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The Four Questions Goldman's "Confused, Understandably Frustrated" Clients Are Asking
One would think that after last week's market rout, the worst in years, that Goldman clients would have just one question: why just a month after you, chief Goldman strategist David Kostin said to "Buy Stocks Because Hedge Funds Suck; Also Chase Momentum And Beta", are stocks crashing? No really: this is literally what Kostin said in the first days of September: "investors should buy stocks which should benefit from a combination of beta, momentum, and popularity as funds attempt to remedy their weak YTD performance heading into late 2014." Turns out frontrunning the world's most overpaid money losers wasn't such a great strategy after all. In any event, that is not what Goldman's clients are asking. Instead as David Kostin informs us in his weekly letter to Jim Hanson's beloved creations, "every client inquiry focused on the same four topics: global growth, FX, oil, and small-caps."
So while said clients figure out just what the right question is, here are the wrong ones, aka Goldman's damage control:
Policymakers focus on anemic growth in Europe and Japan while US economic and company fundamentals remain strong. Investors should focus on “American exceptionalism” and own stocks with high domestic sales. We forecast S&P 500 will rebound by 7% to reach our year-end target of 2050. Buybacks have been the major source of demand for US equities during the past four years with S&P 500 firms repurchasing more than $1.5 trillion of shares. Peak 3Q reporting season is the next three weeks. Halloween will be the end of the blackout period for most firms. In recent years, 25% of annual buybacks have occurred in November and December.
Conversations we are having with clients: Confusion over growth, FX, oil, and small-caps
"Whiplash” is how one veteran investor described this week’s market. S&P 500 fell 1.5% on Tuesday as the IMF’s newest World Economic Outlook discussed the weak prospects for global growth. Wednesday registered 2014’s best daily return (+1.8%) supported by the release of Fed minutes that noted US growth “might be slower than they expected if foreign economic growth came in weaker than anticipated”. The clear implication: Interest rates might be held lower for longer than market participants expected. This comfort was short-lived – S&P 500 sank 2% on Thursday and 1% on Friday.
Four topics dominated client discussions this week: (1) The uneven global economic outlook with the US expanding above-trend, China slowing, and Europe barely growing; (2) US dollar strength and a euro rapidly moving towards parity by 2017; (3) the bear market in crude oil with Brent plunging by more than 20% since June; and (4) the dismal returns for US small-cap stocks with the Russell 2000 index lagging by 13% YTD for the largest underperformance vs. the S&P 500 since the Tech bubble in 2000.
Investors are understandably frustrated: More than 85% of large-cap mutual funds have lagged their benchmarks YTD and the typical hedge fund has returned just 1% while S&P 500 has returned 5%. Although realized volatility surged to 15 in the past month, it has averaged just 10 since the start of the year. The dispersion of three-month stock returns stands at the 1st percentile compared with the past 30 years, and P/E multiple dispersion is near the lowest level in 30 years for the S&P 500 and within many sectors.
While policymakers voice concerns about the lack of growth in Europe and Japan, US economic and corporate fundamentals remain strong. Unemployment is at 5.9%, the ISM manufacturing and non-manufacturing indices are both solidly in the expansion phase at 56.6 and 58.6, respectively. S&P 500 margins stand at a record high of 9% and capex is growing by 8%.
As usual here are Goldman's trade recos for the current confused, frustrated environment... of which the Goldman prop desk with take the other side.
(1) Focus on “American economic exceptionalism”. The world lacks growth, but our economists forecast US GDP will accelerate to 3.2% in 2015, the fastest rate of expansion since 2005.
... re-read that sentence as many times as necessary until you pass out from laughter...
Meanwhile our economists expect Euro area growth of just 0.7% this year and 1% in 2015. US stocks with a high proportion of domestic sales have and should continue to benefit disproportionately relative to firms with a high share of foreign revenues. The performance YTD of US-facing firms (Bloomberg: <GSTHAINT>) versus stocks exposed to Europe (<GSTHWEUR>) totals 1055 bp (+7.5% vs. -3.1%), with 74% of the excess return coming since mid-year (780 bp).
(2) Focus on sectors that benefit from lower oil prices. Energy earnings closely follow oil price changes. Brent plunged 20% since June and Energy stocks fell by 11% while S&P 500 slipped only 1%. Without a rebound in crude prices, Energy equities will continue to lag. However, lower oil prices benefit non-energy sectors, particularly Consumer Staples and Discretionary, as input costs decline and personal consumption potentially rises. Other industries such as chemicals and airlines also experience reduced input costs. Investors should overweight Industrials and Consumer Discretionary.
