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Goldman Goes Full Retard: Buy Stocks Because Hedge Funds Suck; Also Chase Momentum And Beta
It seems like it was only yesterday when Goldman was predicting either two-thirds chance of a 10% correction in stocks, said that the S&P is either 30% or 45% overvalued relative to its historical value, or warned about a market slide when it downgraded the S&P500 "to neutral over 3 months as a sell-off in bonds could lead to a temporary sell-off in equities." Alas, that was the old Goldman: the one which still considered the impact of fundamentals in a centrally-planned world. The new one is far more pragmatic for the New Normal times, and overnight David Kostin, who has consistently fluctuated on either his year end S&P500 price target in 2014, or the justification for getting there (first higher bonds yields, then lower), came out with his latest thesis why now is the time to own stocks. Naturally, his catalysts have nothing to do with actual fundamentals, and instead all focus on the three only relevant metrics of the new normal: beta, momentum and career risk, which can be summarizes as follows: buy stocks because Hedge Funds suck.
Incidentally, it's not that hedge funds suck, it's that they are hedged and have short positions, which in a market that no longer is allowed to decline crush their P&L, which just happens to be the reason why over two years ago we said that the best strategy in this broken, manipulated market is to be long the most shorted stocks to take advantage of hedge fund pain.
Finally, even Goldman admits it, although not in those words. Here is how Kostin frames it:
Most mutual fund and hedge fund managers have struggled in 2014. We believe investors will be compelled to add long exposure to existing positions in an attempt to boost returns before year-end. Guided by historical 4Q patterns following weak fund performance, we highlight 15 Buy-rated S&P 500 stocks that should benefit from a combination of beta, momentum, and fund popularity. Stocks include DAL, HAL, and CRM.
And some more detail:
Many fund managers are entering the home stretch of 2014 with just a few months to make up for weak performance so far this year. As they return from the beach or sightseeing and get back to work, nearly 80% of large-cap mutual fund managers will be forced to reevaluate their portfolios or embrace the likelihood of drafting very disappointing year-end letters.
Only 23% of large-cap core mutual funds have outperformed the S&P 500 benchmark YTD, rivaling their worst performance in the past decade. This figure has averaged 37% on an annual basis since 2003, with only 2006, 2010 and 2011 equal to or below the current 23% figure. Large-cap growth and value managers fare even worse vs. their respective Russell 1000 style benchmarks, with less than 20% of each universe outperforming. Smallcap funds are the exception, with 62% of core funds beating the Russell 2000 YTD.
Hedge funds have also struggled despite strong returns of the most popular long positions. The average hedge fund has returned just 2% YTD, according to HFR, compared with a 10% return for the S&P 500, which continues to reach new record highs. Choice of shorts and market timing are the clear sources of blame given that the most popular long positions continue to outperform. YTD our Hedge Fund VIP list (Bloomberg: GSTHHVIP) has returned 12%, outperforming the S&P 500 by 242 bp.
Historical 4Q returns in an environment of weak fund performance provide an investment template that matches with intuition. We compared overall index returns and the performance of individual stock characteristics based on mutual fund performance at the end of 3Q, using data since 1991. The connection between returns and hedge fund performance is less clear given their historical trend of diminishing absolute returns and that hedge funds operate without a benchmark, but the general performance trends and intuition behind those trends that we observe in environments of poor mutual fund returns apply in regimes of poor hedge fund performance as well.
The S&P 500 should continue to rise in 4Q as funds are compelled to add exposure in an attempt to boost returns before year-end. Since 1991, the nine times when fewer than 40% of large-cap core mutual funds were beating the S&P 500 at the end of 3Q, the index has averaged a 4Q return nearly 200 bp higher than in times when more funds were outperforming. We expect the S&P 500 will return 2% by year-end, rising to 2050. In addition to the supply/demand dynamics from underperforming funds, the environment of continuing above-trend US GDP growth, strong corporate earnings, and stillaccommodative Fed policy should support a continuing "grind higher" in US equities.
For those confused: no, you read that right. The latest "justification" to buy stocks is because, drumroll, hedge funds suck! One wonders if the same logic could have been applied in reverse: if hedge funds had a great year would Goldman see that as a catalyst to sell everything? Don't make us laugh.
So how does one trade an idiotic market in which Fear Of Missing Out (on one's Christmas bonus) is the only "catalyst"?
For stock-pickers, we highlight three strategies with historical precedent that should outperform into year-end:
- Stocks with high beta should outperform as the S&P 500 rises modestly in 4Q. In particular, our Dual Beta basket (Bloomberg: GSTHBETA) consists of 50 stocks on a sectorneutral basis with the highest combined sensitivity to the S&P 500 and US economy.
- High price momentum stocks that have posted the strongest returns YTD will likely continue to outperform laggards as investors reallocate positioning in an attempt to ride "what's working" into year-end.
- The most popular stocks should benefit as funds add incremental length to existing positions they already own and which are already outperforming in 2014. Our Hedge Fund VIP list (GSTHHVIP) and Mutual Fund Overweight list (GSTHMFOW) each identify the 50 stocks most popular among fund managers
The punchline: "investors should buy the following 15 S&P 500 stocks, rated "Buy" by Goldman Sachs Equity Research analysts, which should benefit from a combination of beta, momentum, and popularity as funds attempt to remedy their weak YTD performance heading into late 2014."
