"Shadows Of March 2000" - Goldman On The Great Momo Crash Of 2014

Tyler Durden's picture

Behold the great momo basket which after being the source of so much joy for momentum chasers over the past year, has mutated into the source of so much sorrow over the past two weeks.


We have bad news for hedge funds who, like Hugh Hendry in December of last year, threw fundamentals and caution to the wind and, with great reservations, jumped into this momo bandwagon in which mere buying beget more buying until nobody knew why anyone bought in the first place... and then everything crashed, leading to the worst day for hedge funds in a decade: according to Goldman's David Kostin, whose job is to be a cheerleader for the intangible "wealth effect" leading to all too tangible Goldman bonuses: "The stock market will likely recover during the next few months... but not momentum stocks."

Behold the (not so) great Momo crash of 2014:


First the bad news: according to Goldman not only will the momo stocks not rebound to previous highs and resume their leadership role, but clients increasingly are wondering if this is the second coming of the dot com bubble burst.

Conversations we are having with clients: Momentum reversal and the shadow of 2000


Our client discussions this week focused on two topics: Momentum reversal and comparisons between today and March 2000. Two questions dominated: “When will the reversal end?” and “Will the sell-off in momentum stocks drive a market-wide price decline as occurred in 2000?”


During the past month, momentum has plunged by 7%, a 10th percentile ranking of all monthly momentum returns since 1980. We define “momentum” as the relative performance of the best vs. worst performing S&P 500 stocks during the prior 12 months. We identified 46 similar distinct 10th percentile “drawdowns” with an average one-month return of -8% and a cumulative -10% return during six months.


Historical experience suggests the S&P 500, but not momentum, will likely recover during the next few months. Following the drawdowns, S&P 500 posted a 6-month return averaging +5% and delivered a positive return 70% of the time. Momentum declined by a further 4% on average, and 60% of the time the stocks posted a negative return.


Analysis of historical trading patterns around momentum drawdowns shows: (a) roughly 70% of the reversal is behind us following a 7% unwind during the last month; (b) an additional 3% downside exists to the momentum reversal during the next three months if the current episode follows the average historical experience; (c) if the pattern followed the path of a 25th percentile event a further 7% momentum downside would occur, or about double the reversal that has taken place so far; and (d) whenever the drawdown ends, momentum typically does NOT resume leadership. The best performing stocks during the 12 months leading up to the start of the drawdown do not subsequently outperform (see Exhibit 2).

So what are the good news? Well, Goldman is bullish on the non-MOMO stocks, which it sees as rising during the next 6 months by, if history is any precedent, 5%. Of course, the market merely regaining its all time highs by October will hardly please the investor community which is used to 20%+ return year after year. After all someone must benefit from the Fed's ludicrous actions.

S&P 500 Index performance during 46 momentum reversals since 1980 suggests the broad market will likely rise steadily during the next six months by an average of 5%. Based on a current S&P 500 index level of 1815, a 5% rise would lift the index to just above 1900 which is our year-end 2014 forecast. A 25th percentile trajectory implies a flat equity market during the next six months while tracking at the 75th percentile would see S&P 500 climb by 15% to 2090 by the end of 3Q (see Exhibit 3).

But most interesting is Goldman's attempt to deny that this is the second coming of March 2000:

One historical momentum drawdown has come up repeatedly in recent conversations with clients: March 2000. The current sell-off in high growth and high valuation stocks, with a concentration in technology subsectors, has some similarities to the popping of the tech bubble in 2000.


Veteran investors will recall S&P 500 and tech-heavy Nasdaq peaked in March 2000. The indices eventually fell by 50% and 75%, respectively. It took the S&P 500 seven years to recover and establish a new high but Nasdaq still remains 25% below its all-time peak reached 14 years ago.


We believe the differences between 2000 and today are more important than the similarities and the recent momentum drawdown is unlikely to
precipitate a more extensive fall in share prices:

