Charting The Upcoming Recession, And Is Goldman Really Predicting A 2012 Year End S&P Range Of 700 - 900?

Tyler Durden's picture

In his weekly chart packet, Goldman's high frequency strategist, David Kostin, who now changes his year end S&P targets almost as frequently as the firm's economic team changes its GDP forecast, once again gets decidedly fatalistic (very much like Citigroup did yesterday, and Morgan Stanley last week), and is now openly contemplating downside cases to his EPS forecast. And with 2012 EPS numbers thrown around like $91 based on what is certainly an upcoming (but for now still hypothetical) margin contraction, $82 based on a 2% drop (almost guaranteed) in GDP Y/Y, and $75 based on historical earnings plunges in a recession, it may be time to listen up, because apply a traditional contractionary multiple of about 9-10x, and you have yourself a tidy little range of 700 - 910 on the S&P in about a year, absent yet another round of fiscal and/or monetary stimulus.

Kostin on the sensitivity between GDP and EPS:

Every 50 bp shift in 2012 GDP growth rate translates into about $2 per share in 2012 EPS. For example, if the US economy stalls and registers no growth in 2012, then our EPS forecast would equal $94, about $8 below our current estimate and 2% below 2011. If US GDP contracts by 2% on a year/year basis then 2012 EPS would fall to $82 reflecting a 14% decline from 2011.


Many investors are surprised that the EPS sensitivity to GDP growth is not more sizeable. One explanation is that a meaningful portion of aggregate earnings is only modestly linked to GDP growth. Utilities, Telecom Services, Consumer Staples and Health Care will account for nearly 30% of 2012 EPS. We recognize that federal and state government austerity next year will likely have a negative impact on earnings for certain sub-sectors of Health Care. Information Technology, Energy, and Materials generate a large portion of their sales outside the US, in some cases more than 50%, and pricing for commodities reflects global supply and demand. These sectors account for 36% of our 2012 S&P 500 EPS.

For future gloating's sake, where is where Wall Street currently sees 2012 GDP:

One thing we can guarantee: the consensus will not be reality 16 months from now.

How about the predictive ability of margin contraction?

Every 50 bp swing in margins equates to $5 per share in S&P 500 EPS (assuming sales growth and Financials and Utilities EPS estimates are unchanged). If margins fall by 140 bp from current 8.9% then S&P 500 EPS would fall to $91, $11 or 11% below our existing 2012 EPS forecast of $102.

Note the assumptions which will never be realized if the bottom falls out.

But the bigggest bear argument is not based on predicting the future (never Goldman's strong suit, unless the firm is actually defining it courtesy of its DC based tentacles), but based on the past:

Six profit cycles since 1974 show peak-to-trough declines in S&P 500 EPS averaged 22%. Most downturns ranged from 10% to 22% although the 2009 drop hit 58% led by a 157% collapse in Financials EPS. Sector level average peak-to-trough declines ranged from 8% growth (Consumer Staples) to 56% decline (Financials). If next year S&P 500 experiences a profit cycle decline similar in magnitude to prior contractions then earnings would fall by 22% to roughly $75 in 2012. Prior downturns typically occurred over 18 months.

End result: $75 EPS x 10 Multiple = 750 for the S&P.

That distant runging noise is every Wall Street CEO calling Ben Bernanke at the same time.

Full chartology:

kickstart 8.20

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Ray1968's picture

Stay physical. Period.

Gold, Silver, Lead.

achmachat's picture

I live in western europe. no lead here, except for hunters... 

but a good way to defend your fortress in a SHTF scenario would be with crossbows, especially if you know that "looters" will most probably not have firearms...

Sgt.Sausage's picture

Crossbows have their disadvantages. They have better accuracy, and more "muzzle" velocity, but when it comes to looters you'll want a regular old bow (I hear the UK has a history of making decent longbows <grin>). Looters generally come in crowds and mobs. You'll want to be able to put more rounds downrange at a faster rate than a crossbow allows. I can shoot 6 times more arrows with my recurve in a given time period than I can shoot bolts out of my crossbow. I'd ditch the crossbow and go with a regular old bow.

achmachat's picture

i see what you mean... but this isn't a zombie movie.

