The Chart That's Keeping Goldman Up At Night

Tyler Durden's picture

The spread between "hard" and "soft", or survey and sentiment data, ever since the election has been extensively noted and discussed on this website in recent months (especially since over the past two months the soft data has rolled decisively over, while the Citi economic surprise index has crashed at the fastest pace on record). Which is why it will come as no surprise to readers that, as Goldman writes in a note looking at "Peak Sentiment", over the past six months, US “sentiment surveys” have outpaced both “activity surveys” and “hard data”. This rise in sentiment has accelerated in the post-election period, prompting many (Goldman included) to link the surge in sentiment with optimism about the new administration’s pro-growth policy. It has also spilled over into equity markets in general, and institutional and retail traders in particular.

That is a problem for one simple reason: as Goldman points out, based on empirical studies, "positive sentiment negatively correlates with future asset returns", or the more confident the market, the greater the subsequent drop. Additionally, Goldman notes that "the correlation between consumer sentiment and market sentiment suggests that the former might be useful as a contrarian market timing signal."

To shows this possibility, the following Exhibit plots year-ahead 12-month returns on the S&P 500 vs the Conference Board Consumer Confidence index. The plot suggests that for values of the CBCC below 50, median returns are significantly higher.  Conversely, when the CBCC moves much above its current level of 120, the expected median return begins to decline and eventually turns negative (the median return is 9.7% for the CBCC at 120, falling to 5.0% at 130 and to below zero above 136). In results not reported here, we have also explored this timing signal on other assets and found a similar pattern for high-yield credit spreads, but not for 10-year yields or the trade-weighted Dollar.

But forget broad consumer confidence. What is the result when focusing only on sentiment among market participants? Well, for one, a very nervous Goldman Sachs.

As the firm's credit strategist Charles Himmelberg explains, Goldman is worried because "more direct measures of market sentiment provide still more reason to worry that market sentiment may be over-extended."

To demonstrate this point, Goldman shows data from the Yale Stock Market Confidence Indices, plotted in the following exivit, which show that the “one-year-ahead confidence” of institutional investors has recently risen to its highest level on record, with a similar jump in the sentiment of retail investors. 

This index calculates the percentage of respondents reporting positive expected returns for the year ahead. In February of this year, this ratio for institutional investors had risen to an all-time high of 99%. In August of last year the fraction was at 73%. And for retail investors, the current  fraction is 88%, up from 67% in August.

Putting it all together, this is the one chart the keeps Goldman up at night.

And two bonus charts: this is who is most optimistic about the future - mostly Republicans and Trump supporters.

It's not just record investor confidence that is worrying Goldman.

In addition to “peak sentiment”, we see other reasons to think the risks from here are skewed to the downside. The most recent China PMIs weakened meaningfully, perhaps portending a slowing of growth as policy tightens. US reported growth in the first quarter was softer than expected, and the hard data remain only so-so. With the US labor force seemingly at full employment, the economy now runs the risk of overheating. Whether or not one is inclined to put much weight on the view that animal spirits have gotten too far ahead of reality, a lot now rides on the hard data.

And the best indicator for that will come tomorrow in the April payrolls report. As for whether's ongoing bearishness is correct, the big - and maybe only - wildcard is what the central planners at the Fed and other central banks will end up doing: they have an unpleasant habbit of crushing even the most confident negative forecasts.

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FreeShitter's picture

I didnt know the vampire squid stayed up at night.

peopledontwanttruth's picture

The only charts that keep them up is they realize someone has a nickel and how can they get it

TeethVillage88s's picture


1) Hookers & Blow,
2) Lobbying & Graft
3) Too much beer & Liquor
4) Loss of Wives & Family just like: Cops, Military, ...
5) Loss of Mores & Morales, Ethics & Ethos
6) Women that condemn Capitalism

Consuelo's picture



Chopsely agrees ---

Albertarocks's picture

Goldman isn't the slightest bit concerned about 'any' charts.  And what keeps them up at night is cocaine.

Zorba's idea's picture

Correct for $500 Alex...the squid has everything hedged everywhichway to sunday...they dont sweat this chart porn one bit

HooRAY4rSIDE's picture

The tricky thing about being 'MASTER OF THE UNIVERSE' is that you, indeed, need a maintainable universe to actually exist to be, in fact, master of...

TeethVillage88s's picture

you, indeed, need a marinade-able universe to actually exist to be, in fact, master of...

I guess you made a type-o

oops, well maybe I need to look back at the string. There was a master of the universe that posted here.

Well anyway... after reading Jim Rickards stuff from 2011 it seems that Globalism, the Take Over, was

- 1913
- 1944 Breton Woods
- 1960s where US Currency displaced GBP Great British Pound
- 1971 Break from Currency Stability, Conversion of USD to Gold
- 1971-1986 new US Fiat with no Debt Limits, War Spending, MIC Spending, US Hegemony
- 1979 Top of US Manufacturing Employment
- 1998 Completion of Bill Clinton Globalism, Legislation, Treaties, Trade Agreements, Deregulation, Control of Currency Markets, Control of All Currencies

TeethVillage88s's picture

Tell me how to short this stock, Ticker = KIM.

Kimco Realty Corporation is a self-administered real estate investment trust. The Company is engaged in the ownership, management, development and operation of open-air shopping centers, which are anchored generally by discount department stores, grocery stores or drugstores. As of December 31, 2016, the Company had interests in 525 shopping center properties, aggregating 85.4 million square feet of gross leasable area (GLA), located in 34 states, Puerto Rico and Canada. As of December 31, 2016, the Company had 384 other property interests, primarily through the Company's preferred equity investments and other real estate investments, totaling 6.3 million square feet of GLA. The Company's open-air shopping center properties had an average size of 162,618 square feet as of December 31, 2016. The Company's open-air shopping center properties had various national and regional companies as competitors, such as TJX Companies, The Home Depot, Ahold Delhaize, Albertsons and Ross Stores.