  • Recent returns are less dramatic. Although the trailing 12-month returns are similar (22% today versus 18% in 2000), the trailing 3-year and 5-year returns are much lower (51% vs. 107% and 161% vs. 227%, respectively).
  • Valuation is not nearly as stretched. S&P 500 currently trades at a forward P/E of 16x compared with 25x at the peak in 2000. The price/book ratio is 2.7x versus 6.Xx. The EV/sales is currently 1.8x compared with 2.7x in 2000.
  • More balanced market. The reason it is called the “Tech Bubble” is that 14% of the earnings of the S&P 500 came from Tech in 2000 but it accounted for 33% of the equity cap of the index. Today Tech contributes 19% of both earnings and market cap. Top five stocks in 2000 were 18% vs. 11% today.
  • Earnings growth expectations are far less aggressive. Bottom-up 2014 consensus EPS growth currently equals 9%, close to our top-down forecast of 8%. In 2000, consensus expected EPS growth equaled 17%.
  • Interest rates are dramatically lower. 3-month Treasury yields were 5.9% in 2000 vs. 0.05% today while ten-year yields were 6.0% vs. 2.7% today. The yield curve was inverted by 47 bp. Today the slope equals +229 bp.
  • Less new issuance. During 1Q 2000, 115 IPOs were completed for proceeds of $18 billion. In 1Q 2014, 63 completed deals raised $11 billion.

All great points, yet one thing is conspicuously missing and perhaps Goldman can clarify:

  • how much debt as a percentage of global GDP was held by the world's major central banks then and now, and
  • how much consolidated global leverage, including shadow banking in both the US and China, as well as how many hundreds of trillions of derivatives notional outstanding existed then... and now

Because one can just as easily make the case that as the global financial house of cards, teetering since the great financial crisis of 2008, and upright only thanks to the explicit "wealth effect" support of the final backstop - the world's money printers - any protracted downward move which implicitly crushes the faith in the monetary religion, and crushes the uber-leveraged smart money community, will make the "drawdown" in both momo and S&P500 stocks in March 2000 seem like a pleasant walk in the part compared to what may be coming.

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SmilinJoeFizzion's picture

I pity the idiot who went long nflx @ $450

TruthInSunshine's picture

Stocks are overvalued by 25% to 3,000% and consumers are now massive debt slaves "buying" a monthly payment on cars, houses, etc., while dealing with pernicious inflation and declining real wages by leveraging up on even more debt than in 2007 (where at least structural unemployment/underemployment/understatement wasn't yet a crisis).

Get ready for the real crash.

Oracle 911's picture

Especially when bubble makers are talking about over-valuation and crash. If these idiots can see it clearly it will be "really different this time" in other words worse.

max2205's picture

GS just wants everyone in a Etf (spy) so it'll hurt for the broad market sell off

asteroids's picture

Are you men or are you sheep to be led to the slaughter?  After all, it is Easter.

kliguy38's picture

Hugh Hendry just got double douche slapped....heheheh....when his masters get finished with him he'll be a muppet just like the rest of us beggin' on the street

willwork4food's picture

Sunshine, you're just being negative. Come over, have a beer and buy the rest of my Facebook I got @ $70.

Buckaroo Banzai's picture

Don't be a homo-- SELL the momo.

new game's picture

the system of fraud and injustice is much greater than the thickness of your wallet.

all these articles fail to openly acknowledge this reality. any entity doing good is in reality

an insider with an advantage you and i don't have. big difference since 09 is that due

dilligence doesn't work. therefore i quit after 30 yrs of investing...

an "investment" is now a high risk gamble. no thanks.

penty of trades have worked, but have you left the casino?

Silver Bug's picture

The next great crash is coming, perhaps it is just around the corner?



prains's picture

it's been a giant fucking 5 year corner my friend, the crash is coming but nobody's calling it.....much like guessing the time, you're guaranteed to right twice a day but it's still NOT a call

BolanosGhost's picture

I'm so glad you gave me an opportunity to re-post this.


It would be interesting to see an updated version of this paper since QE4 was not included in the analysis and has recently scaled back, though I doubt the conclusions would be materially different. Credit driven markets fall off when credit expansion and monetary base expansion slow pace (doesn't even have to contract). The kicker, of course, is that there is a lag period of a somewhat indeterminable period, though it appears to be around 6-9 months.

So long as the fed doesn't step in with expanded QE as it did in 2012 with QE4eva, then this very well may be the time to call it. The recent HFT fervor and GS machinations, among other things, seems to indicate this may be the case.

A giant fucking five year corner? Not at all, but the fed sure gave some good head fakes.

ATM's picture

Crash? Nope, we have this thing called a printer from which we can make stock prices go higher, make jobs magically appear from nowhere and create happiness and wealth from mere paper and ink.

Why would we ever have a crash? The genie is out of the bottle and it can be nothing but seashells and baloons from here on out.


lunaticfringe's picture

Fuck Sprott. Still waiting on his Dec 2014- 2100 gold call.

caShOnlY's picture

Fuck Sprott. Still waiting on his Dec 2014- 2100 gold call.

