Goldman Slams Reports Of A "Great Rotation" From Bonds To Stocks As "Fake News"

Tyler Durden's picture

In addition to the "great rotation" taking place in investor mindsets, as the world - at least in theory - shifts away from monetary easing to fiscal stimulus facilitated by that other "great rotation" in the White House, a third such rotation is supposedly taking place in capital markets as investors dump bonds to buy stocks, i.e., a "great rotation" out of equities and into bonds, incidentally this is the 5th consecutive year when strategists have predicted such a trade is about to take place only to be soundly rejected. However, according to the latest analysts by Goldman's David Kostin who has shown a remarkable proclivity to using the jargon du jour, an imminent great rotation from stocks to bonds is not only not going to happen, but it is in fact, "fake news"

As he notes in his late Friday report, the political rotation occurring in Washington, D.C. will not be mirrored in financial portfolios: despite the sharp fall in bond values during the past six months and the prospect of further losses in 2017, Goldman expects minimal asset rotation away from debt and into equities for two reasons:

  • Many categories of investors are restricted from allocating assets away from bonds.
  • Investors such as pension funds and households that have latitude to shift assets have debt allocations that are currently at the lowest level in 30 years. Mutual funds may see a migration of assets from bonds to stocks, but the pace and magnitude of any rotation will be limited.

Here are the details behind Goldman's accusation:

Mirage of a great rotation from bonds to stocks

A great rotation is happening in Washington, D.C. as Donald J. Trump prepares to assume the Presidency. The dominant position of Republicans inside the Beltway has prompted investors to focus on prospective tax and regulatory reforms after years of partisan gridlock. During the campaign, the airwaves and social media were focused on “fake news” – misinformation, half-truths, and political spin.

In the realm of investing, an example of “fake news” is the claim by some market participants that a “great rotation” will take place from bonds to stocks. Despite a sharp rise in interest rates during the past six months and a drop in the market value of debt holdings, we expect minimal asset rotation away from debt and into equities during 2017.

Asset migration will not occur for two key reasons. First, funds must be sourced from one area before they can be re-invested in another. However, regulatory and policy restrictions limit the ability of many categories of investors to allocate assets away from bonds. Second, several investor categories have debt allocations that are currently at the lowest level in 30 years. Debt holdings of these investors may decline further, but a more likely outcome is that bond holdings and allocations remain unchanged and debt as a share of the portfolio falls only to the extent equities appreciate.

The Fed’s flow of funds analysis shows the US fixed income market totals $41 trillion encompassing US Treasuries, agencies, municipals, and corporate bonds (excluding loans). Foreign investors, financial institutions, the Federal Reserve, and insurance companies own more than 60% of the US debt market (see Exhibit 1). For context, the total US equity market totals $37 trillion (which includes $23 trillion in domestic public equity that is dominated by $19 trillion in S&P 500 equity cap).

Our credit strategists estimate that during 2H 2016 the market value of the Barclays US Aggregate Bond Index fell by $900 billion or 5% to $19 trillion from $20 trillion as interest rates rose by 94 bp to 2.4%.

Despite the plunge in debt values since mid-year, we believe asset migration away from bonds and into equities will be limited because many debt owners have restrictions on portfolio allocations. For example, the Fed owns $4.2 trillion of Treasury and agency debt, but no municipal or corporate bonds. No rotation will occur in the US central bank portfolio because it is not permitted to own equities. Similarly, insurance companies own $3.2 trillion of corporate bonds, roughly 70% of its debt portfolio, but risk-based capital guidelines impose a high cost to own equities and effectively deter any significant asset re-allocation out of bonds.

Investors with the ability to reallocate assets within their portfolios – such as households, pension funds, and mutual funds – own $13 trillion in bonds or roughly one-third of the $41 trillion domestic debt market.

