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The Party Is Over: Goldman Sees "Limited Equity Upside" As "Bernanke Put" Is Replaced With "Yellen Call"
As we reported yesterday, in its forecast of 2016 global growth, Goldman expects growth next year to rise from 3.2% to 3.6%, driven entirely by three countries: Indonesia, China and India.
This reliance on DMs has a simple explanation: Goldman expects that after three years of disappointment, the development markets are "about to turn the corner: "2016 could be the year EM assets put in a bottom and start to find their feet... there is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s."
Actually no, there isn't, for one simple reason: China has 300%+ debt/GDP and now the entire world is watching. In fact, as Goldman itself admits China's growth is likely about 2% (if not more) below the official, and quite bogus, 7% number. Which means it is all up to India, the same India where the first rumblings against Modi's cabinet were heard loud and clear recently. In fact, in our modest opinion, if there is one country where the global DM slump will hit next, it is precisely the one country which is growing "faster" than China.
Furthermore, as Goldman itself notes, with oil prices set to continue dropping for at least the next 12 months, the hit to oil-exporting DMs will persist, and the reverse savings glut, aka Quantitative Tightening will continue to wreak havoc on capital flows and asset prices around the globe, all of which suggests that far from a rebound in 2016 GDP, we would expect global growth to drop below 3% for the first time since the financial crisis.
DM growth aside, it is more interesting what Goldman thinks will happen to the US. This is what it says: "We expect all DM economies to grow in 2016, but the US will be the first to grow GDP demand above potential."
Which brings us to the topic of this post: if the US economy does indeed grow "above potential" as Goldman expects, what does that mean for US capital markets? According to the firm, the shift in central bank posture in 2016 will be unprecedented, and instead of the "Bernanke Put" which pushed markets from 666 to over 2100 recently while the US economy kept deteriorating, will be replaced by the "Yellen Call."
Here's Goldman:
US equity upside: Limited by the ‘Yellen call’
We see limited upside to equities in 2016. Our US Portfolio Strategy team has a 2016 price target of 2,100 for the S&P 500, suggesting a very modest return of 5% (from current levels). Their framework assumes that 1) earnings per share will rise 10.1%, driven partly by ‘base effects’ in the energy sector and partly by improvements in global growth more generally, but that 2) the price-earnings multiple will fall approximately 5% (to 16.3x from 17.1x), as typically happens during rate-hike cycles. And, due to the delayed timing of rate hikes, the downside risk to price-earnings multiples is probably greater this year because the positive growth surprises that would normally accompany rate hikes are arguably behind us. Since our US GDP forecast envisions mild deceleration in 2016, equities and other risky assets will likely bear the brunt of rate hikes without the usual buffer of better growth data.
We also see a risk that the ‘Bernanke put’ will gradually be replaced by the ‘Yellen call’. The ‘Bernanke put’ captured the intuition that when the risks to growth, inflation and market sentiment are skewed to the downside and the Fed has an easing bias, monetary policy reacts aggressively to bad news. Now that these risks have receded, we expect the Fed will shift to an easing bias, implying that monetary policy will likely begin to react more aggressively to good news. The inflection point for this shift to an easing bias will arguably arrive in 2016, beyond which rallies in risk sentiment may be met by less accommodative monetary policy – the ‘Yellen call’.
While we agree with Goldman that multiple contraction is long overdue, we fail to see where earnings growth will come from, especially if, as Goldman also said recently, companies are now punished for buying back their own stock which in turn is the main driver pushing EPS to record highs in recent years. In fact, just like global GDP growth, we expect EPS to continue declining in the next year now that margins have peaked, if companies indeed are raising wages. Because with revenues set to drop for 4 consecutive quarters, there is simply not enough growth, either in the global economy or on corporate income statements, to justify being bullish about either.
Still, there is a modest chance Goldman is right, and that "bad news will be bad news" again. If that is the case, selling in November and going away for the next year may be a good idea because if there is anything the world will have over the next year, it is a lot of bad news.
