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"The Smart Money Is Selling, Not Buying" Goldman Warns With Valuations In The "99th Percentile"

Tyler Durden's picture




 

First it was Citi, then Deutsche Bank, now Goldman joins the chorus of all those warning that the market is now furiously overbought. What's worse, at this point the only buyers are the occasional mom and pop habitual gamblers who listen to the endless cheerleading on financial TV, and the companies themselves who are buying back their own stock thanks to desperate bond investors who don't even care to read the "use of proceeds" section in the bond prospectus, and are happy to fund management's retirement plans if it means at least one more year of managing other people's money.

And of course central banks, whose liquidity injections in 2015 -  seven years after the great financial crisis and years into the so-called recovery - are about to set a record in central planning intervention:

 

So just how overvalued is everything? This is what Goldman's chief strategist David Kostin has to say:

Stocks with attractive valuation are rare in the current environment of stretched share prices. The aggregate S&P 500 trades at 17.3x forward EPS and 10.2x EV/EBITDA. The only time during the past 40 years that the index traded at a higher multiple was during the 1997-2000 Tech Bubble. The median stock sports a P/E and EV/EBITDA of 18.0x and 11.0x, respectively. These valuations rank in the 99th percentile of both P/E and EV/EBITDA multiples since 1976.

As a reminder, even during the peak of the last bubble crisis, LBOs at 10x, 9x or even 8x were considered very aggressive.  Fast forward to today when half of the market has an EV/EBITDA of more than 11x!

Indicatively, the long-term EV/EBITDA average is just over 8x, so the entire market is about 2-3 turns of EBITDA overvalued. And there are those who say stocks are "cheap."

And since the smart money is, well, smart and knows that buying anything at 10x or 11x EBITDA usually ends up wiping out the equity tranche when generously levered courtesy of today's insane, broken, manipulated and centrally-planned market, it is not touching the market with a 10-foot pole. From Goldman:

The proverbial “smart money” is selling, not buying. Completed private equity sales through M&A and via follow-on offerings have both surged to record levels measured by both number of deals and by transaction value. A total of 350 follow-on sales by private equity firms were completed in 2013 and 2014, a 70% jump from the 210 transactions completed in 2011 and 2012.

For now, however, the music is playing. Why? Thanks to management teams, whose equity-linked incentives and compensation go up the higher their stocks goes, which is why companies are forecast to buyback a record $450 billion in stocks, and probably much more, in 2015.

The bottom line is simple: there is no longer any question if the market is in a bubble: it is, and in fact it is the biggest bubble in history. The only question is who starts the selling avalanche, and when?

 

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Sat, 02/21/2015 - 11:42 | 5811859 Soul Glow
Soul Glow's picture

The Fed is the only thing long the market, everyone else just scalps pennies.

Sat, 02/21/2015 - 12:00 | 5811893 flacon
flacon's picture

I've been reading the narative that the "smart money" has been selling since 2013... meanwhile the S&P is up huge since then. So is the "smart money" actually "smart"?

Sat, 02/21/2015 - 12:09 | 5811915 Pool Shark
Pool Shark's picture

 

 

Never listen to what GS says; watch what they do.

Don't be a Muppet; the time to sell will be when GS sells...

 

Sat, 02/21/2015 - 12:29 | 5811970 sun tzu
sun tzu's picture

If they were selling and buying long bonds, then they are smart

Sat, 02/21/2015 - 12:51 | 5812052 roadlust
roadlust's picture

Yeah, and if Goldman was really "selling," the market would be going down.  Period. 

The programs are still buying.  Like crazy.  And they will as long as Goldman can make money selling SPY options and pushing the market up on expiration day.

They're just warning people that they're not "responsible" when they start pushing it in the opposite direction. 

This is a zero sum game, that Goldman controls, and thus can't lose at.  They don't care which way the market goes, as long as they get to run the casino. 