Despite the sharp rise in interest rates during 2H 2016, mutual fund, pension fund, and household debt and equity demand largely followed the pattern of prior quarters. Mutual funds continued to sell equities and buy debt in 3Q 2016, which was consistent with the trend of equity mutual fund outflows and bond mutual fund inflows last year. Pension funds remained net sellers of US equities, following the pattern we have witnessed during the past seven years. Households is a residual for all ownership not otherwise classified and includes non-profits, endowments, and domestic hedge funds. Household debt and equity purchases sometimes swing sharply from one quarter to the next.

Our economists forecast the 10-year Treasury yield will rise to 3.0% by year-end 2017, which would further reduce the market value of debt holdings following a 100 bp rise in bond yields during 2H 2016. A 60 bp rise in bond yields to our year-end 2017 forecast would result in a $500 billion or 4% drop in the $13 trillion aggregate market value of debt holdings by mutual funds, pension funds, and households. If 10-year US Treasury yields rise by 100 bp to 3.4%, mutual funds, pension funds, and households would experience a $850 billion or 6% decline in the market value of their debt holdings.

Despite the potential for significant value destruction in bond holdings, we expect asset rotation will be limited. Debt accounts for 19% of household financial assets, close to the lowest level over the last 30 years. Pension fund allocation to debt is also close to the lowest level of the past 30 years, with Defined Benefit plans at 20% and Defined Contribution plans at 6% of total financial assets. We believe households and pension funds are unlikely to reallocate assets from debt to equity in the near-term (see Ex. 2-4).

Debt holdings by mutual funds accounts for 30% of total mutual fund assets, in line with the 5-year, 10-year, and 25-year averages. Mutual fund debt allocation peaked at 57% in 1991, but fell to a low of 18% at the height of the Tech bubble. Precedent exists for mutual fund debt allocation to decline from the current level and be a source of incremental demand for equities, but the pace and magnitude of any rotation will likely be limited.

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Stuck on Zero's picture

The "great rotation" is Thomas Jefferson rolling over in his grave.

knukles's picture

Quandary.  If the rotation is Fake News and some hold Goldman's research to be Fake News and Research, then is the Fake News Fake when Faked by the Faking Fakers?

Or would it be as the Donald might be re[ported to have said by the MSM, " 2 Wongs don't make a White", clearly encouraging better Chinese American relations.

https://www.youtube.com/watch?v=E_8IXx4tsus

ParkAveFlasher's picture

Goldman, almost as reliable a contrary indicator as Dennis Gartman.

Looks like bonds will be the means to muppetize.

wisehiney's picture

Be right and sit tight.

Get paid to wait.

TheVoicesInYourHead's picture

Goldman and Gartman are same person?

HokumYTrader's picture
HokumYTrader (not verified) TheVoicesInYourHead Jan 7, 2017 4:41 PM

Gartman is probably SCHLONGWAVE as well.

Greenspazm's picture

It's all that money on the sidelines.

The name is Bonds. James Bonds.

HokumYTrader's picture
HokumYTrader (not verified) Greenspazm Jan 7, 2017 4:39 PM

I prefer vodka martinis and babes on the frontline.

Hillarys Server's picture

If bonds crash, doesn't the amount that crashed just disappear and not rotate into anything?

That's what Harry Dent always says.

(when he's not talking about sunspot cycles or screaming his head off at Peter Schiff)

BetweenThe Coasts's picture

Bond market is much much bigger than stocks, commodities, bitcoin or realestate. The essence of effective panicing is doing so early. So, even if a small percentage of a huge market exits before the crash that is still a huge amount of money moving somewhere else like stocks, no matter what Mr. Dent says.

besnook's picture

it is too early for a confirmation of a bond bear. once the bear is confirmed(by inflation) the rotation will occur. at least that's the way it used to happen before peak manipulation.

Van G's picture

Goldman Sachs is sooo crooked

HokumYTrader's picture
HokumYTrader (not verified) Van G Jan 7, 2017 4:45 PM

Aren't the SCHLONGWAVE assholes former GS, go figure, once a crook always a crook

SCHLONGWAVE guy must have been too crooked for even GS, which says a lot.

****************************************************************************

Hello SCHLONGWAVE spam head.

Tell me did you nail it after the fact yesterday you fuckhead spammer

SchlongWave scam stupid fuck.