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My ass.
http://beforeitsnews.com/conspiracy-theories/2015/11/all-of-your-wars-ar...
The FED isn't going to let this party end that easily. They will do everything possible to push the markets up. They have all of 2016 before there is an opportunity to elect a government that will end or reign in the FED. Keep in mind the ECB is paddling too. We may hit 20,000 albeit briefly. Trade accordingly.
"End or reign in...." are you new or something?!
There's a higher chance of real voter turnout, campaign finance reform, and a decent set of candidates from which to choose.
When short seller money is dead the market goes down and not a day before.
Article looks like it was written by a bad computer program, or a 6 YO kid. Fed will start EASING, and China/India 7% growth???
When goldman makes a serious call that rates are heading up -- WATCH OUT. It means they've already gone all in on that bet.
Quite.
These fuckwits STILL can not or will not comprehend that things go in CYCLES and that growth CANNOT continue indefinitely.
DavidC
You seem to not undersatand. Real growth or DJIA growth. Goldman doesn't give a shit about real growth.
Bingo. So long as people continue to accept bullshit paper/digits in exchange for their labor, NOTHING CHANGES.
The real killing begins when the producers of essential goods and services either no longer accept that bullhit paper or the y simply can no longer produce, regardless of how much paper you throw at them.
same as it ever was.
Man, these embargo breaches are getting sooner and sooner before the announcement.
Fuck Goldman.
All that Americans know what to do is,
Suck the bankers' cocks,
lick the bankers' assholes,
and place the bankers' dicks up their daughters' asses with their own hands.
And then get jealous because they didn't get cock themselves.
Americans are faggots.
Americans are sex toys for the bankers.
Fuck Americans (if you wanna catch AIDS).
Another alias account for queer boy in brussels???
Hang time for the Market preceeds the other kind of hang time...
when the fed says uemployment is 5%..and is basing policy on the real economy, which we all know is lies made up out of thin air by .gov ..they are saying we base policy on hard numbers (which are obviously fiction)..one is left with the fact these people are not only insane, but criminal.
a jew is never , let me say it again, never ever wrong. right mr yellin of " congress cannot audit my FED as she stated this week but ZH did not have such a thread?? why is that TD???
"Over...? Was it over when the Yellens bombed Pearl Harbor..."
Fuck you both, iron condor options bet.
atom, had to down vote that, iron condor options have broken (BK) many I have known who were sold them as safe bets..but you know that LOL
yep, sit back and watch..
Think Karen Bruton - Hope Investment LLC investment strategy. 56 days. 10-5% spread using 50% liquidity.
On a bad day, roll your losses into upcoming option buy.
covered calls are the only options i ever use. and even there you would have gotten killed in 08
No disrespect. I can show you covered calls and the instant bounce back. You fucking lose. Not a stock market gambler. Just watch this insane shit.
Geeze Beaver, when I grow up...I want to be a hedge fund manager raising capital thru a donation fund helping people.
Karen Bruton has copied the Clinton Foundation squeaky wheel. 3 some vigana sucess story in order.
Goldman predicts growth to rise from 3.2 % (which is complete BS anyway)to 3.6% !! My own analysis predicts that America will FUCKING disappear completely along with welfare - pensions AND superannuation ! All they have to do is keep poking the BEAR and the DRAGON !
Unless Goldman Sachs is funding ISIS, 3.6% is a fart in the wind.
Bullshit, stocks will continue to go up while everything else collapses around them...
Poor Japan. They've turned into #blacklivesmatter on page 9, next to want advertisers.
20Nov/Simon M Potter: Money markets and monetary policy implementation
Typo Alert: 2nd paragraph of Goldman grab: "Now that these risks have receded, we expect the Fed will shift to an easing bias" ??? This is the text equivient of the fat finger trade - 20 S&P points in the wrong direction.
Not fucking kidding. See above link.
