

Rubbish's picture

I Hope this is the Gold Surge.


Did you forget to DCA down here? Now would be a good time !

Professor Fate's picture

Despair, Hope, Growth, Optimism.  That's the Old Formula.  You left out the "Change".  New Formula:  Despair, Hope, Change, Despair, Despair, Despair.

Fate the Magnificent
"Push the Button, Max"

esum's picture

i love the WALL STREET SEE SAW..... both ends go up ..... 

muleskinner's picture

I know silver is an investment that is less than stellar as far as return is concerned.  Always good to have some silver and some gold.  it is just nice to have around.  If I could only find it where I last put it.   

Gold is up.  Silver is up.

Wait until Despair, Hope, Growth, and Optimism go from ludicrous speed to plaid.




Racer's picture

"Our market forecasts for the coming years are consistent with the transition from Hope to Growth"


Translation: We are going seriously short

orangegeek's picture

S&P500 weekly is an overlapping crawl up since March 2009


You can see the big dips - which of course were ended abruptly by central banks buying up anything that moved to send the markets higher - the most aggressive up move has been in the last few months - at the end of this trend.


This won't end pretty.

Shizzmoney's picture

I hope the system has a change soon, otherwise my optimism due to the despair of a systematic failure thanks to policies of growth won't see the light of day.


auntiesocial's picture

Why do you think they call it hope? whoa oh whoa oh