I kind of think that as soon as ONE of them has a bolt through their leg, they'd start moving on to the next house.

sun tzu's picture

You'll need to set up an organized neighborhood defense. Once they loot the rest of your neighbors, they will be back for you. You have to sleep, go to work, get food etc. You can't sit there staring out your window forever.

Bicycle Repairman's picture

You guys have been watching too many zombie movies.  Put the remote down, get off your couch and get to know your neighbors.

sun tzu's picture

It already happened in London and LA, you dope. It happened all across the US in the 1960's and 70's. I guess those were zombies looting the shops and neighborhoods. Perhaps you need to wake up out of your Jersey Shore and Kardashians stupor

cbxer55's picture

Gee! Who'd have imagined being in a stupor over Kim K's ass?  ;-)

As for Jersey Shore, I used to live there, so I'll gladly pass on the boob tube version.

Savyindallas's picture

You are wrong. 28 Days, 28 weeks later, Dawn of the dead, Shawn of the dead -I have them all. And I regularly watch them , as well as Mad Max, Escape from New York, the Postman, The complete terminator series and all other post apolcalypic movies. I have them all and regularly watch them from time to time. When it all collapses, I'll be ready. I'll be one of the leaders people come to for guidance. They may elect me Mayorv-hell, they may appoint me dictator. I'll know how to handle the mobs. Piece of cake. Bring on Armeggedon.

Sudden Debt's picture

I can make you a shotgun for 10 euro on materials.

50 euro if it needs to have a chamber with 6 rounds.


Randy Kruger's picture

Looters won't have firearms?  Your jurisdiction doesn't have armed law enforcement?

Not For Reuse's picture

ok, the whole "Guns & Ammo" thing is flat out absurd, and needs to be addressed. The only legitimate reason to stockpile "Guns & Ammo" is if you really love shooting, just for the pure fun of it, and you're afraid you won't be able to afford as many bullets in the future.

If you actually live somewhere where you end up needing an AK47 to defend yourself on a daily basis, dude, GTFO. Move. What kind of life is that? And if you're stockpiling civilian grade weaponry as a "trade," for the love of god, think about who your trading partners are going to be. Some broke ass street thug? Some other poor fuck who can't afford to GTFO of a war zone?

Now, if you're stockpiling extremely rare collectible antique firearms, sure, that makes sense. Your trading partners will be wealthy people living in a relatively serene environment. Same category as blue chip art, investment grade wine, etc. Or if you're stockpiling the sort of military grade technology that international arms dealers deal in - and I'm talking Iron Man type shit, not your shitty loss-leader assault rifles - your trading partners will be governments or, at the very least, wannabe governments with a sufficient level of power and resources backing them up.

But the idea of stockpiling "Guns & Ammo" as a source of value retention on par with gold is probably the single most idiotic meme that continues to be perpetuated in this forum

Prometheus418's picture

Not necessarily, but it depends on location.

Where I'm at, it won't be war-torn, as there just aren't enough local residents to keep up a battle for longer than a day or two, even if a battle starts.  I have enough fighting-grade ammo to ward off a home invasion or three, but the vast majority of my ammunition is steel game shot and deer hunting rounds.  There may come a time when fresh venison or a brace of rabbits might well be worth it's weight in gold, though I personally hope that is never the case.

It's the same "lead," but earmarked for a different potential use.  I see it as my source of edible meat, especially considering all the woodland in the area.  My shotgun is utilitarian, but my rifle is actually a very attractive and expensive piece of hardware, not a  shitty assault rifle (BTW, I agree with you on those things- though my outlook might be different if I lived in a large city, and was planning on pitched battle.)


Not For Reuse's picture

I can go along with this sentiment, but only insofar as it assumes a lifestyle preference of sourcing one's own meat indefinitely rather than relocating to a different community where the division of labor still extends to food production

sun tzu's picture

Tell that to the Koreans who survived the LA riots. Their guns and ammo saved their asses when the police were nowhere to be found. When your enemy has an AK-47, you need something just as powerful. There was no police presence for several days as roving gangs of thugs ruled the streets. The same thing happened in London. The same can happen anywhere. I have a couple of guns with about 400 rounds of ammo, as does everyone in my neighborhood. It's nothing strange. Why do planes have oxygen masks or cars have airbags?