Sat, 02/21/2015 - 13:13 | 5812117 KnuckleDragger-X
KnuckleDragger-X's picture

GS and the other biggies make their real money being middleman because no matter which way things go they get their cut. This is merely the act of steering the herd in the proper direction.

Sat, 02/21/2015 - 14:17 | 5812352 markettime
markettime's picture

Well since they don't allow selling anymore might as well go all in. 

Sat, 02/21/2015 - 14:17 | 5812353 markettime
markettime's picture

Well since they don't allow selling anymore might as well go all in. 

Sat, 02/21/2015 - 12:00 | 5811895 Richard Chesler
Richard Chesler's picture

Fuck Goldman Sachs thieves.

 

Sat, 02/21/2015 - 15:05 | 5812521 Max Damage
Max Damage's picture

But Goldman said Buy apple, Tesla, etc, etc. And well I bought them and now they tell me they sold to me. Bastards!!! Obama help me out here... I'm foreign, non white, broke and like wookies!!!

Sat, 02/21/2015 - 11:46 | 5811868 miker
miker's picture

I don't think there will be any avalanche except/unless there is some sort of horrific black swan event (e.g., nuclear bomb detonated).  Reason is this:  All the institutional money is staying put.  They know the Fed is backstopping hte market and they have nowhere else to go.  So they sit tight.  The Fed can and will backstop the market unless something really bad happens and everyone (and I mean everyone) starts pulling money.  Then the only thing they could do is stop the market (shut it down) but that would probably make things worse.  Depends on scenario.

Bottom line, whether we like it or not, the stock markets are being held up and will not be allowed to drop.

All that said, I agree that the upside is very limited.  The Fed knows this too.  They can't keep pushing it higher, so it probably is stuck in this range for a very long time.

I don't like this any better than the next guy/gal, but I'm afraid this is what we've ended up with.

Sat, 02/21/2015 - 11:57 | 5811890 i_call_you_my_base
i_call_you_my_base's picture

I mostly agree, but as a matter of currency wars, if they need a reason to weaken the dollar, they'll manufacture one. It could be a market correction, but I wouldn't expect it to be any more than 5-10%. Then QE4.

Sat, 02/21/2015 - 12:06 | 5811910 El Vaquero
El Vaquero's picture

With all of the margin debt, engineering a crash is risky business. 

Sat, 02/21/2015 - 12:14 | 5811931 i_call_you_my_base
i_call_you_my_base's picture

The fed could jawbone the market down by 10% without much effort. Not much engineering required. But I get your point.

Sat, 02/21/2015 - 12:25 | 5811955 El Vaquero
El Vaquero's picture

I still have yet to see a good answer on how far the market has to go down in a short period to start a cascade effect of margin calls.  I don't even know where to start looking for the data that would allow a person to draw a conclusion. 

Sat, 02/21/2015 - 12:21 | 5811942 Stanley Lord
Stanley Lord's picture

The majority thinks things will go sideways, not crash, only ZH readers are looking for a crash, what about equities lower 5%- 10% lower each year? Dying of a 1000 cuts, no crash just grind lower, and Black Swan is a silly concept to sell books.

Sat, 02/21/2015 - 14:01 | 5812300 Squid Viscous
Squid Viscous's picture

There are still some cheap stocks out there like CYBR, forward P/E of 260, growing at 25% per annum...

Sat, 02/21/2015 - 17:38 | 5813056 LooseLee
LooseLee's picture

You are a good SHEEP. See how easy it is for TPTB to brainwash? This person may, at one time, been a free-marketer. But after all the brainwashing from the PINKO FASCIST COMMIES, he/she has bowed down to them and now worship at the alter of the Fed. Be forewarned. Me and many like me will only consider you a weak puppet---incapable of critical thinking and a general human 'waste'. You will not be spared the carnage due all those who have destroyed this country. Either you are part of the SOLUTION or part of the PROBLEM.

Sat, 02/21/2015 - 17:49 | 5813081 BrosephStiglitz
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The upside isn't limited.  When capital flows turn from debt markets into stocks, the upside is quite significant.