Today's asshole alias

Van G

Once again, the SchlongWave spammers refuse to buy advertising on ZH, preferring to violate the ZH Terms of Service, advertising via spam comments instead. SchlongWave signed up for a bunch of accounts at roughly same time. SchlongWave rotates through those accounts, posting spam comments (with URL hiding links, of course), then give themselves a small set of "thumbs ups," and "excellent analysis, thanks(!)," comments. All accounts are part of SchlongWave's dishonest comment-spam marketing plan.

The spam accounts, and spam comments certainly show how dishonest SchlongWave is. They must be desperate for money. Would anyone **really** use a company that uses dishonest spam comment advertising? No doubt SchlongWave has a few more accounts spamming ZH. Here are a few of them:

AliSONY
Babs.St.Louis
Billy G
Chi Juan
Dr.Carl
ErikE
FemDayTrader
Irvingm
John Beau
MexInvest
MikeM54
P Christmas Carole
RonnieM
Sonya B59
StevieTexie
Van G
wisetrader224

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) HokumYTrader Jan 7, 2017 11:22 PM

Thanks for again calling out the dishonest spam assholes, HokumYTrader.  They jumped right in with their 18 spam accounts to give themselves thumbs ups and you thumbs downs.

If I didn't know better I'd think that shepwave is intentionally trying to ruin whatever reputation that their business might have had with ZH users, spamming the CRAP out of ZH.  They must be dumb as bricks at SchlongWave.  No doubt it is reflected in their "analyses."

NEVER TRUST A COMPANY THAT HAS TO RESORT TO DISHONEST SPAM FOR ADVERTISING.  Right AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, Irvingm, John Beau, MexInvest, MikeM54, P Christmas Carole, RonnieM, Sonya B59, StevieTexie, Van G, and wisetrader224

 

Dr.Carl's picture

You make no sense. ShepWave has been around for 30 years. There are many people who discusses them. It is like discussing Cramer. Is every person who says the name Cramer a spammer?  Your failed liberal logic and ignorance are coming through. 

 

 

Plus ShepWave does not allow new subscribers at this time. And when they do they never allow liberals. So you are OUT. 

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Dr.Carl Jan 8, 2017 12:15 AM

I get it, dr.carl.  You're too stupid to realize that ZHers have caught on to your comment spam operation.  I feel sorry for you, spammer.  You are making your company, SchlongWave, look bad (have they ever looked good?).  That's all that you're doing but you are too stupid to understand.

Stuck on Zero's picture

When people sell their bonds they deposit the money in the bank. The banks buys bonds with the cash. No rotation.

Van G's picture

Further evidence why the ShepWave guys left Goldman Sachs in the 90s.   Too funny

 

Former analysts from Goldman Sachs 

 

Can't argue with their preciseness and proven track record.

 

https://t.co/LM81DZlPyF

HokumYTrader's picture
HokumYTrader (not verified) Van G Jan 7, 2017 4:34 PM

I can

Hello SCHLONGWAVE spam head.

Tell me did you nail it after the fact yesterday you fuckhead spammer

SchlongWave scam stupid fuck.

Today's asshole alias

Van G

Once again, the SchlongWave spammers refuse to buy advertising on ZH, preferring to violate the ZH Terms of Service, advertising via spam comments instead. SchlongWave signed up for a bunch of accounts at roughly same time. SchlongWave rotates through those accounts, posting spam comments (with URL hiding links, of course), then give themselves a small set of "thumbs ups," and "excellent analysis, thanks(!)," comments. All accounts are part of SchlongWave's dishonest comment-spam marketing plan.

The spam accounts, and spam comments certainly show how dishonest SchlongWave is. They must be desperate for money. Would anyone **really** use a company that uses dishonest spam comment advertising? No doubt SchlongWave has a few more accounts spamming ZH. Here are a few of them:

AliSONY
Babs.St.Louis
Billy G
Chi Juan
Dr.Carl
ErikE
FemDayTrader
Irvingm
John Beau
MexInvest
MikeM54
P Christmas Carole
RonnieM
Sonya B59
StevieTexie
Van G
wisetrader224

Van G's picture

Your comments prove your ignorance!