(3) Stick with large-caps despite the siren call of small-cap US equities that have dramatically underperformed. A strengthening US dollar and positive US GDP growth often correspond with Russell 2000 outperformance. However, negative earnings revisions have actually increased small-cap valuations even as share prices have declined. The tight relationship between Russell 2000 relative performance and the slope of the US yield curve highlights the degree to which concerns over growth and Fed policy have biased investors toward the relative safety of large-caps (see Exhibit 4).
But, perhaps most important, gone are the days when Goldman could just fall back on the perpetual deus ex of the Fed's rising balance sheet for one simple reason: it no longer is. Instead, Kostin has found a new idol, the same one we revealed in May: behold the god of stock buybacks, who should make everything better:
Open market share repurchases are typically prohibited during the five weeks ahead of the earnings release date. Roughly 75% of S&P 500 firms will report 3Q results between Monday, October 13th and Friday, October 31st. We are now in a blackout period so companies have been precluded from conducting tactical buyback activity that has supported the equity market during sell-offs in the recent past. Roughly 8% of annual repurchases occurs in October compared with 14% in November and 10% in December. We expect a surge in buybacks starting in November which will serve as a tailwind for the stock market during the last eight weeks of the year.
Or... if companies suddenly find themselves unable to issue debt at preferential terms, and/or if the rating agencies suddenly realize that America's "Investment Grade" companies no longer are (recall the scariest chart in IBM's history), and realize that net corporate debt is the highest it has ever been and start serially downgrading IG companies into junk status, watch as Goldman's latest house of cards supporting idol, falls.
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We muppets know
our Creator's name was Henson
Just so everyone knows,
I always read ZH posts from the back foward and give my self one up for starters, just like I know these self centered crooks would do.
+1
compliments of QE-4
Goldman "clients",
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013...
Ah yes, a ZH classic.
+1
should've been a sheep
that was skinned alive..
After the repeated muppet-rapings, why does Goldman have clients at all? Is it more like Battered Wife Syndrome, or Stockholm Syndrome?
BMS™ Battered Muppet Syndrome
Maybe you misunderstand. Goldman clients do very well because they put their money in the trust of Goldman. They have acknowledged their slavery and dependence. The master takes care of them.
It is the people that have not submitted and who try to use Goldman's public statements who do poorly. Goldman seemingly takes advantage of these people ... which would then be a con game and a fraud.
Goldman's job is to make money for Goldman and muppets are merely fresh meat....
Hard to picture a more deserving crowd ?
... oh wait
on CNBC...
yesterday..
the money honeys were talking openly about QE-4
WTF is the matter with these people...
talk about welfare recipients...
B-b-but.. liquidity traps. Keynesian macro.. WE MUST HELP THE AVERAGE CITIZEN...
...to have no savings, no purchasing power and no future.
In fairness, having watched the Krugmeister, I do believe that he genuinely believes he is correct and isn't ruining lives by chasing the "Keynesian" QE dragon. That would just make him moronic. Not complicit in fraud.
Were they really ? that must be a strange TV channel. I hear people talking about it all the time; it's basically sell-side propaganda, like MarketWatch, if I understand it correctly; but they have a mass audience that likes to hear them bloviate about "QE-4" ? That's remarkable. The average viewer must have trouble tying their shoes in the morning.
The Four questions asked by Goldman's Clients?
1. Are you planning to fuck me?
2. Are you attempting to Fuck me?
3. Are you currently Fucking me?
4. Have you already Fucked me?
see where the confusion is coming from? Everybody knows who the fuckers are, they just arn't sure if they are the fuckee or not..
My wife ask me those same questions......weird.
Seems like you're totally fucked if you don't ask them the right questions. Or soon will be.
I'd be asking them what criteria you have to meet, to avoid getting screwed with most of their clients, and to consistently make money as one of their Most Preferred Clients.
Two of the criteria seem obvious: 1. Tribesman or NWO Zionist, 2. UHNW Individual, with > $100M net worth.
But then... if you have to ask, you're not in The Club, are you?
Why, yes, yes, yes and....yes.
As a Muppet I just need to know which bus I am supposed to jump under...
A man has gotta know his limitations".
"All is well"....can hardly wait for Lloyd or Jamie to become Treasury Sec!
There is no economic growth happening anywhere. That's exactly what one should expect from five years of coordinated developed world central economic planning levels of mal-investment and de-facto currency wars. This isn't rocket science - it's economics...