Translation: come inside the Hedge Fund hotel Kalifornia: it's nice and warm inside, and superb returns are virtually assured.
And finally, since this is Goldman after all, here is how Kostin hedges just in case Goldman's few remaining clients (remember: with trading volumes beyond zombified the only way Goldman makes money now is through its prop desk, i.e., frontrunning what little flow orders it has) end up poorer, here is the hedge:
US equities are expensive on an absolute basis. Consider that the S&P 500 index trades at a forward P/E multiple of 16x – the highest multiple outside of the 1997-99 Tech bubble. The median S&P 500 stock trades at a forward P/E of 17x, above the average of the past decade (15.0x) and more than one standard deviation above the 35-year average of 13.1x.
Our year-end 2014 price target for the S&P 500 remains unchanged at 2050, reflecting a slim 2% expected return. We roll-forward our 3-month, 6-month, and 12-month price targets to 2050, 2075 (March 2015), and 2150 (September 2015). Our previously published multi-year forecasts through year-end 2018 remain unchanged.
Good luck muppets.
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Top ?
Topping?
Topless?
Hey, why not? She is topless until she's not....
Once again, the squid is taking muppets to the woodshed. Do the the opposite.
They also put a strong buy on Bombardier:
http://www.huffingtonpost.ca/2014/09/02/bombardier-downgraded-goldman-sa...
I'm not so sure, looking at how things are now I wouldn't be the least bit surprised to see S&P at 2500 by Xmas.
translation: the squid is selling HAL in size
Incidentally, it's not that hedge funds suck, it's that they are hedged and have short positions, which in a market that no longer is allowed to decline crush[s] their P&L,...
In other words, please be advised that the stock market is now a discounting mechanism for central planning.
Stawk markets now just a pure propaganda tool to control the masses.
Exactly, and the masses are to f'ing stupid to realize that a record Dow does nothing to improve their individual financial situation, unless they are about to retire with a pension fully invested in MF's.
GS doesn't care what happens since they're at the top of the bail out no matter what too big to fail list.....bastards......
the squid wants you to buy AND sell as OFTEN as possible
". . . the Squid wants to buy YOU and sell YOU as often as possible . . ."
That's what I first read your comment as. Thought it astute.
The cover up for collusion is confusion.
It's all one big show. You have to keep your eyes on both of the magician's hands.
Well, confusion and false flag events that they can say precipitated the collapse
Fade that $hit, Bitchez!
And what is the volume since the european close???
Listen man this is why I'm saying to you this one time and one time only. Get some Sensex. It's the only index to maximize the leverage that you covet.
Everyone knows that the Central Banks bought a ton of equity index position that they have NO intention of calling delivery for.
The shorties who held the counter position will never call because guess what algo matched longs & shorts on these trades? Guess....
This is the largest "Unclaimed Funds" pool in the world and hence: NO Downside MAN!
Tepper is a dope
Treasury yields will plumb new depths as any ECB QE (or variant) will provide fuel for carry trade. Weaker euro while USD strengthening (nearing 4 yr high as is with QE nearing end)
Them Tbond yields looking mighty tasty (compared to Bund)
2050 by year end LOL.. that will have top be revised wayy higher when this hits 2100 next month!
Goldman's new marketing slogan: "Give us what you have left -- We'll 'take' care of it."
An American, not US subject.
GS says buy buy buy = you should sell sell sell
Bailed out douchebags due to their bad bets advising over your shoulder to go all-in because the drinks are free as long as you're at the table.
In other news.....
The St. Louis Fed characterizes the low rate of money velocity as due to consumers "hoarding money".
Not, 'not spending', not 'conserving a precious resource', not 'savings', not 'being prudent for fear of losing job', not 'already extened to the max'.
No we consumers are HOARDING money.
http://finance.yahoo.com/news/fed-us-consumers-decided-hoard-191919676.html
'Hoarding cash' .... Lol that's a clear case of 'projection'....as if we're all just out here making bean bag chairs out of $100 bills! No, it's you central banksters who are sitting on your free cash, flipping it on bonds.
I suspect this is all foreplay in programming the masses to accept PM confiscation. Make everyone believe that the "problem" is due to people hoarding...
The market doesn't correct until retail is all in. Goldman is just promoting that situation.
One has to wonder who the audience is for this. I mean, who has money to "invest?"
It's all but desperate attempt to push growth. Wise folks know that all (except the ficticious market numbers) is in decline.
Global effort?
China’s State Media Join Brokerages Saying Buy Equitieshttp://www.bloomberg.com/news/2014-09-03/china-s-state-media-join-broker...
One can feel them all squirming...
I see that penny stock "lithium" has a huge move this week.
Someone in the boiler room with a sense of humor again?
They got the hedge fund part right
Look out Spain! The Vampire Squid just moved in to slum lord your projects.
How can this be a good deal? What's the catch?
http://www.globaldeflationnews.com/goldman-sachs-turns-slum-lord-vampire...