Common sense will tell you who to trade with. In a SHTF scenario, what would a street thug have that I would want? Why would I even approach a street thug?

Not being able to defend your family and possessions is the most idiotic thing in the world.

Not For Reuse's picture

Tell me more about this car of yours that comes equipped with more than one airbag per passenger.

I'm saying the marginal return on "stockpiling" G&A, in your LA riots SHTF scenario, drops to about zero after your first gun. And even on your first gun, the random luck of who you encounter is far more significant to whether you live or die.

And as far as "common sense" telling you who to trade your extra G&A to, my point is that you WON'T find any good trading partners. In a SHTF scenario, the odds are pretty low that you'll run into Larry Page on the street wearing a fanny pack full of portable wealth to trade for your extra gun.

Your argument is that having an insurance policy makes you feel more comfortable than having no insurance at all, even if that insurance policy may or may not pay out. Fine. But that has nothing to do with whether G&A is on par with gold or anything else as an instrument for retaining surplus value

sun tzu's picture

Most cars have a front airbag and side curtain airbags. Maybe you haven't bought a car in the past few years. Besides, I don't know where I stated that cars have more than one airbag per passenger. Maybe you can point it out.

It depends on your definition of stockpiling. How about three guns and 1,000 rounds of ammo? Many homes in Montana have 10 guns and thousands of rounds. All you need to do is fire your weapon a few times and your enemy will move along to easier targets or run off like cowards.

I brought up the trade scenario in response to your ridiculous trade scenario where you walk up to a gang of street thugs to trade your guns for the food that they grew. LOL

If you have assets, you have to be able to protect them. Otherwise, what's the point of having those assets? In a scenario where gold and silver become money, then the world will be a dangerous place. The majority of people do not own gold and silver and they will be desperate. No more welfare checks will be going out to 45 million people. Do you think those people will peacefully sit at home and starve to death?

Not For Reuse's picture

If you have assets, why would you chose to keep them in a dangerous place instead of relocating them somewhere safer?

10 guns? Great. Many homes also have 10 board games and thousands of audio and video recordings laying around, which would be just as marginally valuable in a SHTF scenario. Perhaps even more so, since they provide entertainment without being consumed. I mean sure, if your passion is collecting guns, go ahead and buy as many as you afford. Some people were passionate about Beanie Babies and paid $1000's a pop. Doesn't mean they will retain any marginal value if society breaks down to the point where you're dodging bullets all day long.

I think we both agree you are unlikely to get much value by trading your G&A to street thugs while SHTF. My question is who else do you expect to be trading with, and for what sort of greater value than the same G&A would get you today?

kubrick007's picture

u dont get it, dumb hicks in america think that guns are like books

sun tzu's picture

Unlike the brilliant intellectual like you with your head stuck up your ass

RSloane's picture

If you want to call inner city dwellers 'dumb hicks', okay.

sun tzu's picture

Guns will always have value, whether SHTF or not. I have two. You can choose to call 911 if someone breaks into your home. I hope you live close to a police station. Society can break down for several days. Once again, look at the LA riots and London. Those who could not defend their assets lost it all. They depended on the police just as you do

stormsailor's picture

in a shtf scenario,  one might want to make scarecrows out of dead bodies that have tried home invasion or looting.


that would keep the crows out of your cornfield for sure.

WakeUpPeeeeeople's picture

When it comes to guns/ammo its always better to be safe than sorry. The same with keeping a few extra groceries around the house.

There were a lot of people in New Orleans/Katrina that wished they had a gun and a half dozen rds of ammo. They are dead now. Just how far off is this country from turning into a Katrina/MSY. I don't know but will be damn ready if it does. Crying and begging for one's life is not very pretty and embarrassing. 

Thomas's picture

A couple hundred pounds of rice--a massive commitment of $100-200--is a pretty good insurance policy against interruptions that need not be apocalyptic (although they will be so without any food at all). Do my colleagues do this when I suggest it? Probably not. When I get that snarky response, "Oh. I'll come to your house!", I tell them to bring their daughters. It out snarks them. (I like to raz them about what their teenagers are up to anyway. Easy to get the skin crawling.)