HokumYTrader's picture
HokumYTrader (not verified) Van G Jan 7, 2017 4:54 PM

Sure they do since everyone of the SCHLONGWAVE posts is eerily simular no matter which asshole alias you use.

It is amazing how 20 people, oops I mean aliases always post exactly the same thing:

For example:

"Can't argue with their preciseness and proven track record."

"Hmmmm intereting Their charts PROVE their correct past market calls."

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) HokumYTrader Jan 7, 2017 11:22 PM

Thanks for again calling out the dishonest spam assholes, HokumYTrader.  They jumped right in with their 18 spam accounts to give themselves thumbs ups and you thumbs downs.

If I didn't know better I'd think that shepwave is intentionally trying to ruin whatever reputation that their business might have had with ZH users, spamming the CRAP out of ZH.  They must be dumb as bricks at SchlongWave.  No doubt it is reflected in their "analyses."

NEVER TRUST A COMPANY THAT HAS TO RESORT TO DISHONEST SPAM FOR ADVERTISING.  Right AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, Irvingm, John Beau, MexInvest, MikeM54, P Christmas Carole, RonnieM, Sonya B59, StevieTexie, Van G, and wisetrader224
Van G's picture

Your comments prove your ignorance!

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Van G Jan 7, 2017 11:20 PM

Says the dishonest comment spammer.  LOL!

You guys at schlepwave are really that bad off where you have to resort to free comment spam for "advertising," annoying the hell out of the people you are trying to bring in?  Complete dumb shits. Getting the opposite of what you are trying to accomplish (similar to your picks, correct?).  Unless, of course, what SchlongWave really wants is a terrible reputation as an incessant spammer on ZH.  Then... GREAT JOB!

Van G's picture

Further evidence why the ShepWave guys left Goldman Sachs in the 90s.   Too funny

 

Former analysts from Goldman Sachs 

 

Can't argue with their preciseness and proven track record.

 

https://t.co/LM81DZlPyF

HokumYTrader's picture
HokumYTrader (not verified) Van G Jan 7, 2017 4:30 PM

Hello SCHLONGWAVE spam head.

Tell me did you nail it after the fact yesterday you fuckhead spammer

SchlongWave scam stupid fuck.

Today's asshole alias

Van G

Once again, the SchlongWave spammers refuse to buy advertising on ZH, preferring to violate the ZH Terms of Service, advertising via spam comments instead. SchlongWave signed up for a bunch of accounts at roughly same time. SchlongWave rotates through those accounts, posting spam comments (with URL hiding links, of course), then give themselves a small set of "thumbs ups," and "excellent analysis, thanks(!)," comments. All accounts are part of SchlongWave's dishonest comment-spam marketing plan.

The spam accounts, and spam comments certainly show how dishonest SchlongWave is. They must be desperate for money. Would anyone **really** use a company that uses dishonest spam comment advertising? No doubt SchlongWave has a few more accounts spamming ZH. Here are a few of them:

AliSONY
Babs.St.Louis
Billy G
Chi Juan
Dr.Carl
ErikE
FemDayTrader
Irvingm
John Beau
MexInvest
MikeM54
P Christmas Carole
RonnieM
Sonya B59
StevieTexie
Van G
wisetrader224

Irvingm's picture

Hmmmm intereting Their charts PROVE their correct past market calls. You give nonsense.

 

And you have missed a whole lot more of people on ZH who have been discussing shepwave, or spamming shepwave for at least the last couple of years. get on your job man . 

HokumYTrader's picture
HokumYTrader (not verified) Irvingm Jan 7, 2017 4:51 PM

SchlongWave scam stupid fuck.

Today's asshole alias

They are all out in force today

Once again, the SchlongWave spammers refuse to buy advertising on ZH, preferring to violate the ZH Terms of Service, advertising via spam comments instead. SchlongWave signed up for a bunch of accounts at roughly same time. SchlongWave rotates through those accounts, posting spam comments (with URL hiding links, of course), then give themselves a small set of "thumbs ups," and "excellent analysis, thanks(!)," comments. All accounts are part of SchlongWave's dishonest comment-spam marketing plan.