Of course the issue is that this completely defies your typical stock market rally which is based on sensible valuations. Same reason why the USD is rising right now relative to other crap, there is just nowhere for the multi-billion dollar funds to go aside from debt, or stocks. 

I know I will get downvoted (probably heavily) for this, but you know, fuck it. Watch stocks keep tracing an upward path as the economy turns down, defying any kind of sensible valuations.  This current market is being driven by risk avoidance, for sure, but when you are a fund which is sat on such a hefty wad of assets, your hands are really tied as to which markets you can realistically move into.  It isn't the same as being your average joe with $50k in savings.

Eventually of course, the market will indeed crash.  This nonsense of magical stock valuations deviating from the underlying profitability of the companies simply will not be sustained long term.  I believe when it crashes it will crash -hard-, but until then expect to step into the financial twilight zone where up is down, left is right, and everything is rising relative to sov. debt (stocks included.)

Sat, 02/21/2015 - 11:52 | 5811877 Creepy A. Cracker
Creepy A. Cracker's picture

"The Smart Money Is Selling, Not Buying" And then the Fed pumps it back up...

<sigh...> No real markets left.

Maybe this is simply Goldman telling the Fed to put the printing presses in high gear and let 'em rip.

Sat, 02/21/2015 - 12:01 | 5811897 weburke
weburke's picture

these are the guys who would not give us a heads up to save us a dime. 

I bet companies are planning to take themselves private as much as possible, and live forever in the new tyranny without having to share what they fleece from the remaining welfare people, which will include most everybody over time.  The govts send out a few trillion a year to folks, then forgive their own debt, repeat forever.

Think most folks wont accept serfdom? helicopter money, drugs, alcohol and internet.......well heaven I suppose !    (not for me and you perhaps), but really.....https://www.youtube.com/watch?v=DyDjpGzdNE4

Sat, 02/21/2015 - 12:07 | 5811913 El Vaquero
El Vaquero's picture

All things come to an end, including (neo) imperial governments.

Sat, 02/21/2015 - 11:50 | 5811879 farmboy
farmboy's picture

First Citi now GS with a sell. I guess they are already short themselves.

Sat, 02/21/2015 - 12:01 | 5811896 Charlie M.
Charlie M.'s picture

YEah baby leverage/print/MOAr me through the fuckin roof Im lovin it.

Sat, 02/21/2015 - 12:03 | 5811903 Racer
Racer's picture

Hmmmm Goddam suckers saying sell?

 

 

Sat, 02/21/2015 - 12:05 | 5811908 ISEEIT
ISEEIT's picture

The information is appreciated Tyler('s).

What a clusterfuck though right? Goldman telling the truth? When/were/why/what /how.......

 

AU CONTRAIRE becomes the mo·dus op·e·ran·di...

 

Hopefully the survivors will make good use of what we've taught them.

Sat, 02/21/2015 - 17:53 | 5813133 BrosephStiglitz
BrosephStiglitz's picture

I don't believe they ARE telling the truth.  They are trying to get jittery investors to offload stocks and capitalise on the flow of capital from bonds => stocks.  Either for themselves, or for their clients. 

Sat, 02/21/2015 - 12:06 | 5811911 withglee
withglee's picture

The proverbial “smart money” is selling, not buying. Completed private equity sales through M&A and via follow-on offerings have both surged to record levels measured by both number of deals and by transaction value.

Have you ever noticed "smart sellers" is always equal to "dumb buyers" ... and "dumb sellers" is always equal to "smart buyers"?

Why do you suppose that is?

Sat, 02/21/2015 - 12:09 | 5811918 Sisyphus
Sisyphus's picture

Yes, the smart money may be selling and not buying; however, the Fed/ECB/BoJ money is buying and will keep buying until they own everything. Then, and only then, the FEMA camps open their doors to us.