YC2's picture

When people buy gold and imagine mad max fantasy scenarios where they will have hypotheticaly bought farmland and learned to farm beforehand, I often wonder if they have thought of this.  A couple large bags of rice will allow them to keep their PMs for wealth preservation in such a scenario if the global supply chain breaks down for a few months.  I cant imagine stockpiling PMs only to run out into the street to sell them if things go awry.


Heck, if we are fantasizing, think of what a 30 lb bag of rice will go for in junk silver coins of kugerrands in such a scenario.  Its like 20 bucks at sams club right now.


Also, dont forget beans to cover all the essential proteins and add some fiber.

Not For Reuse's picture

that might work if you live in India.

But in the US, it would appear that anyone who actually owns any Krugs or junk silver is either fully prepared for doomsday already or would rather shoot you dead on the spot and starve than dig up their PVC pipes at such unfavorable terms.

Maybe if you rang the right doorbell, you might be able shake out a few pieces of silver plated flatware or a 10 karat gold wedding ring from some old crippled widow whose grandchildren were all dying of hunger

sun tzu's picture

What about a situation like the Weimar Republic where those who held paper currency lost everything? What about a situation like Zimbabwe where a loaf of bread cost $2 trillion? The US$ can collapse without the end of the world mad max scenario. There might be riots for days or weeks, but those who are prepared will come out on top.

Too bad there are so many pussies in America who expect or "hope" that everything will turn out fine and dandy and the government will protect them and take care of them. 

RSloane's picture

51% of all Americans are on some form of entitlement. Pussies, indeed.

cbxer55's picture

I recommend you read ONE SECOND AFTER, by  WIlliam R. Forstchen. It is about what becomes of the great United States after a rogue nation (North Korea, Iran?) sets off a nuclear device in outer space over central Kansas. The result is an EMP strike that completely obliterates the entire power grid of the whole U.S. for several years. No electricity, no running water, no flushing toilets, no trucks delivering supplies to your local market. Any food you have in a freezer will rot in days, and oh btw, your backup generator is not nuclear hardened, so it too will cease to function.

One second after, all vehicles cease to run, aircraft relying on fly-by-wire technology (basically all of the airliners) fall out of the sky when there controls cease to function. Anyone relying on some machine (pacemaker, dialysis, etc) will be dead in a matter of days. Same said for anyone relying on medication to keep them alive.

You think if a situation like this happened, it would be wise to fire up the barbecue and cook some red meat? Every hungry person within the range of smelling it will be breaking down your door. I honestly don't think one could have enough ammunition should something like this occur.

One Second After was cited on the floor of the Congress as a book all Americans should read. It has been discussed in the corridors of the pentagon as an accurate look at EMPs and their awesome ability to send the United States back in time 150 years.

Sure its far-fetched, but all it takes is one small nuclear missile over Kansas, and we are back in the cowboy days. It would not be pretty, that is for sure. Might want to obtain a copy of this book and give it a read.

Thomas's picture

Sounded great. Just ordered it audio on Amazon. Let's hope I am not too late and there's no power! :-)

cbxer55's picture

And need I say it? Spread the word. The more people are aware of this, and how easily it could be accomplished, the better. On that link I provided, on the left side, there are links to information on what EMP is, and how we as a nation can somewhat prepare for it should it ever come to pass.

Pretty good information, IMHO. Of course I hope it never happens, but we have a lot of enemies who would love to see this country paralyzed. All it takes is one. No visible explosion, no flash, no radiation, and everything we take for granted is dead. SCARY!

Not For Reuse's picture

I haven't read this book, but let's say everything happens exactly as you state above. The plan is to eat all the dead bodies that keep piling up outside your door? And you can't even cook the meat? Seems like a better plan would be to GTFO ASAP with whatever set of portable objects were most useful and value-dense

cbxer55's picture

You should really read the book. if not that, then read some of the links that are on the link I provided, lots of information there.