The spam accounts, and spam comments certainly show how dishonest SchlongWave is. They must be desperate for money. Would anyone **really** use a company that uses dishonest spam comment advertising? No doubt SchlongWave has a few more accounts spamming ZH. Here are a few of them:

AliSONY
Babs.St.Louis
Billy G
Chi Juan
Dr.Carl
ErikE
FemDayTrader
Irvingm
John Beau
MexInvest
MikeM54
P Christmas Carole
RonnieM
Sonya B59
StevieTexie
Van G
wisetrader224

HokumYTrader's picture
HokumYTrader (not verified) Irvingm Jan 7, 2017 6:06 PM

Really "intereting"

Give me their names, I will be happy to add them to the spammer list.

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) HokumYTrader Jan 8, 2017 12:06 AM

HokumYTrader , these three, verified by their spam comments for SchlongWave, are new spam accounts: MadhyaBharatx (member 1 week, 6 days), Mon T (member 2 weeks, 5 days), and Pinky and the Brain (member 2 weeks, 6 days)

HokumYTrader's picture
HokumYTrader (not verified) Jan 7, 2017 4:27 PM

I think they criss crossed which way the rotation is going several times in this post in some instances they said stocks to bonds and in others bonds to stocks

Irvingm's picture

You win the prize for the stupidest comments on ZH.  

HokumYTrader's picture
HokumYTrader (not verified) Irvingm Jan 7, 2017 4:50 PM

SchlongWave scam stupid fuck.

Today's asshole alias

Irritating M

Once again, the SchlongWave spammers refuse to buy advertising on ZH, preferring to violate the ZH Terms of Service, advertising via spam comments instead. SchlongWave signed up for a bunch of accounts at roughly same time. SchlongWave rotates through those accounts, posting spam comments (with URL hiding links, of course), then give themselves a small set of "thumbs ups," and "excellent analysis, thanks(!)," comments. All accounts are part of SchlongWave's dishonest comment-spam marketing plan.

The spam accounts, and spam comments certainly show how dishonest SchlongWave is. They must be desperate for money. Would anyone **really** use a company that uses dishonest spam comment advertising? No doubt SchlongWave has a few more accounts spamming ZH. Here are a few of them:

AliSONY
Babs.St.Louis
Billy G
Chi Juan
Dr.Carl
ErikE
FemDayTrader
Irvingm
John Beau
MexInvest
MikeM54
P Christmas Carole
RonnieM
Sonya B59
StevieTexie
Van G
wisetrader224

HokumYTrader's picture
HokumYTrader (not verified) Irvingm Jan 7, 2017 5:08 PM

Really, is it a free subscription to SCHLONGWAVE, cause that is what I want.

I don't think I can possibly beat this gem of comment wisdom:

"Hmmmm intereting Their charts PROVE their correct past market calls. "

RonnieM's picture
RonnieM (not verified) HokumYTrader Jan 7, 2017 5:40 PM

That was funny.

 

If you read the charts osted that YES they PROVE THAT THEIR MARKET CALLS ARE CORRECT

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) RonnieM Jan 8, 2017 12:52 AM

Thanks for again calling out the dishonest spam assholes, HokumYTrader.  They jumped right in with their 18 spam accounts to give themselves thumbs ups and you thumbs downs.

If I didn't know better I'd think that shepwave is intentionally trying to ruin whatever reputation that their business might have had with ZH users, spamming the CRAP out of ZH.  They must be dumb as brincks at SchlongWave.  No doubt it is reflected in their "analyses."

NEVER TRUST A COMPANY THAT HAS TO RESORT TO DISHONEST SPAM FOR ADVERTISING.  Right AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, Irvingm, John Beau, MexInvest, MikeM54, P Christmas Carole, RonnieM, Sonya B59, StevieTexie, Van G, and wisetrader224
wisehiney's picture

The only way to beat goldman is to chomp onto them as hard as you can and do not let them shake you loose.