Sat, 02/21/2015 - 12:09 | 5811920 Niall Of The Ni...
Niall Of The Nine Hostages's picture

In other words, Goldman is long equity in hope of central banks monetizing "investment-grade" stocks issued by well-connected firms for lack of government debt to buy.

Yields on stocks are related to those on competing assets. If the return on bonds is zero, no reason P/E ratios shouldn't stay high for a long time to come.

What are Goldman's clients supposed to invest in instead that will give them a good return? Ukrainian war bonds?

Sat, 02/21/2015 - 17:55 | 5813141 LooseLee
LooseLee's picture

Hard assets? Or Netflix? My guess is you're a Netflix kinda guy. Good luck fool.

Sat, 02/21/2015 - 12:11 | 5811921 dizzyfingers
dizzyfingers's picture

So what is anyone with "investments" suppoised to do, convert to cash and keep it under their mattress? Convert to gold? Yeah, right! Convert to silver? Yeah, where should they keep that? There are no real answers to the question "what should investors do".

Doing something just to take action usually turns out badly, compared to which "doing nothing" may be the rational answer. Taking bad advice from authors who may have ulterior motives is the worst choice.

Sat, 02/21/2015 - 17:58 | 5813160 LooseLee
LooseLee's picture

'Doin' Nothing' may lead you to psychological Freedom. Sadly, doing nothing financially will likely lead you to poverty...

Sat, 02/21/2015 - 12:10 | 5811923 asophocles
asophocles's picture

"Nothing left to buy in developed markets", you need to be buying Russian equities!

You're not truly an idiot until you're a Zero Hedge idiot.

Sat, 02/21/2015 - 12:20 | 5811941 El Vaquero
El Vaquero's picture

I was going to ask when you stopped fucking sheep, but it appears that you never stopped.  Fucking troll.

Sat, 02/21/2015 - 16:25 | 5812791 Winston Churchill
Winston Churchill's picture

Someone has to service the ugly ones.

Sat, 02/21/2015 - 13:35 | 5812196 indygo55
indygo55's picture

After 2 weeks and 5 days you are so outspoken. Is the governemt/banker pay pretty good? Or are you in it for the "benefits?"

Sat, 02/21/2015 - 12:12 | 5811926 Big Brother
Big Brother's picture

I've had much success doing the opposite of what GS says; so stay in the market it is.

Sat, 02/21/2015 - 12:19 | 5811938 asophocles
asophocles's picture

Here's the leader of Zero Hedge's market of choice, judo flipping compliant, docile men to the mat. 

For those unable to hear the audio, Vlad says to his opponent:  "Go down hard and your family will have a new dacha."

https://www.youtube.com/watch?v=2c3wzbtyikw

Sat, 02/21/2015 - 12:23 | 5811947 El Vaquero
El Vaquero's picture

This article has nothing to do with Russia.  Normally, OT stuff is fine here, but you're just a butthurt little troll. 

Sat, 02/21/2015 - 12:26 | 5811957 JLM
JLM's picture

Liked the first comment above that the only people left in the market are scalping pennies.  Just opened a trading account with Questrade and got 3 months unlimited free penny scalping privileges. Think I will try that!!

Sat, 02/21/2015 - 12:29 | 5811966 Raoul_Luke
Raoul_Luke's picture

I've been long stocks but always selling calls.  My last two holdings were called away from me last night.  Bring it on...

Sat, 02/21/2015 - 12:37 | 5812003 buzzsaw99
buzzsaw99's picture

so bullish

Sat, 02/21/2015 - 12:45 | 5812033 FreeShitter
FreeShitter's picture

GS way of asking for more qe. Don't worry GS it's coming.

Sat, 02/21/2015 - 12:55 | 5812050 venturen
venturen's picture

Are you kidding BTFAH....we got a trillion Euros coming to the party! The another trillion(quadrillion) Yen, then a trillion Chinese Yuan, the another trillion dollars, then another trillion Euros....on and on till it all sinks. Kenysianism is failing...EVERYONE knows it...but no one will admit it.