HooRAY4rSIDE's picture

"Tell me how to short this stock, Ticker = KIM."


Buy the quadruple ETF on MIK

TeethVillage88s's picture

I guess I gotta pay $79 investment advice and $79 transaction fee.

Wait let me look up MIK...

The Michaels Companies, Inc. (Michaels) is an arts and crafts specialty retailer in North America. The Company's segments include Michaels-U.S., Michaels-Canada, Aaron Brothers, Pat Catan's and Darice. As of January 28, 2017, the Company operated 1,223 Michaels retail stores in 49 states and Canada, with approximately 18,000 average square feet of selling space per store. It operated 109 Aaron Brothers stores in nine states, with approximately 5,500 average square feet of selling space and 35 Pat Catan's stores in five states, with approximately 32,000 average square feet of selling space, as of January 28, 2017. The Company also operates an international wholesale business under the Darice brand name. The Company's stores purchase custom frames, framing supplies and mats from its framing operation and subsidiary, Artistree, Inc. (Artistree), which consists of a manufacturing facility and four regional processing centers.

Looks like research

MIK Michaels Companie
PRTY Party City Holdco..
SPLY Socialplay USA Inc
HKFIQ Hancock Fabrics,
LFGR Leaf Group Ltd
BBW Build-A-Bear Work..
GKNT Geeknet Inc



watch for the collapse...

1) New Home Mortgages collapse
2) New Auto Inventories Soar
3) Existing Home Sales Collapse
4) then Institutions pull Funds out of ETF & Mutual Funds?
5) Stock Prices & ETF Prices Collapse

Insurrexion's picture

I'll fucking say it again.

None of these charts make one fucking bit of a difference in 21st Century twisted economics.

We do not have "markets" anymore.

Whoever sells that 20th Century idea is either wrong, devious, or just plain stupid.

We have "controlled transaction centers" that are manipulated to look like markets to steal money from retail idiots and their pension funds managers.

These bullshit graphs and correlations studies prove it.

Think about it.

chilller's picture

I like the way you think...

John Law Lives's picture

Since when does the Vampire Squid have to worry about anything.  They are kept awake by hookers and blow...


TeethVillage88s's picture

Now see when I say Hookers and Blow, the Christians, Hindis, Muhamadans, and Judeos all down vote me.

- ZH, Cliques are us

polo007's picture

The Investor Anxiety that the Market’s ‘Fear Gauge’ Is Missing

The CBOE Volatility Index, or VIX, remains low as investors shift protection strategies away from S&P 500 index options

By Gunjan Banerji

Updated May 4, 2017 10:16 a.m. ET

Volatility has nearly vanished in stocks, but investors wary about stocks are hedging in other ways.

Despite geopolitical uncertainties and a mixed outlook for the U.S. economy, the CBOE Volatility Index, called VIX, sank to a decade low on Monday, fueling questions of whether investors have grown complacent and if the absence of turbulence is sustainable.

The VIX is based on options prices on the S&P 500 index and tends to move in the opposite direction of the stocks gauge. Dubbed “the fear gauge”, it is a widely watched measure of investor anxiety but also has drawn scrutiny in recent years because of its persistently low levels.

The gauge’s low this week suggest investors are relying less on S&P 500 index options for protective insurance on their portfolios. Market watchers say investors are instead using alternative ways to manage risk in their portfolios, such as options strategies that generate income as well as options on U.S. government bonds.

“I don’t think the current levels in the VIX reflect the risks in the system,” said Josh Thimons, a portfolio manager at Pacific Investment Management Co.

He said some who have “become disenchanted with equity puts have looked to find other markets they think will offer more of a hedge.”

Call options on Treasurys is one way investors have sought protection recently, according to Mr. Thimons. Calls give investors the right to buy an asset at a later date, while puts give the right to sell.

Bullish call options on 10-year Treasury futures have seen a flurry of activity recently. The number of contracts linked to a 1.36% yield has increased by almost sixfold since mid-April, according to data from CME Group and QuikStrike. In comparison, the yield on the 10-year Treasury note was at 2.309% Wednesday, suggesting that investors are using the Treasury call options to protect themselves in case of a sharp market reversal. Bond prices rise when yields fall.

Meanwhile, income-generating strategies, which include covered calls, have become so popular in recent years that they’re actually keeping a lid on volatility itself, says Thomas Peterffy, the founder and chief executive of Interactive Brokers Group Inc., considered a pioneer of options trading.

Covered calls involve selling a bullish option, a call, on a stock that the investor already holds.

Lumberjack's picture

After viewing the noble prize winning work of John Titus, and having followed the bad behavior of bankers for years, I thought I would share the latest news with you....


Sally Yates make appearance at Colby Ciollege...


Now remember how Barclays got away with shit? It all connected...



TeethVillage88s's picture

The GEO Group, Inc. is a real estate investment trust (REIT). The Company specializes in the ownership, leasing and management of correctional, detention and re-entry facilities and the provision of community-based services and youth services in the United States, Australia, South Africa and the United Kingdom. (John Titus) (Proof of BestEvidence Video on Bernanke Lies)

SgtShaftoe's picture

If they're nervous now I wonder what they'll be when they have hoards of angry people smashing down their doors?

Tonterias's picture

New records soon