The problem that there is no palatable place to chomp.

buzzsaw99's picture

goldman sachs sucks hitlery's snatch.

Rat King's picture

claiming there will be a rotation from bonds to stocks is not "fake news" but a hypothesis. Great marketing piece Goldman. 

Mon T's picture

It is just crap nonsense.  They are so clueless but they have the politicians in their palms and as their puppets. 

RonnieM's picture
RonnieM (not verified) Jan 7, 2017 5:48 PM

Hey HokumY I saw your question below. The charts do prove that their analysis is correct. You know it you did some research first your comments would not be so ignorant. Time to wipe that egg off if your face and do what is truly educational for the real traders in ZH.

 

Former analysts from Goldman Sachs 

 

Can't argue with their preciseness and proven track record.

 

https://t.co/LM81DZlPyF

HokumYTrader's picture
HokumYTrader (not verified) RonnieM Jan 7, 2017 6:01 PM

It is amazing how 20 people, oops I mean aliases always post exactly the same thing:

For example:

"Can't argue with their preciseness and proven track record."

"Hmmmm intereting Their charts PROVE their correct past market calls."

KC Spike's picture

Hokuym is an idiot. Of course there are lot of people on here who know them. The real question is how could Hokum be a trader or investor and NOT know about the SWave?  He has probably lost everything by now. lol

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) KC Spike Jan 8, 2017 12:21 AM

KC Spike - member 2 weeks, 6 days - interestingly, the same time as most other SchlongWave spam accounts.

 

NEVER TRUST A COMPANY THAT HAS TO RESORT TO DISHONEST SPAM FOR ADVERTISING.

If I didn't know better I'd think that shepwave is intentionally trying to ruin whatever reputation that their business might have had with ZH users by brutally spamming the crap out of ZH.  They must be dumb as bricks at SchlongWave.  No doubt it is reflected in their "analyses."

When a company is so dishonest that they will flood web sites with spam comments as free "advertising" there is no need to click on a hidden link to go to their "charts."  Dishonest is the key word - and it is pervasive in this case.

NEVER TRUST A COMPANY THAT HAS TO RESORT TO DISHONEST SPAM FOR ADVERTISING.  Right AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, Irvingm, John Beau, KC Spike, MadhyaBharatx, MexInvest, MikeM54, Mon T, P Christmas Carole, Pinky and the Brain, RonnieM, Sonya B59, StevieTexie, Van G, and wisetrader224?

Pinky and the Brain's picture

He doesn't seem very intelligent. I mean, didn't even read their charts that they show for free. Obviously he is not a real trader or investor but is a spammer only with no interests but to put down others. too bad.  This is a good site except for people like him. 

Stan Your Man's picture

RonnieM you can't fix stupid. 

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Stan Your Man Jan 8, 2017 12:53 AM

Stan Your Man - member 2 weeks 4 days (same timeframe as most SchlongWave spammer accounts)

But you stupid, dishonest, commnet spam people sure spam the crap out of stupid.

RonnieM's picture
RonnieM (not verified) Jan 7, 2017 5:48 PM

Hey HokumY I saw your question below. The charts do prove that their analysis is correct. You know it you did some research first your comments would not be so ignorant. Time to wipe that egg off if your face and do what is truly educational for the real traders in ZH.

 

Former analysts from Goldman Sachs 

 

Can't argue with their preciseness and proven track record.

 

https://t.co/LM81DZlPyF

HokumYTrader's picture
HokumYTrader (not verified) RonnieM Jan 7, 2017 6:00 PM

It is amazing how 20 people, oops I mean aliases always post exactly the same thing:

For example:

"Can't argue with their preciseness and proven track record."

"Hmmmm intereting Their charts PROVE their correct past market calls."

RonnieM's picture
RonnieM (not verified) HokumYTrader Jan 7, 2017 6:10 PM

Lol

 

Yes I can copy and paste. Lol

 

Read the charts. They are rock solid PROOF that they call markets correctly.