Sat, 02/21/2015 - 14:04 | 5812309 FreeShitter
FreeShitter's picture

Zactly. The ECB QE is set to arrive very soon for starts.

Sat, 02/21/2015 - 16:15 | 5812759 lotsoffun
lotsoffun's picture

it just goes around, 'hey buddy - japan, your turn, hey china, your turn, hey europe, your turn, hey england, your turn, oops, it's me yellen, i was going to raise rates, ok, sorry - here you go is 80 billion enough?

Sat, 02/21/2015 - 12:51 | 5812051 ms8173
ms8173's picture

I do not understand.....if smart "big" money is selling..... why are we creeping to all time highs??  That makes NO SENSE!!!!

Sat, 02/21/2015 - 12:56 | 5812061 El Vaquero
El Vaquero's picture

The market makes no sense because it's not a market anymore.  Maybe insiders are heading for the door en masse.  Maybe the uptick is going from one very small percent of "smart money" to a slightly larger small percent.  Maybe they know something that we don't.  Maybe they're just taking profits.

Sat, 02/21/2015 - 12:59 | 5812067 roadlust
roadlust's picture

Obviously almost no one is "selling." 

It will happen at some point in history, but it's not happening now.  "Smart or dumb," the big money is buying almost every day.  (For those who haven't noticed the last five years, or even yesterday.) 

Sat, 02/21/2015 - 13:13 | 5812116 ms8173
ms8173's picture

Exactly!!  WHile I've been reading these articles for 2 years now how we are overbought.   BS in my opinion until I see it happen. We can't even get a 10% correction in the last 3 years.....SMART or DUMB....is more like these articles anymore.

Sat, 02/21/2015 - 13:23 | 5812148 barry2001
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If you are into drones check out this site : http://pickyourdrone.com/

Sat, 02/21/2015 - 13:23 | 5812153 The.Harmless.Jew
The.Harmless.Jew's picture

 

 

Fucking Crash already!  

 

Had enough of this SPX to the moon, GOLD to the ground shit. 

Sat, 02/21/2015 - 13:55 | 5812278 Ban KKiller
Ban KKiller's picture

OK, here is the deal for those that might not get it. ZHers get it, I know. But...the average sheeple does not understand that we, the people, are dealing with criminals on almost all levels. From our local police, DA office, AG office, State Attorneys, Attorney Generals, etc., all are corrupted by the money flowing from corporations. So, our "elected"officials and the unelected bureaucrats (I mean that in the most derogatory sense, like fucking dogshit) are all doing the work of their masters, the corporations. Duh, eh? So what to do? Decentralizing anything you do is helpful. Own garden, own food source, own power source and buying used instead of new. Looks like many folks are following this path based on our "booming economy" of NON-GAAP EVERYTHING! 

Bush=Clinton=banana republic of corporate states. Anarchy is looking better everyday....

 

Goldman? At least we know the enemy. Magnetic powder released in their server farm? Or just send them some Lenovo computers. 

Sat, 02/21/2015 - 18:09 | 5813192 LooseLee
LooseLee's picture

Welcome the the revolution, Brother. We're on the same team...

Sat, 02/21/2015 - 15:20 | 5812555 I Write Code
I Write Code's picture

Well, they are this far right, the "growth" rates from 2008 to 2014 will not continue.

But they are this far wrong, nobody ever thought they would.

There is no imminent collapse unless the Fed runs out of ink, but their ink is all fiat so wtf.

Now, that's unless Goldman & Co decide they WANT A COLLAPSE and engineer one, wouldn't be hard at all.  Hmm?

Sat, 02/21/2015 - 16:43 | 5812848 The Shape
The Shape's picture

So they must know the Fed is going to print again.

The not raising rates was obvious.

Sat, 02/21/2015 - 19:31 | 5813422 Majic
Majic's picture

The world is simply monetizing debt...if one country does it you get Weimar or Zimbabwe...if all countries do it you call it a RECOVERY!...and the band plays on.

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