You can help end GS abuse. Sell all float scams, raise physical cash and buy gold. Exit equities completely and make GS and the Central banks it runs buy what they broke. Cash, ST UST and gold is the safest and surest way to preserve real wealth because the Fed goes insolvent if it loses value.
By the way, there's a reason GS and all TBTJ strategists always anchor on G3 currencies. China is really in control and all the G3 are screwed. US has biggest accumulated deficits and others have worse flows. But, China is handing our TBTJ crooks their ass.
Did you drop one of your suggestions regarding the vix or is that someone else
Everything is upside down from bullying the "market". VIX has been suppressed for a long time through abuse of "infinite" leverage and option selling (TBTF PD BB sell GLD puts and slam down to accumulate working physical for gold manipulation. They've done the reverse on all tightly concentrated stocks. I would stay away from VIX and focus on fundamentals. They always matter in the endgame.
<<< BTFD
<<< Run for the hills.
Is it about time ?
Probably time for a false flag attack of some kind for its distraction value...
http://olduvai.ca
Confusion? Not to worry, everything is contained; at least until it isn't.
http://olduvai.ca
I didn't know it was possible for a muppet to feel frustration.
Investors with the squid will get their "just reward" in due time. :)
Fuck GS!
Carmen Segarra may have some answers.
On a side note, let's hope she does not wait until the last minute to fill out her organ donor cards as she may be suicided in the near future.
Ebola, it's the new nailgun.
Can't remember the specifics, given GS makes so many calls, but the Tylers showed us one that said, essentially "sell in July, come back and re-buy". While the July mini-top was prescient, it's likely the re-buy call may have been in September, when markets pushed higher than their original sell point and near what now seems at least a minor, if not major, peak. Talk about muppet-slaying.
I'd have only one question as a client: "Mr. Blankfein -- Can I have the same algo program in my account your prop team used to produce less than 2 losing days per quarter?"
Perhaps Scottish twee pop band Camera Obscura sang it best:
Hey Lloyd, I'm ready to be heartbroken
'cause I can't see further than my own nose at this moment
"Conversations we are having with clients: Confusion over growth, FX, oil, and small-caps"
Why should the Goldman Muppets be confused? Sachs holders wanted.
Could this market be any easier. Fed is stopping, Market will fall. Fed starts back up (or other country i.e. Europe/china) and prints, market goes back up.
that's it. that simple.
Several months back, there were references to the growing pile of Treasuries showing up in Belgium I believe it was. Speculation that perhaps it was China, or ourselves, playing hide the debt. Has anyone heard any more on that story?
Convenient if prices fall just before buyback season.
It is entirely possible Dow will bounce back starting Tuesday after hitting the 200ma on Friday. Possible, but not certain, market has maybe gathered more downward momentum than Janet really wanted.
But thanks for the Goldman post, now I know what my (non-Goldman) broker would say, if I asked him. He's actually not a bad sort, as such things go.
Oh yeah, and this - the strengthening dollar actually is hurting US reported profits, as foreign component is devalued. So FX is actually a big question. If the dollar reversed, that would boost the PM prices in dollars, too, and if the dollar continues to strengthen that would continue the decline in PM prices. HOW is the dollar still so strong, haven't we done enough to weaken it, OMG.
O/T this one slipped past me.
Russia Deploying Tactical Nuclear Arms in Crimea | Washington Free Beacon
It amazes me how last week can be called a route. I mean 300-500 points in a market that's been flirting with the 17k handle, is trivial at best. It just goes to show how ridiculous this Ponzi has gotten.
Hang in there. New market highs when the fear based mind control of the Ebola temperature gun is taken away from the foreheads of the muppets and they rejoice in salvation
Question they should be asking Goldman Sack is, "Lloyd, you have nice jets and boats, but where are all the client yachts?"
Goldman looks out for Goldman only!
The only Master of the Universe is the central planning money printer.
Question #5. : Are there any exceptions to the "Burn in Hell for Eternity and a Day" clause?
As a formerJP Morgan client, I say to the Golem Ballsacks client(s), Do exatly the opposite of what they tell you to do.
I say this every year but I really don't get the fucking morons still with GS. We get almost biweekly stories about them doing something fishy or outright raping their clients and they are still with them! Right now, this minute, they are being sued by people all over the world, most notably the Libyan Sovereign Wealth Fund which lost 98% of its1.3 billion dollars when they were GS clients. That just can't happen by accident. It takes an enormous amount of time and effort to make a billion dollars disappear.
What the fuck happened to due diligence? How the hell can they still be operating? It's like the law and common sense don't have any influence when it comes to certain entities owned by certain creatures that causes the most misery in this world.