I always laugh when I see these comments.  Everyone calling out the Sprott's, Schiff's, Sinclair's, etc. as making bad calls humors me.  It is as if you believe the FED's money printing is really manna from heaven.  Or you believe another trillion dollar stimulas will kick start this structurally defaulted nation back to the future.  I remember hearing the phrase "housing bubble" back in early 2003 and reading that it will collapse in 3 months and bring devastation.  Well it would take over 5 years from that reading for the event to take place.  This insanity is connected globally by the U.S. dollar, so it will take time to come to a head.   There is no alternative currency right now and any G20 events even entertaining the idea of "change" is stalled off by the U.S. and it's cronies.   The IMF "rebalance of votes" should have already happened but again the U.S. continues to stall.

The real currency wars have started heating up with China's 20% devalue overnight in Feb.  Next up is Japan due for another dose of Abenomics.  Japan will fall first, it is a given.  Once one U.S. crony country fails the dominoes should start to fall.   Once a crony falls into the "hole of FIAT death", going forward there is no reason for them to support the another's FIAT illusion unless they want to "recapitalize" with that currency only to fail again in the future.

ATM's picture

Exactly. We know the what, we just do not know the when. And as I have posted on ZH many times, the ultimate unraveling could be much further in the future than most believe. Just look at the basket case that Japan is. It could have imploded years ago but money printing has unpredictable results and can stave off collapse for quite a long time...... until it can't.  

chinoslims's picture

"I pity the idiot who went long nflx @ $450"

The down arrow must be pressed by one of these idiots.

ATM's picture

Or by me who thinks the poor idiot got his just desserts.

Oh regional Indian's picture

Man I was right there. Company had filed their red herring...Suddenly March 10th, we are acquired for $3.5 BILLION, largest ever private stock deal....worthless shit for worthlesser crap.

Sank like a stone there-after....$300 to >$2

Interestingly enough, things went sideways and up for a bit and it was everyone, riding on Dubya's CEOship bump....it's after that everything went hard down. Feb 2001 onwards and in real terms has been downward since, with inflation eating away these paper gains.

Most of post March 2000 was a lot of loss offsetting and derivative trading and of course insider nirvana.


ToNYC's picture

Isn't that a good thing? The Force of Gravity is inverse squared to the postion of covering your masses. Counting fast ain't the only thing.

max2205's picture

5 year at 5%...I'd take that

Unknown Poster's picture

The Wall Street party depends on the fed's punchbowl. With no jobs, no investment what is there? No POMO, no momo.

SmilinJoeFizzion's picture

They can try that fancy reverse repo move they busted out earlier in the month. That bought them one green day. Cost them 120b

Unknown Poster's picture

There are distortions from the reverse repos, but lending out treasuries to sanitize money market fund's books didn't cost the fed 120b. The charade was unwound with fed paying interest, but not 120b.

yogibear's picture

You forgot Russia.  The US give Russia the middle finger. Now Russia can come down hard on Europe and crash their Federal Reserve's fiat game.

Russian math/financial  PhDs vs US Federal Reserve PhDs financial  game theory.


NeedleDickTheBugFucker's picture



YOU say "momentum", I say "beta" more often than not (or simply levered to WWIII when it comes MIC stocks).

MU - 1.84

FRX - 0.92

ACT - 0.34

FB - 1.77

HAR - 2.41

NFLX - 2.02

DAL - 0.98

FSLR - 2.12

TRIP - 1.49

WYNN - 1.57

ETFC - 2.39

GT - 2.10

BIIB - 1.34

ALXN - 0.51

PBI - 1.53

REGN - 0.81

PCLN - 1.59

GILD - 0.93

LUV - 0.91

LMT - 0.64

NOC - 0.95

MYL - 1.19

WDC - 1.56

RTN - 0.69

STZ - 1.16

GNW - 2.16

YHOO - 1.13


ADS - 1.12

CMG - 0.81

BSX - 1.05

TSN - 0.28

ADBE - 1.42

MHFI - 0.92

VRTX - (0.25)???

LNC - 2.39

BA - 1.05

TMO - 1.06

WAG - 1.20

STX - 3.15

MCK - 0.89

STJ - 1.51

HUM - 0.98

MCO - 1.57

BWA - 1.67

TWC - 0.86

BBY - 2.19

GD - 0.92

AKAM - 1.93

KORS - 1.88


I'm guessing that a great number of investors are either clueless or engage in willful blindness when it comes to "risk-adjusted returns".  It makes it all good for the fund managers.



disabledvet's picture

Hugh "I can't look myself in he mirror" Hendry goes all in on Absolute Zero.