"limited equity upside" That's fucking funny. Translation. QE grandma won't give us any more money so there goes stawks and everything tied to them, which, by the way, is fucking everything in this one trick pony show of an economy. Go figure.
Straight from the Marxist rag newspaper.
Obama seeks new money market mutual funds regulation - latimes
Just as the Bernanke put was an understated phenomenon, the Yellen call too is an understatement.
What this experiment in monetary easing has shown is that, Americans, at least some Americans, meaning between 3% and 5% of Americans, the ones with most of the finanical common sense and money, are turning out to be instinctively pretty financially savvy. And many of these Americans have avoided the temptation of the Bernanke put scheme of things, which in fact has not worked out so well for most "investors," simply because once you spend the money, whether on stocks, bonds, real estate, art work or gold, that expenditure becomes at risk, uh duh...
Hence we are curerently reading about negative rates, which is mostly just a discussion being made to try and scare people of means into spending. Even the negative rates discussion has failed to increase the money multiplier during this deflationary event, which has been made doubly much more worse by the inane Bernanke put, as we all have seen and much to our shared good humor about it.
Now this new Goldman theory is being floated about the Yellen call, a vast understatement of the tightening program which is about to be unleashed. The FED is not an agency that tries to move markets with whispers and taps. The FED has monetary sledge hammers. And the FED wields these sixteen-pound sledges with reckless abandon just to see if some results can be manufactured. And what the Yellen call, that is about to be unleashed, is really designed to do, is to pull the money out of the economy that the reckless Bernanke put put into the much more worsened economy. The FED is looking for results. and Yellen is not simply going to put her toe in the water to test how cool it might be. She's going to pull the fucking plug, FED style, BIG TIME.
Doesn't anyone remember what Volker did? Think Paul Volker, because Paul Volker was the last really successful FED Chairman. Volker's sledge hammering hit home!
In other words, what Yellen is going to do is crash the whole fucking thing in one rapid deflationary move that will pull the funny money out of every marketplace worldwide. It will be a rapid move designed to append the long term delfationary damage that has been compounding for eight years. And the evaporation of all the funny money will be just as extreme as Bernanke's trillions pumped into the marketplace to keep the TBTF banks, insurance companies, whole industries, commodity futures and even countries afloat when their bottom lines all said they should sink like a stone.
So, hold on to your fucking hat. And go long cash, or say goodbye to your misinformed expected returns from your idiot investments, smartass, because nobody is going to beat the fucking FED in the rush toward the exits.
give it up : Bravo. but think of the children...don't think mr yellen has the balls for what you write. the banksters for one would never let her.
Give it up I was thinking exactly the same thing. Yellen so far has taken baby sets to deleverage, sold a few assets here and there. She knows this will end in hyperinflation eventually hitting Main Street and the franchise is at risk.
She is in franchise saving mode. Last time the Fed was in this position was…Volker days.
Bravo.
I down voted give it up. Totally a misunderstanding of history.
Bernanke and Volcker were in CRISIS MODE. Where is the crisis to unwind now, at this moment?
If she slams on the brakes the banks have another major loan loss problem, just like in 2008. Which was the reason for Bernanke's nuclear printer. Why intentionally do that again?
Don't overthink this.
We have seen the results of a "let the majority eat cake" monetary experiment before. This time will be no different.
Genius banker person,
Why would the Fed crash the stock market?
And by the same token, price oil in the teens?
Make enemies of both the Saudis and the Russians?
Besides,
Who's going to buy more dollars just because you get .50% interest?
But,
yeah,
you bankers are that crazy.
So GO FOR IT dogs.
Enough barking.
Bite now.
Bite your own ass.
"Bring it on."
Fun stuff.
Yellen Call? The Wilhelm Scream more like.
For fucks sake GS is the Fed!
1 word: delusional.
Why would I care about what GS says?
Just bet the opposite. All you need to know about Goldman.
I don't think Yellen will make it as a "Call Girl"....
Do we still believe these criminals?