No the plan is not to eat the bodies that pile up outside your door. The question is, where the fuck are you going to go? In a situation as described, there will be no place that is any better than where you are. It'll be the same from the left coast to the right. In the book, lots of folks, millions actually, take to their feet witihin a week after it happened. Walking the highways looking for food and water. You cannot drink from streams as they are where folks are pooping and pissing, so where you gonna get water to feed your bodies need while walking in 100+ weather? Where you going to get food? Its all gone bad within a couple of days. And you think the wildlife population will last long with every Tom, Dick and Harry out hunting them? In the book they were hunted to near extinction within a few months.

Its a nightmare scenario, one that hopefully never occurs. But one rogue country, or movement, capable of launching a missile from a freighter in the Gulf of Mexico, and we're there.

Not For Reuse's picture

so the parameters are 1) there is no clean ground water 2) there is no edible wildlife 3) there is no way out. I don't understand how G&A become more valuable in this scenario. Who are you trading the extra G&A to, and for what in return? Sheer luck would be so influential in determining whether any one individual lives or dies, as to make all other variables statistically irrelevant. Might as well stockpile four-leaf clovers and rabbit's feet

AmazingLarry's picture

Thank you. Thought I was the only one. Some kids never grow up - instead of GI Joe, they have 19 guns they'll never use and a pile of bullets that makes their peen feel a little longer. Grow the fuck up and get real!


sun tzu's picture

You seem obsessed with other men's peens and guns. Maybe you need to grow the fuck up and get your head out of their asses. Why do you care what other people buy?

Downgraded's picture

"If there's one thing this last week has taught me, it's better to have a gun and not need it than to need a gun and not have it" ~Clarence Worley (movie script by Tarantino: "True Romance")

Case closed.

sun tzu's picture

Some pussies are afraid of guns, so they don't want anyone to be able to defend themselves

Randy Kruger's picture

Plus:  have a rural safehouse equipped and ready, don't blab to anyone about your preps or what you own, get rid of that Facebook account, be ready to dump your personal tracking device aka cell phone.  Maybe then you won't need to use the lead.

DosZap's picture

Ray 1968,@ 10:51,

Gold,Silver, LEAVE.

If it crashes as badly as they say, if you cannot leave,best have a place staked out FR away from the cities, and whatever it takes to survive.IMHO, anyone over the age of 55, is dead issues will kill us off,and if it gets that bad, I prefer to go home anyway.

The NEW paradigm coming will be for the young...................

Those that are pliable, and follow orders well......and do not remember the real America, that was.

Ray1968's picture

I agree that the young will be the only ones that will fare well. They don't have assets that will be destroyed. They have the best asset of all: time.

This is assuming that this is only a financial crisis and not a social/economic revolution where we go into collectivism and destroy the most basic of all human freedoms. I fear that we are headed down that road. My situation does not allow me to escape to Idaho on farmable land. I can only defend starting at my front curb. I will give them HELL.

sun tzu's picture

If it crashes as badly as they say

Who is "they"? Nobody knows how bad it will get - from a recession, to depression, to currency collapse and anarchy. All you can do is be prepared. You might die anyway, but at least you tried and it might save your family from starving or being murdered. There will always be pussies who will roll over and let their family be killed, so they won't be happy about you defending yours.

ben_bernanke's picture

A recession with the TED Spread at 0.30? Unheard of. The risk of recession is lower now than it was in May of 2010. The European "crisis" is a manufactured shake-out similar in market effect to the LTCM crisis of 1998 but with even less real risk to the financial system. Look at the Euro. If things were that bad, the Euro would not be trading flat. Absolutely NOTHING supports the bearish case in reality, unless a rumor is reality.

spiral_eyes's picture

lol bernanke i really hope you're being sarcastic. quit the (selective) technical analysis and look at the underlying fundamentals, the biflation, the food and fuel squeeze, the trade deficits, the death of western manufacturing, the systemic liquidity risks, and all the keynesian liquidity traps your namesake and his fellow mathematicians can't get out of.

china, bitchez 

RSloane's picture

I'm hoping he was being sarcastic.

rocker's picture

Deleveraging is the old new word. It is far from over. Now the S&P futures went under 1200 on Aug. 8 in the morning.

This is BEAR territory now.  Technicals confirm that we are in BEAR territoy.