As Uncle Joe Stalin famously said "how many divisions have you?"

I guess we're all gonna find out now.

Eeeee haw and yippee ki-aye.

q99x2's picture

The FED Globalists will fix it.

yogibear's picture

The Federal Reserve is out of their league in this one.

The US Fed, ECB and JCB banksters vs the BRICS.

new game's picture

BRICS are pushing back. sure dollars have retrenched, inflation left in the wake.

They are trading around the dollar. next will be treasury failures with buyer of last

resort monetizing debt just like weinmer. dollar demise is coming slow at first til...

polo007's picture


All Federal Reserve Banks - Total Assets, Eliminations from Consolidation

$4.4 trillion

Unknown Poster's picture

Another look: http://research.stlouisfed.org/fred2/graph/?g=x1N My apologies, i was trying to compare balance sheet to SP 500. My 'puter skills need work.

yogibear's picture

Better believe it's more than $4 trillion. 

The Emperor has no clothes. Fractional reserve accounting, mark to fantasy, can be a bitch when it's exposed.

Quinvarius's picture

When the market goes down, it takes everything with it.  There will be no difference between what GS thinks is a momo stock and the reality that they are all momo stocks.  The only question is intervention or no intervention. 

spinone's picture

Intervention.  If they can intervene they will.

eclectic syncretist's picture

Agreed.  A lot of it comes down to how extended or overextended the participants are.  Goldman is only doing what it always does here, talking it's book.  It's acknowledging it's aware of the risks, while providing selective info backed reasons to ignore them.

Bernoulli's picture

"...Historical experience suggests the S&P 500, but not momentum, will likely recover during the next few months..."

"...Analysis of historical trading patterns around momentum drawdowns shows..."

That's bullshit. Who gives a damn about "historical trading patterns"?

There must be like fivehundredbillion different things influencing the markets nowadays and not a single one of the factors is comparable to anything in 2000 or 2008 (except stupid investor behaviour maybe). All of the factors combined are CERNTAINLY NOT THE SAME. It's not the same "investors"/bankers/politicians/company leadership, it's not the same economic situation it's not the same trading systems, not the same rules, it's not the same companies, the internet is different, the means of communication are different, the people's attention span is ever shorter and so on and so forth...

But still of course at one point this "market" is gonna crash like hell (maybe next week?). And much faster much more crazy than we could have ever imagined. And I'm looking forward to watching Goldman and CNBC explaining all of this in "historical context".


southerncomfort's picture

why does market have to crash. reset is now. now is result of last five years. if u drive a car, does it always crash? there's risk, yes. but u adjust accordingly to ur comfort level of risk. looking over globe, more people than 2000, 1929. wouldn't we need larger vehicle (market) to accommodate all billions of these people-consumers?-yes? so because globe requires fatter vehicle to service more people why is it required to crash? ...but it does.  not sayin it won't.  lol, what goes up...but this global QE messin' w/ where ground from up is now.  like new normal is investing on a rocking boat.  haha but it's ...wild. i dig wild. in moderation...hahaha

TruthInSunshine's picture

That's right; we could just as likely get a Japanese style tortuous slow bleed over a 15 year period, when the Nikkei hit a high of 40,000 in 1989 and then ripped many faces off on its way to the 14,000ish to 15,000ish recent levels (and as low as the 7000 level in 2010) - mind you, THAT IS IN NOMINAL, AND NOT REAL, INDEX LEVELS (so figure an approximate 90% LOSS when calculated in REAL terms over those 15 years).

HardlyZero's picture

But where are the savers, and retirees with all those savings to invest in US bonds ?  US is not Japan.  Rhetorical questions.

new game's picture

all comes back to the value of the dollar. that is the whole banana "republic" of investing. or petrodollar if you prefer.

if the brics prevail, dollar fucked-economic war with real bullets on the ground-cue ukraine.

Yen Cross's picture

  The great MOMO crash of "14. Good Lord we're doomed.

 Call me when this ponzi crashes 3-4 % "day after day" for 2 weeks!

LooseLee's picture

Their very analysis confirms that 'now' is much worse than 2000 and 2007. Gotta be able to 'read' what is being conveyed...

naughtius maximus's picture

What about the great crash of Feb 3rd 2014? Or the one from aug 19 2011? Or that one from July 2 2010? Don't those matter anymore? 

Bull dicks to the moon!